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Commodities: Supply & Demand Vs. Elliott Wave Patterns
Should you pay attention to supply and demand factors with commodities?
This is my latest interview with Jeffrey Kennedy, editor of Elliott Wave International's Futures Junctures Service, which brings you daily and longer-term opportunities in commodities.
Vadim Pokhlebkin: Jeffrey, the latest reports show that commodities are “headed for a third quarterly drop, the longest losing streak since 2001, as demand for raw materials from crude oil to nickel shrank... Demand collapsed as Japan, Europe and the U.S. grappled with recessions.” (Bloomberg) Analysts clearly blame price declines on the drop in demand. You are a technical market analyst, but do you pay attention to the supply and demand balance?
Jeffrey Kennedy: A short answer is yes, but let me explain. Commodities are more difficult to forecast than other markets using the Elliott Wave Principle, because the psychology behind big moves in price is often different. For example, if you picture a basic Elliott wave pattern in a bull market, with stock markets, fifth waves are propelled by hope; with commodities, fear is the engine that pushes prices.
VP: Fear of... further declines in demand?
JK: Presently, yes, but not only – don’t forget natural disasters. In the fall of 2005, for example, after hurricane Katrina flooded New Orleans, even though Louisiana doesn’t produce coffee, the port of New Orleans is a major artery through which much of this country’s coffee supplies move. And as a result of the flooding, the New York Board of Trade suspended the licenses of eight New Orleans warehouses that stored more than $75 million dollars worth of certified coffee. Around the same time, there was a series of natural disasters in El Salvador, Mexico, Guatemala, Peru, Ecuador, Colombia and Brazil. With so much turmoil in the major coffee producing countries, there was much to fear on the supply side of the coffee industry.
VP: And did that turn you bullish on coffee prices at the time?
JK: It certainly helped! But like you said, I am a technical market analyst, first and foremost. Usually, all I need to make a confident forecast is a clear Elliott wave pattern. However, when the operative wave labeling is further supported by additional information – such as supply and demand issues, Daily Sentiment Index and Committment of Traders report data – my confident opinion becomes downright compelling.
VP: That makes sense. Any such opinions that you can share with us now?
JK: In the short term, Soybeans look very promising. Their recent pullback was quick, volatile and fell right to the .618 retracement of the preceding move – a common Fibonacci ratio. Also, the price decisively penetrated two important trend lines. Both events are bullish; I explain more in the March 31 issue of my Daily Futures Junctures. (Online now – Ed.)
VP: Any supply and demand factors that support this forecast?
JK: Not this time. This is one of those opportunities where the proper look and the right wave personality present in Soybeans charts are enough.
VP: Thanks for talking to us, Jeffrey!
JK: Any time.
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