TransStock > Analysis > Holiday jitters

Investing is not solely for those who analyze data – be it fundamental or technical.
Often, events are the triggers of trend changes.

Data from wars, events, law, and many other areas can have an important influence on the price evolution of investing instruments, such as exchange rate, shares, and futures.

The last couple of months have had a huge influence on our daily lives. The heat and drought records were shattered – not only in Belgium, but the whole world over.

The sun, and the lack of rain, filled the pages in magazines and newspapers. The events were followed by farmers and their tractors with massive water barrels, driving from their land to the canals and back – sometimes even to companies who were willing to provide their purified waste water.

The smart investor in us awakens in moments like these: what about the production, quality and availability of grains? Does the heat and drought have an impact on grain prices?

In the investors’ world, you are able to monitor the price swings of grains by keeping a close eye on shares, trackers and futures. In this contribution, I will discuss the price swings on the ‘Future Wheat’, which is the purest form of it.

Other futures, such as corn and oats (fertilization and food for cattle) can obviously also be monitored with such a drought.

Wheat

Definition: A Future is an agreement between a seller and a buyer to buy or deliver a specific product at a determined point in the future to a determined price.

Market: CBOT – Chicago Board of Trade
Price Wheat: $540
$1 price change: $50
Purchase future: $3
Obligatory margin (cash in account): 1550 $

Example
If you buy 1 Future Wheat (long) and the price rises from $540 to $550, you will have a profit of $500.

 

Technical Analysis

The previous four years, the price of wheat has been moving in a narrow range with a brief breakthrough, all within a mostly decreasing main trend. As of July of this year, this movement appears to change.

You can perceive an increase in volatility and the percentual movements increase: +22%/-15%/+22%/-13%/+23%

The higher tops and bottoms are very important here, because these are the first signals of an important trend turn.

Graph 1 displays the price of wheat over the last 5 years.
The red decreasing tops and bottoms are clearly visible. During that period, selling at a higher price is only left to driven professionals.

Graph 2 illustrates the price of wheat over the past year.
The tops and bottoms are clearly rising. The increase in volatility is also good to observe:
– from 09/2017 until 02/2018: small price movements
– as of 02/2018: large price movements

Wheat is working through the resistance shaped in the years 2014/2016.
On the short term, a relapse in the direction of ±500, followed by an upward movement, would be an ideal new moment to get in. You are, however, using a stop loss level. This is the level where you get out, in case the upward trend is broken through again.

From this article, we will take away four elements from technical analysis that can help us to successfully invest in shares:

  • Trend investors buy during upward price movements, at breakthrough or support.
  • Follow events with an investor’s eye. They are often opportunities on the long or short term.


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Paul Gins
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The trend is your friend

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