Sliced and Diced
This market has sliced and diced it’s way through perhaps half a dozen tech targets we have been watching for. Some were expected in fall, but this market seems anxious to put in a fall low in May. As an Aussie would say, “fairdinkum!” These pages have laid out our case over and over for the bear, and it really didn’t have anything to do with a trade agreement, dead or alive. The balance sheet is where the bear lives, and all the trade agreement can do is shift cotton from one place to another. It will not add or subtract a single bale from world use.
The ferocious collapse in price is a rush to get closer to what we consider “fair value,” if there is such a thing in this business. If the new crop carryout really is what the USDA says, then Dec at 65c to 68c looks about right. Assume normal gyrations, and our guess is that Dec can swing from low to high 60s, until something changes.
The trade agreement, or lack thereof, Trump, Xi, tariffs, are all loud headlines and no doubt can cause huge near term swings. We advise to focus on the balance sheet, and use the blare from TV and other megaphones to fade.
Sometimes its time to stand aside, and this may be one. We have been negative and feel fortunate to have gotten things mostly right. We remain longer term negative due to US and world crop potential, but there are miles to go before this crop is in. We think the carryout could be up to 8 Mb, and cannot argue against a sawbuck 10 in a best case. If either were to prove true, then mid 60s is much too high. But, that’s further on up the road, as sung by Johnny Cash and Bobby Blue Bland. Best to sit a spell, see how this market likes the 6s.
Spot, July and Dec charts have sliced and diced most of our targets mentioned recently. The spot chart wave 1 down was 1349, and subtracting that from the wave 4 high of 7931 gets a target of 6582. Low today was 6545, close enough. Also of more significance, today falls on 2 Fib counts, both from long term and major price reversals. Today falls on an 89 count from the low of 1/03, which was a 12 month low. Today also falls on a 233 count from the multi-year high of June 2018.
As always, please use protective buy and sell stops when trading futures and options.
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