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Technical Signals

 

What’s Happened…

Traders often use one of two market analyses, and sometimes both. 1) Fundamental analysis is the study of supply and demand. 2) Technical analysis is the study of price charts.  

 

Fundamental analysis can give a broad-based view of current supplies, expected supplies, and anticipated demand. In agriculture markets, those who use fundamental analysis anticipate future price moves depending on their view of anticipated changes to both supply and demand. As an example, weather conditions can affect crop supply and, therefore, price.  

 

Technical analysis reflects current price activity and signals that reflect expected changes. Technical traders are said to believe that fundamental factors are immediately factored into price and, therefore, chart signals may be more of a predictor of future price activity. In other words, these traders pay little attention to fundamentals and prefer to study charts. 

 

A view of both analyses suggests that supply and demand expectations set the tone for a price level, and technical analysis can help determine when to enter or exit. Farmers generally focus on supply and demand, as this is relevant to what they do for a living. They are most concerned about how their supply is developing throughout the growing season. This is visual and relevant to them. The USDA publishes fundamental analysis through reports. The most common for row crops are the World Agricultural Supply and Demand Estimates reports, otherwise known as WASDE. This is a monthly report. Other reports include Quarterly Stocks and Acreage Intentions. Yet, when to pull the trigger on sales or purchases becomes a critical marketing decision. Using technical analysis for clues may be beneficial.

 

Why this is Important…

Grain producers often have a good feel for fundamentals. Still, timing is everything. Selling too much too soon can be detrimental, just as not selling enough can be problematic. Understanding the time of year, supply and demand, and timing points can be critical to aid in marketing decisions. Signals that farmers may choose to follow on charts could be overbought or oversold indicators. Sell signals, such as a crossover on stochastics, or a bearish or bullish key reversal, may signal a market is near a top or bottom. Using price charts to make decisions is considered by many to be more of an art than a science. You need to find what works for you.

 

What can you do about it?

Just as you concentrate on production, dedicate time to concentrate on marketing. This includes a base understanding of the fundamentals as well as a technical view. An up-trending market that may be considered overbought with a bearish key reversal, coupled with a lack of supportive fundamental news may be a market that could be topping. Traders who are buying may soon reverse their position, or those who are waiting for an opportunity to sell may act. 

 

Understand the use of buy and sell stops. These are methods to enter or exit a market. Sell stop orders are placed below the current futures price and triggered only if the market touches or goes through the price. This may be a good way to enter without having to guess a top. In essence, the market could be tipping over, and the objective is to get sold with the anticipation that prices will continue to head lower. The same concept is used for buying, where stops can be used to manage risk or purchases.  

 

A strong relationship with your advisor can be key, providing guidance on current technical signals and when/how to place orders.

 

 

Find out what works for you… 

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.   

 

 

About the Author: With the wisdom of over 36 years at Total Farm Marketing and following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of Brokerage Solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the markets and marketing tools, an excellent listener, and communicates with intent and clarity to ensure clients are comfortable with their decisions.

 

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.