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Bigger dead cat bounce expected

10/18/2013 @ 10:03am

For those of us watching the 'dead cat bounce' for a clue as to when to sell, it has been a crazy world the past couple of weeks. If you are confused by market action, do not feel alone. 

The harvest low that began the bounce was right on the expected time of October 1. Soybean futures prices rallied sharply from that base as expected. However, the euphoria from this expected bullish action did not last long.

The first incremental step has historically been a 35 cent rally off the harvest low. That level was reached within four trading days. Whoops! Historic charts say that it should take at least ten days. Fifteen trading days is even more reliable as a sell signal. It was not to be this time around. The next move was a quick retreat. Instead of a continuing move toward 15 days up and a dollar higher, futures prices quickly fell  back to roughly the level  they started from. I use the term “roughly” because the extent of the retreat depended on which futures contract month was used or whether a cash bid was used for timing.

I use the local cash bid here in Cass County, Nebraska, to time my sales on the dead cat bounce. That price came two cents short of the harvest low level. I was nervous when that level was challenged.  However, results with this system have taught me to follow the rules. My experience in trying to fine-tune based on my judgment has not been very positive. In other words, do not cut and run. Stay with my plan.

As usually happens, self- discipline in staying with the plan appears to be paying off.  After floundering in the area of the harvest low for a few days, prices shot higher on Wednesday and Thursday of this week. The net move higher for the two days was 26 cents, again based on cash prices. Put another way, prices have only to rally nine cents more to reach the level of a classic dead cat bounce. While this action was in progress, the necessary ten trading days has elapsed.

My experience, over the years, tells me that with the current soybean price level the bounce could be much higher than 35 cents.  Instinct tells me not to get too greedy in pricing my beans, this year. I have what I think will be 25 percent of this year’s production priced at $13.50, basis January futures. I hope that action of the last two days indicates that better times are in the near future to complete sales.


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