The End of the Corn Mania – Administered by the Last Bullish Engulfing Candlesticks Pattern
We all learned about the South Sea Mania and the Tulip Bulb Mania. We’ve been told about the disaster in which they ended. The spectacular rise in stock prices since 1995 was a mania, too. It took prices to a new high in 2000 and then to a rebound high in October 2007, from which point they have been falling nearly in a straight line falling since then. If we take it as a given that all price manias decline and end at a level which is as low as, or lower than, the level at which they began, then the Dow Industrials Average will decline to its level of 1995 – say 4000.
You could say that the run-up in Corn prices which started in October 2007 and came to an end in June 2008 was also a mania. It was propelled at least to a degree by an environmentalist-generated program which was a boondoggle from its inception: the the mad rush to bring volume production of Corn-based ethanol on line. Remarkably, the product contains less energy than the amount of energy which is required to produce it; and, paradoxically, the energy which is necessary to make it is largelyderived from petroleum. So, from the start, the whole program was sold to the public on a false premise. The whole thing was a hoax. It had the undesirable effect of raising havoc with the worldwide supply-demand and cost equations for Corn, whose principal uses have always been as people-food and animal feed.
Now the chickens have come home to roost. The mania has collapsed; and indeed Corn prices are lower now than they were at the time the mania began. It was written in the stars that it would be so.
When we look at the Weekly chart of Corn for 2007-2008-2009 (to date), we see a vertical rise in prices in 2008 – a “blowoff” rise – which is depicted by tall white Candlestick bars for the weeks of June 6 and June 13, followed by a black bar for the following week (was that a “hiccup” or an “uh-oh” week?) and then, for the week of June 27, a tall white bar which completely encompassesthe price range of the “hiccup” week bar. That tall white bar is a classically perfect “Bullish Last Engulfing” pattern, bothin consideration of its location at the extreme end of a long-established uptrend and in terms of its shape. The Bullish Last Engulfing Pattern is strongly bearish in its connotation, in spite of its name. Any investor who chooses to go or to remain Long after seeing that Bullish Last Engulfing Pattern,in the mistaken belief that the strong uptrend willprobably continue, takes his financial life in his hands. Indeed, in this case prices started to fall immediately after the appearance of the Bullish Last Engulfing pattern. They fell nearly without interruption for several months, until December 2008, halting at a level at which prices were about 80 cents below those which prevailed at the start of the mania in October 2007.
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Therefore, there are two morals to the story: 1) here is fresh evidence that prices in a financial mania always retrace to a point which is at least as low as the point at which the mania first began to emerge; and 2) the Candlestick Bullish Last Engulfing Pattern is a bearish warning that has to be taken seriously.
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