The Elliott Wave Theory of market analysis predicts a simple price pattern of up moves to a high followed by downward price corrections. Applying this simple theory can be complicated, and there are about as many interpretations of it as there are commodity brokers.
When I wrote about the Elliott Wave Theory three years ago, I received numerous calls and letters about the article. Again, here's how it works.
The theory predicts that markets move in regular waves (patterns) up and down. Waves one, three and five are major waves up in a bull market. Waves two and four are corrective waves. But there also are five minor waves within each major up wave.
One or more minor Elliott waves can happen in bear markets, too. In the downtrending markets since 1997, for example, we've had several rallies that comprised three minor Elliott waves. But we've now entered a bull market that should include an up move consisting of five major waves.
You can use the Elliott Wave to forecast highs because waves three and five usually move an equal amount to wave one. The theory can also be used as a timing tool, because the time it takes to complete wave three or five usually is equal to the time it took for the rally to unfold in wave one.
Using this theory, you can pick specific price levels to have offers in, and/or choose critical days when you need to make sales if your price targets aren't hit.
My current analysis of the Daily CBOT Soybean Chart, above, shows an important low on Dec. 13, 1999, at $4.46. That was followed by the first rally (minor Elliott Wave one) to the high on Dec. 27 at $4.74.
Minor wave two was a corrective wave down to $4.54 on Dec. 29. That was followed by the minor wave three rally to $5.29. Minor wave four was a corrective down wave that bottomed at $4.95 on Feb. 4, 2000. That predicts the beginning of minor wave five and the top of major Elliott Wave one at $5.23-5.70.
After the correction that's likely to develop for major Elliott Wave two, look for wave three to take prices up to $5.90 or higher by later this spring and summer.
What can you do or how high can prices go? Until you see the completion of major waves one and three, it's impossible to forecast where or when soybean prices will top, putting in major Elliott Wave five. By using the Elliott Wave Theory, though, you can now pick specific price levels and time periods when you should be making old- and new-crop sales.
For most producers, having resting offers in place to make sales into the right contract month is far more important than trying to pick the exact top of Elliott Wave five. ?
For our most recent update, Soybean Elliott Wave Analysis, write to NorthStar at Box 15086 Minneapolis, MN 55415. You can also fax your request to 612-333-1520, or email it to [email protected]