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Roy Smith: Repeating market history

01/07/2011 @ 6:50am

There is a popular belief in grain trading circles that an event never repeats from one year to the next. I have pretty well discounted that theory in my own marketing research. I agree that history never repeats exactly, but sometimes it comes very close. If it did not, my seasonal price trend strategies would not work.

Nonetheless, some times the markets do some things so similar to what they did previously it almost seems like they are following a road map. The soybean and corn markets this week are setting up to be one of those instances.

One of my strategies is to have all of my old crop soybeans sold by the end of December. I remember well that in December 2009 market analysts were predicting buying coming into the market after the New Year. I was still holding a few soybeans at year end. I sold them early in the trading session on January 4, the first trading day of 2010. The price was $10.07. By the end of the session the price had a 9 in front of it.  The soybean market did not break $10 again until harvest in the fall.

At harvest of the 2010 crop I had the same drop dead date in mind. I began selling when the price had risen for three weeks and a dollar over the harvest low. I wanted to sold out by year end. Prices were higher than a year earlier and rising fast. I sold the last of the beans for $12.72 during Christmas week. The price continued to go up for another week. It looked as if my sales were premature.

The price on Monday of this week acted remarkably similar to a year earlier. By the end of trading that day soybeans were 24 cents lower. Prices were up and down the rest of the week. The formation on the chart looks like a typical key reversal. The price made a new high on Monday but closed below the previous day’s low. Since then the price has not exceeded the Monday high. With widening basis, carry being built into the price structure and the drop dead in place, it will be difficult for prices to overcome the negative technical picture and the rally to continue.

No technical signal is 100% reliable. There was a key reversal in November that proved to be a false signal. It did precede a drop in price that proved to be short lived. However, it lacked some of the fine points of the latest key reversal.

Soybeans are still above the level of my last sale. However, the corn market is 22 cents below where I made my sale last week. Key reversal signals generally are pretty reliable at this time of year when there is no weather market to cause volatility. Only time will tell if this is a true signal or if it proves to be false and prices continue their up trend. It will be interesting to see how well history repeats itself!

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