Larry Baer's Technicals: Grains Continue Higher, And Buy Signals Keep Coming

August 02, 2012


Ethanol Mandates

The livestock and poultry industries submitted a petition to the EPA to temporarily suspend the mandate requiring ethanol to be blended into gasoline. This coalition claims the drought that is pushing prices to record levels is causing “economic harm” from soaring costs to feed their animals.

The ethanol industry disputes this claim and contends that those in the livestock and poultry industries are attempting to increase their profits at the expense of grain farmers. In my opinion, corn has been at high prices before and we have never had to resort to stopping the use of ethanol in gasoline.

If the EPA were to lift the mandate for blending, corn would have a sizable retracement. This would be followed by a short-term rally across the energies, but the current inventories of crude and gasoline are so high that I believe this rally would be short-lived.

Energies Remain In A Pivotal Area

Natural Gas

Natural gas issued a buy signal Monday (7/30) after three trading sessions of apparent consolidation. This is the fourth buy signal natural gas has shown since the trend changed to the upside on the daily chart in mid-June.

On the weekly chart, natural gas is super-trending to the upside, gave a buy signal two weeks ago, and so far this week natural gas is showing a fresh buy signal. Natural gas also sits atop some strong support. On the monthly chart, natural gas showed a bottoming formation in April as it failed to confirm that it may be in a longer-term downtrend. It closed above its 20-period SMA on the monthly chart, turning that resistance into some strong support.

Gasoline RBOB

The RBOB hit its highest level since mid-May as the August contract of gasoline RBOB futures issued a fresh buy signal Wednesday (8/01) and gave a buy signal last Friday (7/27) on the daily chart, which came after a nice retracement and has again closed above its 100-period SMA, a bullish indicator. On the weekly chart, RBOB suggested a bottoming formation the last week of June and has closed above several resistance areas, which now act as support.

Following this bottoming formation, gasoline had a nice three-week rally and I am now waiting for a fresh signal. So far on the monthly chart, gasoline RBOB is giving a buy signal for the month of July and looks to resume super-trending. The nine- and 20-period SMAs are so close on the monthly chart that a price movement either direction may have major technical ramifications.





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