Econ 339X, Spring 2011 ECON 339X: Agricultural Marketing Chad Hart Assistant Professor John Lawrence Professor

Econ 339X, Spring 2011 Seasonal Patterns  A price pattern that repeats itself with some degree of accuracy year after year.  Supplies and demand  Often sound reasons  Widely known  Linked to storage cost or basis patterns in grains  Linked to conception and gestation in livestock

Econ 339X, Spring 2011 Seasonal Pricing Patterns Source: USDA, NASS, Monthly Price Data

Econ 339X, Spring 2011 Charting Channel lines

Econ 339X, Spring 2011 Sell Signal Sell signal A sell signal is one close below the charting lines

Econ 339X, Spring 2011 Buy Signal Buy signal Some chartists need only one close above the charting line to create a buy signal, others use two closes above.

Econ 339X, Spring 2011 Key Reversal A key reversal is when the daily high and low price range exceed the price range for the previous two days.

Econ 339X, Spring 2011 Gaps Gaps often occur when a major new piece of information hits the market. They are often filled in by later price movements.

Econ 339X, Spring 2011 Double Tops & Bottoms Double tops and bottoms show prices with major technical resistance. These can be several days apart.

Econ 339X, Spring 2011 Head & Shoulders Source: Figure 7, Charting Commodity Futures Ag Decision Maker, File A2-20

Econ 339X, Spring 2011 Moving Averages 9 day average 18 day average 40 day average Sell signal Buy signals

Econ 339X, Spring 2011 Relative Strength Index  Looks at last X days worth of closing prices  X = 9, 14, 30, etc.  Summarizes upward and downward price movements during the period  Record the last 14 days worth of price changes, based on closing prices  Sum the positive and negative price changes and create average for each  Relative Strength Index = (Up average/(Up average + Down average))*100

Econ 339X, Spring 2011 Relative Strength Index RSI for July 2010 Corn

Econ 339X, Spring 2011 Relative Strength Index RSI’s above 70 (80) are considered signals of a market due to decline RSI’s below 30 (20) are considered signals of a market due to rally

Econ 339X, Spring 2011 Does Technical Analysis Work? Arguments for it:  Real world markets are not perfectly rational  Markets may be slow to respond to new information  Technical analysis works with the psychological biases  It works because so many people use it  Self-fulfilling Arguments against:  Efficient market hypothesis  The current price holds all of the relevant information

Econ 339X, Spring 2011 Class web site: Spring2011/