Update: Early 2014 Wheat Market Analysis

The wheat market forecast for early 2014 discussed the possibility of a market turning point for early February based on Gann's 20 years cycle. This forecast is updated, presenting a possible scenario including price and time projections, based on the market geometry of March wheat futures.

Market Geometry

Vectorial Expansion

Figure 1 shows a daily price-time chart for March wheat futures from 2011 to 2014. It contains several PTVs[1] defining important trend changes. Attention is focused in the sequence of Price-Time Vectors that shaped the market after the final bottom of Dec 16th 2011, labeled as point A.

Figure 1
Daily March wheat futures prices from 2011 to 2014. Expanding sequence of PTVs following the Square of Twelve and the square root of two ratio. Projection for February 2014.

The length of AB, from Dec 16th 2011 to May 21 2012, equals 206.53. The next PTV in the sequence, CD, measured 281.71 from Jun 15th 2012 to the final top of Aug 10th 2012. The third PTV, labeled DE, from Aug 10 2012 to Sep 12 2013, equals 406.66. The fact that each vector in the sequence is larger than the previous one proves that the market is in an expansion process. Moreover, their lengths are multiples of the Square of Twelve (144) and are related to each other by the square root of two ratio. The actual lengths of these PTVs and their expected theoretical values are presented below: 

• AB = 206.53, theoretical value: √2x144 = 203.65. 
• CD = 281.71, theoretical value: 2x144 = 288. 
• DE = 406.66, theoretical value: 2√2x144 = 407.29.

The expected length of the next PTV in the sequence, DF, is 4x144 = 576. 

Under the assumption that this vector will start at the final top of August 2012, labeled as point D, PTV DF can be projected as shown in Figure 1. A price-time circle is drawn to show all the equivalent points in price-time space defined by this PTV. 

Vectorial Compression

Figure 2 is a daily price-time chart for March wheat futures from 2011 to 2014. It focuses on the bear marked starting at the August 2012 final top. The chart shows several PTVs defining every leg down as well as the rallies of this bear market. 

Figure 2
Daily March wheat futures prices from 2011 to 2014. Contracting sequence of PTVs following the third Square of Twelve and the square root of two ratio. Projection for February 2014.

The first leg down of this bear market, from Aug 10th 2012 to Mar 7th 2013, was defined by DX which measured 308.63. A rally ensued until Apr 30th 2013, defined by PTV XY with length equal to 103.35. The following leg down was defined by YE of length 155.2 until the Sep 12th 2013 bottom. The next rally in this bear market was defined by PTV EZ, which measured 78.32, ending at point Z on Oct 23rd 2013. The third leg down continued afterwards.

Every PTV in this sequence is a multiple of the third Square of Twelve (3x144 = 432) and their lengths are related to each other by the square root of two ratio. The actual lengths of these PTVs and their expected theoretical values are presented below: 

• DX = 308.63, theoretical value: 432/√2 = 305.47. 
• XY = 103.35, theoretical value: 432/4 = 108.
• YE = 155.20, theoretical value: 432/2√2 = 152.74. 
• EZ =   78.32, theoretical value: 432/4√2 = 76.37. 

Each one of these PTVs is part of a contracting sequence. However, the value 432/2 = 216 is missing from the progression. Additionally, the sum of all the lengths of these PTVs, including the value of 216, approaches the sixth Square of Twelve (6x144 = 864). Knowing this fact, the length of the next PTV of the sequence can be projected to be: 

ZF = 864 – (DX + XY + YE + EZ) = 

= 864 – (308.63 + 103.35 + 155.20 + 78.32) = 218.50.

 
which is close to half the third Square of Twelve, 432/2 = 216. With the projected length of ZF and the aid of a circle in price-time it is possible to estimate the arc where a turning point is likely to occur, as shown in Figure 2. 

Price and Time Projections

Knowing the expected lengths of PTVs DF and ZF it is possible to find the points in price-time space where the two circles shown in Figures 1 and 2 intersect each other. It is a simple matter of solving a system of two equations with two unknowns. The result of this operation yields two points in price-time space as answers: 

Answer 1: 521 trading days from point D at 702.71c.
Answer 2: 381 trading days from point D at 516.10c. 

The first answer is disregarded. The second answer indicates that a turning point could be expected 381 trading days from the Aug 10th 2012 top, which is Feb 14th 2014 at 516 cents per bushel. This date is very close to the forecast on Gann’s 20 year cycle which gave early February as a possible turning point date. Figure 3 shows the intersection of both circles and the cycle turn date of Gann’s 20 years cycle all coinciding in the same point.
 

 

Figure 3
Daily March wheat futures prices from 2011 to 2014. Gann's 20yrs cycle and intersection of price-time circles indicating price and time targets at point F for February 2014 forecast.

Conclusion

A possible scenario for early 2014 wheat futures was presented. According to this forecast, March wheat prices should keep declining down to 516c per bushel until February 2014 when a rally or the beginning of a bull market is expected. Breaking the recent lows at 560 3/4c and closing below them could be a first indication of lower prices and a confirmation of the forecast. 

It is important to keep in mind that some assumptions were made regarding the starting points and expected lengths of PTVs. A bottom should be confirmed by several other indications as well. 

Update: Soybean and Wheat Markets February 2014  

[1] PTV stands for Price-Time Vector. This concept was introduced by Bradley Cowan in his writings. Both PTV and Price-Time Vector are trademarks of Bradley Cowan.

Nadiel Outis

Grain Market Analysis