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Technical signs point to fall price rally

Crop prices could rally sharply in coming months if two leading technical analysts are right about the chart patterns they see.

“I’m actually looking to see (most commodities) stage very sizeable advances,” said Jeffrey Kennedy of Elliott Wave International, who predicted a two-year rally during a recent long-term future market outlook.

Crop prices could fall or stay near where they are until September or October, but he then expects a rally to commence that will soar “60, 70 or even 80 percent.”

Analyst Darin Newsom of DTN also isn’t predicting a rally for the summer but thinks the table is set for a substantial rally beginning in fall.

“The market should be ready to move higher quickly,” Newsom said during a seasonal outlook that focused on corn.

“By all indications, this market should start to turn bullish.”

Both are basing their predictions on technical indicators.

Newsom said fundamental factors of supply and demand would suggest bearishness, not bullishness, but the technical factors could be signalling changes happening under the surface.

Newsom’s rally expectation is based on Elliott wave theory, which is a complicated form of technical market analysis developed in the 1920s based on rising or falling price waves having predictable structures and sizes.

Newsom suspects the selloff since September 2012 is part of a three-wave bear movement that should soon end. In that period, corn futures fell from about $8.50 per bushel to the $4-something range, then bounced back to $5.20, then possibly bottomed at $3.18 last October. That was the three wave corrective pattern.

The market has already likely done waves one and two of a five-wave rally, with the traditionally biggest third leg soon to occur, taking the market sharply higher.

“The major long-term trend is up,” said Newsom. “To me, there’s no doubt about that.”

Kennedy is an expert Elliott wave technician as well but bases his bull call more on long-term commodity market cycles.

Simply put, commodity bull markets tend to last about 10 years, while bear markets last about 20 years. He believes the most recent bull stretch ran from 2002-12, and commodity markets are now in a 20 year bear market.

However, there will be massive volatility within that bear market, which is what his rally projection is based upon. The slump from September 2012 prices fits a typical commodity bear market selloff, and the recovery should be sharp as well.

In 1980, at the end of the last commodity bull market, prices fell 46 percent, then rose almost 90 percent, then fell 52 percent from 1983 until the early 2000s, rose 124 percent, fell 50 percent, rose 50 percent, fell 30 percent, rose 71 percent and fell 53 percent.

“This is the kind of price action we can expect between now and 2030,” said Kennedy.

Prices tend to fall for three years and rise for two during commodity bear markets, which Kennedy said makes the present bear market for commodities “very mature within this typically three year cycle to the downside.”

He’s predicting a two-year rally that will regain much of the lost value.

However, another three year bear movement will follow that two-year recovery, with another 15 years of the three year-two year movements to follow.

Newsom said technical analysis makes him believe a strong rally is likely to arrive soon but won’t be triggered until a tangible, supply and demand reason leaps in front of the market.

“It’s going to have to take something fundamental,” said Newsom.

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