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It's dead-cat bounce season

09/30/2013 @ 9:48am

The season for the dead-cat bounce strategy, in the soybean market, is upon us. The most likely time for this strategy to begin is the first half of October. There is no guarantee, of course. 

In the last few years, it has come as early as the middle of September. It has come as late as November. However, the most likely time is the first week of October.

The bounce is a good time to sell soybeans for many reasons. There is very little production risk because harvest is only a few days away. Farmers have a good estimate of yields because the crop is in the field. If sales are made at or soon after harvest, the storage costs are minimal. Timing of income is good because it can be taken in the current year or delayed for income tax purposes if necessary.

I started tracking prices for the bounce beginning September 1. I chart March futures as well as local cash. A sell signal is 10 days of prices higher than a major low and a rally of at least 35 cents. Upper parameters are 15 days above a major low and $1-per-bushel rally. To the inexperienced marketer, this seems like a wide range. After watching it for a year or two, most individuals find that those are good guidelines for determining when to make sales.

In rare occasions, the bounce will turn into a major rally after January 1. Most years the bounce ends by year-end. It is probably a mistake to use the word always to describe any marketing move. However, there has been a move that fits the definition of a dead-cat bounce every year since 1980. Sometimes all of the price improvement is in the local cash market. That is the reason for tracking the local price for decision-making. It is also why some academic researchers say that it does not exist.

Farmers look for a magic bullet to tell them when to sell. There is no magic in grain marketing. For those who are willing to accept "almost always" as good enough for a decision-making tool, the dead-cat bounce is a workable strategy. 


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