818-Lancaster Fanning, Saturday, February 3,2001 ELEMENTS OF TECHNICAL ANALYSIS John Berry Ag Marketing Educator Penn State Lehigh County “Volume” and “open inter est” are used to substantiate pri mary signals developed by technical analysis. They help investors find clues to market movement and bolster the chances of enhancing their fi nancial position. In the futures market, a new contract becomes a reality only when a new buyer and a new seller complete a transaction. “Volume” is the total amount of purchases or sales transacted in a given day. Each time a record of a new market position is established or reversed, the total volume increases or de creases by one. To find the volume, add the total of the short positions, or add the total of the long positions that partic ular day. Do not add the two to gether, because a contract requires one of each. Each time a transaction is completed, whether it involves establishing a new position or offsetting an old position, the volume is increased by one. In general, trading volume has little relationship to a season, al though a slight upward trend may occur during heavy crop movements. Such movements are not repeated consistently. One way to characterize volume is as a measure of the urgency shown by market traders to do something on a given day to enter or leave the market. Open interest is defined as contracts entered into on the fu tures market but not yet liqui dated by an offsetting transaction or fulfilled by deliv ery of a commodity. This in volves the total number of contracts outstanding at the end of a day. Open interest is deter mined by adding the number of long positions held or by adding the total number of short posi tions held at the close of the trading day. Again, the two are not added together. Open inter est measures the degree or level of participation in the market. Usually it reflects new partici pants coming into the market and old ones dropping out. For examples: let’s assume you have no position in the market but decide today to buy one futures contract of wheat. If the seller on the other end of your transaction was closing out a previous long position in wheat, open interest would not change. You would, in effect, re place him in the market. But if the seller was establishing a new short position, volume would in crease by one because there would be a new long and a new short. Open interest is more subject to seasonal fluctuations than is trading volume. The low point usually occurs just before new crop harvest. It usually peaks when grain storage stocks are at their apex because as the com modity is stored, the number of hedged transactions increases. Both volume totals and open interest rates are published in the market sections of most daily newspapers. Remember: the totals in the newspaper re flect market activity for the day before yesterday. Both volume and open interest are measured in bushels for grain and in con tracts for meats. Looking at the combination of volume, open interest and price action can give the producer clues to how prices may behave in the future. When analyzing open interest and volume, con sider all the months for the same crop year of a particular com modity. Using supply and demand factors that incorporate two separate years can cause un related and incorrect readings. Positive signals are generated in a bull market because, as prices continue upward, volume also goes up. Even though sig nificant numbers of sellers are willing to liquidate, a large number of traders are willing to buy in the belief that today’s price protects them from paying higher prices in the future. Rallying prices and increasing open interest give another posi tive sign for a continuing bull market. This means more new buyers are coming into the market and holding their posi tion overnight, while sellers are buying back their short (sold) positions before the market closes. Speculators or long hedgers (investors anticipating further price increases) will enter the market and others (short hedgers and speculators) will leave, anticipating price declines. This type of market pattern must continue over sev eral days before a specific market direction, or trend, can be established. There also are warning signs to heed when the market’s volume continues to increase with a subsequent substantial price move, or when prices move up on a day when volume is down. These signs may show that only a few large buyers are pushing the market up against only a few sellers to inflate the existing price unrealistically. The biggest warning sign is when prices are going higher at a time open interest is dropping. This signals speculators are liq uidating their long positions and taking profits, leaving a large supply on the market to match a smaller population of buyers. Buyers should hold to purchase later, after the market price has adjusted to a lower and more ac ceptable level. In a bear market, sellers sell short even though these are many buyers. Prices may close lower on a day with heavy volume because of traders’ will ingness to cut profits or losses in anticipation of more price de creases. Another sign of a weak market is downward trending prices combined with increasing open interest. This market, dominated by many new sellers wanting out of the market, is likely to result in continuing lower prices. It is hard to gauge the direc tion of the market when both prices and volume are down. The few participants on that day At Crops Day, Growers Learn About Herbicide- Resistant Alfalfa Variety Under Test ANDY ANDREWS Lancaster Farming Staff LEESPORT (Berks Co.) For the first time, Roundup Ready herbicide-tolerant alfalfa will be available on a test basis. Penn State will have about 500 grams, or about a pound of seed, supplied by a small biotech company from Idaho working with Monsanto. Penn State will check on its field viability, spray it with Roundup, and check on a wide array of characteristics, ac cording to Bill Curran, Penn State weed specialist. Curran spoke Tuesday morn ing at the annual Penn State sponsored Berks County Crops Day at the extension office in Leesport. About 100 growers and agri-industry representa tives attended. According to Curran, though the alfalfa is a few years from the market, tests are under way to see how much of the seed is 100 percent Roundup Ready. Already, Roundup Ready soybeans make up a huge amount of planted acreage in the county, according to Curran. U.S. market share of the herbici de-tolerant soybeans comprises 50 percent and approaches 80 percent usage in parts of Penn sylvania, he said. may not have been sufficient to give a true picture of the strength of the total market di rection. When both prices and volume are low, it could be signaling the end of the downside trend in the market. A drop in price and open interest shows sellers are liquidating and taking profits in greater numbers than new short positions are being added. Even tually the market will gain more buying power than selling inter est, and prices will turn upward. At this market point, sellers should hold out for higher prices to come, but livestock feeders should consider buying before a price increase becomes a reality. Understanding and using this information provides the trader, speculator, or producer with good indications of the relative buying or selling strength of the market. Publications of the Commodity Futures Trading Commission (CFTC) offer valu able information on the open in terest and volume of trading for all regulated commodities. These reports also disclose the nature and size of traders hold ing futures contracts. All these factors influence a decision on whether to enter the futures market, but should not be used as the only indicator of when to buy or sell. Guidelines for producers and traders in following price, volume, and open interest: • Simultaneous increases in price, volume, and open interest indicate a technically strong market. • Decreases in price, volume, and open interest likewise indi cate a technically strong market. • Increases in price, coupled with decreases in both volume and open interest, indicate a technically weak market. • Decreases in price, com bined with increases in both volume and open interest, also indicated a technically weak market. Speakers at the Berks Crops Day were, from left, Bill Curran, George Dill, Sjoerd Duiker, and Don Reinert. Photo by Andy Andrews Manufacturers for years have been working toward the “ideal herbicide,” according to the weed specialist. That “perfect herbicide for the next millen nium,” Curran noted, would control all weeds, never injure the crop, have use on multiple crops, would be rainproof, have full-season control, have no ro tation restrictions, and would be inexpensive. The ideal control, pre- or pos t-application, would be grass- or broadleaf based “with foliar ac tivity and residual control,” he said. Curran examined several issues the grower must deal with. Not only are the compa nies marketing products merg ing or being purchased, but there are new issues of herbicide resistance and field “weed shifts,’’ according to Curran. In the industry, companies are merging or going out of busi ness altogether. BASF acquired American Cyanamid. The merger of Zeneca and Novartis resulted in the naming of a new company, Syngenta. Companies now include Aventis, Bayer, BASF, Uniroyal, FMC, Dow AgroSciences, Syngenta, Valent, and Dupont. Nine basic compa nies, according to Curran, could become 5 to 7 in years to come. In 1965, one in 11,000 chemi cals under review succeeded in coming to marketplace. That number shrank to one in 50,000 in 1995. Glyphosate, or Roundup products, are going to be com bined with different formula Berks Crops Day farmer panel members included, from left, Dwight Zook, Oley; David Stutzman, Virginville; and Robert Seidel, Lenhartsville. Photo by Andy Andrew* (Turn to Page B 19) tions and give growers more options for weed control. As for the next five years, suc cess or failure of new formula tions depends on consumer acceptance of biotech. Herbicide resistance, or HR, in major and minor crops could include stacked traits with insect man agement and plant disease re sistance. According to the Penn State specialist, 10 years in the future, information technology will key developments and more biocon trol options may be available for growers. For studies of using purely bi ological agents to control corn, that could be a “long way off,” Curran said. For now, weed shift and her bicide resistance issues will remain the focus of additional research. Already, the decision is still out on a case of possible hor seweed resistance in marestail, or horseweed, in Delaware, on no-till soybeans, according to the weed specialist. Penn State is still conducting greenhouse studies and lookirig at the issue closely. As for other herbicide resist ance issues (triazine and atra zine), there have been few “verifiable cases of resistance,” he said. The focus of studies has been the effect of herbicide programs on weed shifts in corn/soybeans rotation. A simple study has been examining six different herbicide treatments with
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