- New Science in old markets -

Gold extends. Tops in Soy, compressions in Wheat

Gold futures made a daily-scale bottom extension on Friday, after almost 4 months of weakness:

Gold weekly comp brk, dly bott ext

As I write it looks as though there will be another extension today, as prices have fallen a bit more but the conclusion remains the same - cover shorts and reverse into long positions.

It is probable that a bounce is coming and we think it will be 'trade-able'. The usual sequence of events is:

  1. A compression forms
  2. the price moves out of it, seeming to start a new trend
  3. the price soon reverses, to revisit the level of that compression in a 'return movement' (the 'Attractor' phenomenon seen in all complex systems)
  4. The price resumes the trend started in stage 2 and the main move occurs.

This sames sequence occurs time after time and (in present circumstances) means that gold should soon bounce from hereabouts back up to the recent compressions. The low end of both of those was around 1850, which is where we would expect resistance to begin. We will probably advise reversing again into short positions after that expected rally but will comment further as events unfold.

Meanwhile, Soybeans and Meal have both been making top extensions as the recent price rally starts to falter:

Soymeal. beans wkly tops

This means that the rally is probably at or very near an end, but does not necessarily mean that a drop will immediately follow. Top extensions mark the imminent end of a rise but the next thing to happen is usually a period of 'churning' while the fundamentals catch up with the price. That is why we almost always advise  buying bottom extensions but do not generally advise selling short at top extensions. Take profits on longs and wait. If you are a hedger, sell some calls.

Wheat has also been producing signals. The most recent rise into the October high point started with the upward break of a weekly-scale compression (circled, below) in mid September. The price has pulled back off the highs a bit and it has just produced a daily-scale compression. If this breaks downward, the price will probably drop to the area of the weekly compression, where it will find support, starting at 565 in March futures.  If it breaks upward, the main uptrend will resume:

Wheat wkly, dly comps

All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com