A few weeks ago I wrote a story about the pennant formation that appeared to have formed in the oats futures market.
Oats prices had been moving in a narrowing range between highs and lows – roughly $2.10 to $2.40 per bushel on the CBOT – and if it truly was a pennant, then it should soon break explosively out of that range. If it was a pennant, which is a continuation pattern, it should have gone sharply down near the point of the formation.
Sure enough, at the end of January the highs and lows hit each other and prices fell through the floor, slumping first through the $2.00 level and then down to the $1.75-$1.90 range. So while that was bad news for prices, it was good news for predictors that flagged the pennant (sorry about the pun), such as Randy Strychar of OatInsight.com.
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Well, Randy’s ID’d another pennanty formation in his weekly oat market commentary and it looks like the highs and lows are almost at the contact point. He expects a breakout soon. But which way? If it’s a true pennant, it’s got to be down, but there’s another way of looking at a narrowing range of highs and lows that clearly bounces off resistance and support lines. A “contracting triangle” is another technical formation that tends to lead to explosive breakouts, but they can go either way. It’s an Elliott Wave measure rather than a traditional Dow measure.
It’s an interesting time – therefore bad – in the ag commodity markets, with prices in the major grains coming close to the December lows, although they’ve been a bit more jaunty for the past few days. The falloff from the December-January rally could be just a correction as part of a larger movement upwards, a down leg in a medium-term up market, or it could be the precursor to new lows. Oats have obviously been the sick child of the ag commodity family, but their reaction to the closing of this triangle could say a lot about where we’re going in the next few weeks.
Randy expects the tale to be told in how farmers react to the low prices. Do they dump the crop in exasperation or shut their bin doors in disgust? While he believes a major bottom in prices may be forming, and an oats range of $1.70 to $2.10 per bushel likely, he also thinks there’s a chance for lower lows if the stock markets and the worldwide economy keep weakening.
Famed investor Jim Rogers has been talking about ag commodities in the past week and he has been bullish, bullish, bullish. But as he always points out, he’s the world’s worst market timer and short term investor. It would be nice if this was one of the times when he was right on the big picture and the small picture.
