In view of the fact that April is national "Financial Literacy" month, I thought I'd talk about the experience of learning to "read" the language of market trends. All first-year students in the school of mainstream economic wisdom are assigned the task of memorizing one single book from cover to cover -- called "Fun with Fundamentals." The basic story goes like this:
Financial price trends are driven by external events known as fundamentals. Positive factors cause prices to rise, while negative ones trigger declines.
The problem is, the science of fundamental analysis is not exact. All too often, financial markets take the law of "fundamentals" into their own hands, so to speak, and go against what economic and other factors suggest.
Case in point: The recent price action in wheat. Over the past week, the #1 "fundamental" factor pinned to wheat prices has been weather -- a chance of rain, to be exact. But let the slew of news items below show: How wheat actually "perceived" rainy conditions was anything but consistent:
- First, rain equalled "pain": "Wheat futures fall for a fourth straight day on speculation that rain will improve the prospects of dry fields in Kansas, the biggest producer of US winter varieties. You've got rain in the forecast... so obviously that's very bearish."
- Then, rain equalled "gain": "Wheat Rises On Forecast for Rain. The current forecast suggests rain in the Midwest could delay field work."
- Finally, rain -- what rain? "Wheat Rises Above $8/bushel. Dry weather in some parts of the US has revived memories of the Russian drought last year... it is building up into a major concern."
To be sure, weather patterns can and do affect the crops. But how the commodity markets perceive the news of good or bad weather is not as black and white as the news stories above suggest. Market emotions play an enormous role in price formation, too.
Elliott wave analysis tracks those collective emotions in price charts. That's what allows Elliotticians to make objective price forecasts, regardless of the weather or other factors.
And, in the April 19 Daily Futures Junctures, EWI's chief commodity analyst and Futures Junctures Service editor Jeffrey Kennedy shows you 3 detailed charts of wheat on various time frames, including in-depth commentary and video analysis revealing the probable near-term trend underway in the grain.