The US dollar index completed a Shooting Star pattern on its short-term daily candlestick chart during Thursday's session. The shooting star is considered a bearish reversal pattern.
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How important might this pattern be to the commodity complex? Opinions vary based on influence of politics over economics on global markets.
In other news, the soybean market found renewed commercial buying interest overnight through early Friday morning.
Morning Summary: One of the first things I saw early Friday morning was some chatter from technical analysts about the shooting star pattern created Thursday on the daily chart for the US dollar index ($DXY). What does this mean? By definition, “A shooting star is a reversal candlestick pattern that forms after an uptrend. It has a small body with a long upper shadow and little to no lower shadow, indicating a potential trend reversal because of strong selling pressure.”[i] If we go back to yesterday’s Afternoon Commentary, I mentioned how the greenback had not been able to take out its overnight high, spending most of the session pulling back. In the end, the dollar left us with this reversal pattern, raising the question of if we can believe what we see? A long time ago in a different life, a friend told me technical analysis, including candlestick charts, was nothing more than “magic lines”. No, my friend isn’t Warren Buffett, but they hold similar views on the subject[ii]. A couple key issues to discuss further: Does the dollar have the influence on commodities it supposedly has and does technical analysis matter in the day and age of Watson with algorithms not paying attention to patterns?
Corn: The corn market was quiet overnight through early Friday morning, again. December posted a trading range of 1.75 cents – yes, that is all, 1.75 cents – on trade volume of less than 20,000 contracts as of this writing. What does this tell us? Absolutely nothing (Uhh…Say it again[iii]). That being said, Dec24 was on its session high of $4.20, bringing to mind a question that came in after Thursday’s close: “I noticed December corn dropped below $4.20. Could we expect a retest of $4.10?” My friend is familiar with my idea of corn’s characteristic Round Number Reliance and given Dec24 closed at $4.19 the door was opened to a test of the next round number below. However, the December issue, as it moves toward delivery at the end of the month, has relinquished the title “most open interest” to March 2025 (ZCH25), with the March issue finishing yesterday’s session above its nearest round number of $4.30. We’ll see how this plays out during Friday’s session. Fundamentally, we’ll get the latest round of weekly export sales and shipments numbers for the week ending Thursday, November 7[iv]. Reported sales from USDA/FAS for that week were 48 mb, though we need to remember that sales of less than 100,000 mt don’t have to be reported daily.
Soybeans: The soybean market is interesting pre-dawn as the January issue (ZSF25) rallied as much as 11.0 cents overnight on increased trade volume of 25,500 contracts. However, unlike the usual overnight activity of a spike higher shortly after the open to watching its gains get whittled away through early morning hours, this time around the clock we see January sitting on its session high at this writing. My Blink reaction[v] is Thursday’s meltdown once again uncovered renewed buying interest from overseas, most likely the Eastern Hemisphere. What makes this intriguing is yesterday’s session saw pressure from both noncommercial and commercial traders push the January issue to a loss of 21.5 cents before closing 20.25 cents lower for the day. However, when the National Soybean Index came out Thursday evening, it was down “only” 19.75 cents from its previous calculation meaning merchandisers were continuing to push the cash market to source supplies to meet demand. Our attention now turns to the weekly export sales and shipments update set for release later Friday morning, a day late due to the US government holiday this past Monday. Announced sales for the week ending Thursday, November 7 were 462,000 mt (17.0 mb), though I’m expecting the number to be much larger.
Wheat: The wheat sub-sector was in the green to start the day. I should probably stop this segment of today’s Morning Commentary with that sentence and move on because overnight trade is in no way a predictor of how Friday’s session will end. Wouldn’t it be nice to give the last few remaining wheat market bulls a glimmer of hope? No? Okay, let’s go on then. A couple of market cliches come to mind as I look at the 3 wheat markets early Friday morning: First, the One Day Wisdom that tells us, “One day does not a trend make”. In the case of wheat, it isn’t even one day, but rather the overnight session, and there’s no guarantee contracts will be in the green when intermission rolls around in a couple hours. Second, the overnight rally could be nothing more than a Dead Cat Bounce, “Even a dead cat will bounce if dropped from high enough”. The selloff in the wheat sub-sector has been dramatic, with my attention on the National HRW Wheat Index ($CRWI) (national average cash price) as it continues to slide. Thursday’s calculation came in near $4.7850, down roughly 7.25 cents from Wednesday and what would be its lowest month-end close since August 2020 at $4.4775.
[i] From Invsestopedia: (LINK)
[ii] Mr. Buffett, aka the Oracle of Omaha, famously said, “I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer.”
[iii] Those of you of a certain age will understand this reference.
[iv] Keep in mind these numbers are 1 to 2 weeks old upon release. They are a look back at where the market was, what we already saw play out. That being said, I do use them to make pace projections based on historic averages.
[v] Based on the theme of Malcolm Gladwell’s book Blink: Our initial thought is usually correct before we spend time talking ourselves out of it.
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