How High Is Too High?
Markets can run, but not forever. When markets go on parabolic runs, it can pay to forecast where a pullback may occur. September corn
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PowerRating) has shot up in its biggest run since the contract’s inception, rallying over 40 cents since late June. Such gains are often more than a market can sustain and a pullback ensues to rectify an overbought situation.
Gauging where a pullback will occur is part art and part science. One method to estimate where likely resistance will occur is by using Fibonacci extensions, a method regularly and accurately employed by Carolyn Boroden. When key Fib ratios occur near each other —- clustering — resistance is likely.
Notice that corn sold off heavily today after coming to within cents of its 161.8% Fib extension of the May 2 high to June 25 low. Yesterday’s high was also very close to the 261.8% (another key Fib ratio) of the June 6 high to June 25 low.
It’s always best to utilize multiple tools in making technical analysis calculations. Corn had also made a measured move out of its tight head-and-shoulders bottom, having rallied more than twice the distance from the June 25 “head†low to the neckline. Basis September corn settled 10 lower at 224 1/4.
Several futures contracts also made moves out of pullback setups, both up and down.
Natural gas
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PowerRating) tumbled lower out of its Pullback Off Lows setup in an outside-day engulfing bar that generally indicates additional downside. Nat gas lost .0178 to 3.250.
October sugar
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PowerRating) triggered out of its Pullback Off Lows setup and closed .06 lower at 8.56.
August hogs
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PowerRating) triggered out of their Pullback Off Highs setup and closed .0875 higher at 68.675. Note that hogs left a tail yesterday as they tested down to their 20-day MA line and down toward their 38.2% retracement, an additional sign of possible gains for today.
September Japanese yen
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PowerRating) also triggered out of a four-day Pullback Off Lows setup. The yen had risen off lows over the past four days as traders swapped emerging market currencies for yen on fear over the deteriorating currency situation in Argentina — yen seemed a safer short-term bet in recent days.
But the Bank of Japan today declined to increase the money supply to kick-start the stagnant economy and a Japanese industrial output report from April was revised downward, highlighting the economy remains mired by recession. Japanese GDP for Q2 is forecast to have shrunk 0.2% and prices have declined —- deflation -— for nearly two years. The Bank of Japan’s inaction today focuses attention on the Koizumi government and its need to cut spending and enact a program to write off the mountain of bad bank debt stymieing economic growth.
In softs and fibers, cotton
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PowerRating) also triggered out of its Pullback Off Lows setup and closed 4% lower at 40.91, near the contract and 15-year low. Monitor this one for a possible “same day†Turtle Soup buy setup Monday or Turtle Soup Plus One Buy setup in following days as this market strives to find low.