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The Other Market

Agriculture.com Staff 07/24/2009 @ 3:43pm

When most farmers think of markets, they are usually thinking of prices on Soybeans, Corn, Wheat, Cattle and Hogs. These markets are relatively small compared to other markets around the world. It is probably not an exaggeration that most people in this country think of the stocks and other investments when the term "Market" is the subject of conversation.

I don't pretend to be an expert on the stock market, or grains either for that matter. However, there is no question that there is some tie between grain prices and what are commonly referred to as "outside" markets. At the very least prices move based on similar psychology and have similar price patterns.

I have an interest in the stock market. Like many other people, part of my retirement funds are invested in stocks and stock mutual finds. In the last two years it would have been better to have my equity in farm land. That is a subject for another day. It is water under the bridge.

A look at the weekly charts of the Dow Jones Industrial average shows charting signs that are common to grain markets as well. The following observations are taken from printed charts. Some of the estimates are based on printed material and are marginally accurate.

Dow Jones made a high of 14,179 the second week of October, 2007. The price gradually fell for several months until a year later when it dropped 20%, or 2000 points in the second week of October, 2008. The lowest price for the move came the first week of March, 2009 at 6460. Since then a rally has taken the price back to over 9000 today.

From the high in 2007 to the low this spring was a drop of 7719 points. Technical traders look for a 50% retracement of any major move. A retracement of half that drop is 3860 points. That much of a rally back from the lows would take the average to around 10,320. Interestingly, that would take the market back to the area where it gapped down last October. Filling or attempting to fill a gap is another indicator that technical traders use in making purchases and sales.

If the stock market follows technical indicators that have been somewhat reliable over the years, it should be able to rally for another 1250 points. I say "should be" because there is nothing that says the market has to do anything. Technical indicators simply are guidelines that give traders and investors a sign to base decisions on. The psychology of the stock market is very positive now. If prices fail to reach the levels I mentioned, the psychology could change quickly. If that happens, prices could retreat faster than they rallied.

The sad thing for me in all of this is that a rally back to 10,320 still does not get me back to a profitable position in my IRA account. I did not invest when the market was over 12,000, so the average does not have to get back to its old highs for me to be in positive territory. However, I feel a lot better today than I did when the average was at 6500. The stocks I bought in March, 2009, are looking really good today.

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