Divine Intervention - Wednesday, page-4

Now something more technical about the price action on beans at present.

By way of example I'll use the Emini S&P futures contract and the bull move out of the 2009 low.  This example will give an illustration of how price reacts to fib extension of the first wave of a move.  In this example, the first wave could be seen as the move from the March 09 low (1) into the April 2010 high (2).  That move was 551 points low to high.  The market then retraced part of that move into a low in July 2010 (3) and the price of that low was 1002.75.



If we then project that range 1 to 2 from the low at 3 up into the bull we can see some interesting reactions at fib projection levels.  Here is the entire move from the low with levels marked at 50%, 100%, 161.8%, 178.6% and 200%.  A 200% extension of a first wave is extreme (and I say that with my very limited knowledge of wave theory).



The projection levels I want to focus on the purposes of this example are 161.8% and the 178.6%:



Here are those levels with some calculations in the post it note and you can see how price reaction at these levels.  This is a major bull move, multi-year, and these reactions are within a point of the projected levels and so command attention and respect.



So now the beans, which have been in an extended bear move for over 3 years.  I don't need to go into a details explanation of what this next chart shows save that it is the weekly and the fib projections have been used exactly the same wave as in the above example, but for a down move.  I have inverted it so it looks like the ES example above, and the wave projections and reactions operate the same way.



Switch to the daily here, the reaction at 161.8% was interesting in that price overshot the level as the move down was of such high momentum - your can see the big gap and price then slammed into the level.  When price came back for a second look there was another reaction before it even touched, and you can see how it crept up (actually down) into that level.  The reaction was then a fast move in the opposite direction when the down move kicked in again.



Move the chart out of inversion and look closer and the reaction at 178.6% was spot on.  The level is 843.625 and the low was 844.25.