Hit Your Moving Price Target In this article I'll explain two concepts that complement each other. The first is that of trend channel analysis - and I'll use bar charts. Three price elements are needed to construct these charts: the high of the price range, the low of the price range and the closing price.
The July Chicago Board of Trade (CBOT) corn and soybean charts show the price action for each day. The CBOT weekly soybean continuation chart shows the high, low and close for each week. Many chartists like to use a monthly CBOT soybean continuation chart to get a perspective of the long-term trend for soybeans.
Knowing which way the market is trending is one of the first steps in analyzing commodity prices. Prices can only go in three directions: up, down or sideways.
By charting the markets and drawing in trend lines, you can see which way the market is trending and when the market changes direction.
By watching the market make a series of higher highs and higher lows (an uptrend or channel), you can see where to place your offers above the market and also see when the trend changes from an uptrend to a downtrend. Closing below the uptrend line signals a change in trend.
The charts below show the uptrend and price channel for July 2001 CBOT corn and soybean futures. I'm willing to make scale-up sales anytime prices get within 2-5 of the upper channel line. These trend and channel lines tend to become self-fulfilling, as traders will buy at the support at the bottom of the trend line. They're also willing to take profits and go short as futures test the upper end of the trading channel.
In some extreme market moves, you'll see the futures move up through the upper end of the channel. Chartists then double the price channel to establish the next level of resistance. Using trend lines and attempting to sell at the upper end of the trading channel is a profitable move, as long as prices keep trending higher. The bottom of the price channel should prove to be support when prices turn lower.
I also like to use a 50-day moving average as an additional key level of support. When prices fall below a key support level, the direction of prices most likely has changed. That's especially true if they gap through the support level or close on a Friday below the key level of support. When prices close below that level, it's your sell signal.
In the CBOT weekly soybean chart, there was a dramatic up move (long-term uptrend) from the July 1999 low at $4.01 to the May 3, 2000, high at $5.70. In early May, it looked like soybeans were ready to move up to test resistance at $6-6.20; however, as drought fears receded and crop yield potential increased, prices fell lower. The close on May 19, 2000, was 35 from the top, but selling on that Friday's sell signal proved to be a good sale. Prices fell sharply lower into the end of May and continued lower into the first week of August.
It takes courage and discipline to sell on a Friday when prices have already turned lower. History shows that making sales on that type of sell signal during that time of year has a very high probability of working.
I'm always looking to use a combination of marketing tools. The combination of selling some soybeans on the market rally and then sweeping the bin the week of May 19 provided farmers with a great average selling price.
The last few years have shown how a written marketing plan using time and price will increase your selling price and farm profits.
Get Daily Market Updates Via Toll-Free Phone Number NorthStar Commodity's 1-800 Market Update service is a recorded daily market report. This recording is updated by Alan Kluis, president of NorthStar, Monday through Friday after the market close and on mornings when USDA reports are released or other significant events occur. It can be accessed 24 hours a day via a toll-free number.
Key benefits: - Review of each day's market action.
- LDP analysis and strategies.
- Subscription to the weekly Ag Investor Newsletter (48 issues).
- Updates to recommendations provided in the Ag Investor newsletter.
NorthStar offers a free trial to the 1-800 Daily Market Update. There's no risk and no obligation. Contact NorthStar to get a temporary PIN number. At the end of the trial, if you choose not to subscribe, you need do nothing.
If you're interested in a two-week trial, call 800-345-7692. Cost is $480 per year.