Rule number ONE of conventional economics states: Commodity prices are driven by changes in supply and demand. Threats to, or curtails of supply (alongside an even demand) are bullish, while a supply surplus is bearish.
When it comes to the real world, however, financial markets DO NOT always play by said rule. Take, for instance, the March 13 news items regarding the number of Coffee plants expected to reach fruition. The first two reports come from Dow Jones Newswire:
“Vietnamese growers expect the 2008-9 crop to… probably surpass the last crop.” – AND –
“Conditions are favorable for Brazil’s developing crop…
Then: “Fear of a glut due to a bumper coffee crop in Brazil,” threatens the continued advance in prices. (Financial Express)
Bearish news, right? YET – at the end of the March 13 trading day, coffee prices rallied to a one-week high.
Like we said: The relationship between REAL commodity prices and supply/demand data is about as consistent as Paris Hilton’s boyfriends: changing every week. (See a March 13 Financial Times headline: “Why is crude trading at over $100 per barrel? It makes no fundamental sense.” )
The good news is, in the March 13 Daily Futures Junctures, editor Jeffrey Kennedy gets to the root of what’s actually behind the ups and downs in Coffee. Right away, Jeffrey identifies a “Fourth Wave” pattern underway from the February 28 high.
The best way to understand how fourth waves behave is to imagine the childhood pastime of skipping rocks. Think back: The more lingering your throw, the lighter the rock taps on the surface of the water in quick, rapid fire bursts.
The shorter your throw, the rock makes one deep, kerplunk down, down, down below into the water.
Well, the same situation occurs in Fourth Waves: If a wave Four takes a long time to unfold, then its Fibonacci retracement of wave three is often shallow. And if wave Four moves quickly, the retracement of wave three will most often be deep.
And, with one look at two labeled price charts of Coffee in the March 13 Daily Futures Junctures – you can see whether this wave four sell-off has reached its Fibonacci target.
See the full March 13 Daily Futures Junctures issue online now, along with Jeffrey Kennedy’s brief insight into the near-term trend in store for CORN – AND Jeffrey’s live video presentation that takes his written analysis to the next level. Please look below for details.