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Analyzing the Dead-Cat Bounce

For years, I pondered why soybean prices went up in the face of a big crop in October and November. That is the normal price action that I came to call the dead-cat bounce. Over the years, it became one of the most reliable of price moves in the marketing year. Sometimes it did not perform as I expected. There were even years when I was taken to task by analysts and economists who said that I was all wrong. They said that the cat did not bounce at all - that it was a figment of my imagination.

I gradually developed a formula that I could use to analyze the market during those important periods to use in determining when to sell and when to avoid selling soybeans. Over the years using that formula along with the seasonal charts has proved to be profitable. I still did not fully understand the reason the strategy works. One farmer suggested that the reason the formula works is that terminals and processors wait too long to buy inventory for the coming winter. They wait so long that the harvest rush is over and bids must be raised to get adequate supplies. OK, I can buy that.

That being the case, what about the dead-cat bounce for the spring season? It is logical that the harvest in the Southern Hemisphere would cause a dead-cat bounce beginning with the harvest low in February. This would be followed by the bounce in March and April. In studying the long-term charts, a rally during those two months in fact does take place in most years. As with most market moves, the odds of a rally during these two months are not perfect. Nonetheless, selling during those two months have cash flow advantages similar to selling on the dead-cat bounce after the U.S. harvest.

In fact, the price movement during February and March has been negative this year. Farmers are experiencing the negative thrill of being on the wrong side of a dropping market. As I watch market action and listen to various analysts, it seems that the psychology of the soybean and corn markets is getting ever so slightly less negative. It is not enough to show up on the charts. Still, after dropping so far over such a long period of time, I have to wonder if there will be a Southern Hemisphere dead-cat bounce some time before the 2017 crop is safely in the bin. If that is the case as I hope, that move will probably be the last chance to sell soybeans at an acceptable price before another big crop in this country.

 

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