Market Technician No 52

5/26/2018 Market Technician No 52

1/12

There have been a few changes to the Committee. For five years Gerry

Celaya has been an enthusiastic and immensely hard-working member of

the Committee, but he has now decided it is time for him to stand down

in order to devote more time to his academic research. Gerry was always

one of the first to volunteer to become involved with new projects,quite

apart from carrying out his specific responsibilities of redesigning and

then overseeing the website and playing an active part in marketing the

Society.We shall miss his input very much and, on behalf of the STA, would

like to thank him for all his efforts. We are delighted to announce that

Clive Lambert and Richard Raymar were elected onto the Committee at

the Annual General Meeting. Michael Smyrks enormous contribution to

the Society over the years was recognised at the Christmas party when he

was made a fellow of the Society and in January Deborah Owen was also

made a fellow.

The STAs Educational activities have been growing. The diploma course is

now in its 10th year and 81 people have enrolled for this years course. In

addition, the STA Educational Committee will be setting this years Dita

exam for IFTA.

The STA will be well represented at FOWs conference on 29-30th June.

Robin Griffiths (Rathbones) will be explaining how he reads the charts to pin

down directional skews and market timing, Clive Lambert (Future Techs) will

be taking a more short-term look at the market using candlestick analysis

while Shaun Downey (CQG) will show how Market Profile can be used to

pick up on how daily trading sessions are developing. The STA will also be

supporting the Technical Analyst Magazines conference on 12th May.

Ethics has been very much in the headlines recently and the Committeedecided that it should review the ethics declaration that we ask members

to sign each year.In the light of this review it was decided in future to

expand the declaration to include the following:

Members of the Society of Technical Analysts are expected to conducttheir profession in an ethical way and abide by all the rules of the UKs

or any other relevant governments regulatory codes.

They should at all times act with integrity, competence and in anethical manner in their dealings with the public, clients, prospective

clients, employers, employees and fellow members.

They should also encourage others to act in a professional and ethicalway,so as to reflect credit on the Society and the profession.

They should seek to maintain and improve their competence and that

of others in Technical Analysis.

They should neither plagiarise nor publicly defame the work of othertechnical analysts, whether or not these are Society members.

At the same time the ethics committee also reviewed our policy on

advertising and it was decided that no change was needed to the

existing policy which is:

Any company wishing to advertise investment products or advisoryservices must be regulated by the FSA to give investment advice to

retail clients.

The company must give the STA written confirmation that the advertbeing placed has been approved by the companys compliance

department.

The STAs ethics committee must approve all adverts that go in thejournal or on the website.

Finally, a note for your diary.There is going to be an STA dinner this year. It

was decided to stop holding an annual dinner some years ago when the

number of people attending fell off but members appear to miss the

opportunity to get together on a social basis and so the Committee has

decided to hold one this year.It will take place on 22nd September at the

National Liberal Club.In the past, companies have found it an excellent

occasion to either invite hard-working staff or entertain clients. If you think

your company might be interested in a corporate table, please contact

Katie Abberton as soon as possible.The success of this occasion will

depend on the membership,so please do make an effort to come along.

Please note you do not have to be part of a group to come along.Individuals

are very welcome this will be a good opportunity to meet other membersof the Society and perhaps develop some useful market contacts.

IN THIS ISSUE

STA Exam Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Elizabeth Miller Coffee,Cocoa, Sugar: Using technical

analysis to avoid a bitter brew . . . . . . . . . 3

Tom Denham The British bear market of 1720-1940:

A socionomic examination . . . . . . . . . . . . 8

COPY DEADLINE FOR THE NEXT ISSUE31st May 2005

PUBLICATION OF THE NEXT ISSUEJuly 2005

FOR YOUR DIARY

Wednesday, 13th April The Psychology of Executing

Wave-Driven Trading Ideas

David Murrin, Emergent Asset Management Ltd

Wednesday, 22nd April STA Diploma Examination

Wednesday, 11th May Monthly Meeting

To be announced

Wednesday, 8th June Joint meeting with ACI

For the STA: Phil Roberts (Barclays Capital) &

Nicole Elliott (Mizuho Corporate Bank)

Bloomberg, 39-45 Finsbury Square,London EC2

29/30th June FOW Conference

Barbican Exhibition Centre

Wednesday 6th July Summer Party

Jeff Hochman, Fidelity Investments

Bloomberg, 39-45 Finsbury Square,London EC2

N.B. Unless otherwise stated,the monthly meetings will take

place at the Institute of Marine Engineering,Science and

Technology, 80 Coleman Street, London EC2 at 6.00 p.m.

April 2004 The Journal of the STA

Issue No. 52 www.sta-uk.org

MARKET TECHNICIAN


2/12MARKET TECHNICIAN Issue 52 April 20052

DISTINCTION

ASHLEY DAVIS

ALEX DE KORODI

PASSED

MOHAMMED NAZRI KHAN BIN ADAM

SHANE ARCHER

MARIA BAPTISTA

STEVEN BREWIS

ZAHID BUKHARI

JACQUES CROCHET

JOAO CARLOS FLORES

BOB MUNRO

RUPA KUMAR RAJA

RITA CORREIA REBELO DA SILVA

CHAIRMAN

Adam Sorab: [email protected]

TREASURER

Simon Warren: [email protected]

PROGRAMME ORGANISATION

Mark Tennyson d'Eyncourt: [email protected]

LIBRARY AND LIAISON

Michael Feeny: [email protected]

The Barbican library contains our collection. Michael buys new books for it

where appropriate.Any suggestions for new books should be made to him.

EDUCATION

John Cameron: [email protected]

George Maclean: [email protected]

EXTERNAL RELATIONS

Axel Rudolph: [email protected]

IFTA

Anne Whitby: [email protected]

MARKETING

Clive Lambert: [email protected]

Richard Ramyar: [email protected]

David Sneddon: [email protected]

Barry Tarr: [email protected]


MEMBERSHIPSimon Warren: [email protected]

REGIONAL CHAPTERS

Robert Newgrosh: [email protected]

Murray Gunn: [email protected]

SECRETARY

Mark Tennyson dEyncourt: [email protected]

STA JOURNAL

Editor,Deborah Owen: [email protected]

WEBSITE

David Watts: [email protected]


Deborah Owen: [email protected]

Please keep the articles coming in the success of the Journal depends

on its authors, and we would like to thank all those who have supported

us with their high standard of work.The aim is to make the Journal a

valuable showcase for members research as well as to inform and

entertain readers.

The Society is not resp onsible for any material published in The Market

Technician and publication of any material or expression of opinions

does not necessarily imply that the Society agrees with them. The

Society is not authorised to conduct investment business and does notprovide investment advice or recommendations.

Articles are published without responsibility on the part of the Society,

the editor or authors for loss occasioned by any person acting or

refraining from action as a result of any view expressed therein.

NetworkingWHO TO CONTACT ON YOUR COMMITTEE

STA Diploma Results

November 2004

We are very grateful to Michael Smyrk for donating

the following books to the library:

McCullough R. (1994) A New Look at TA.Texas, Liberty Research Corp.

Yamada L. (1998) Market MagicWiley

Stewart H.(1986) How Charts Can Make You Money(1st edn)

Woodhead Faulkner

Pring M.(1991) The KST Indicator Lecture notes

Kirkpatrick C.II (2000) Stock Selection: a Test of Relative Stock ValuesReported Over 17-1/2Years

Aby C. D.(1992) The Complete Guide to P & F Charting

Colonial Press & Chartcraft

Blumenthal E. (1965) Chart For Profit: P & F Trading (3rd ed.)

Chart For Profit Systems

Wheelan A.(1954) Study Helps In P & F Technique

Morgan Rogers & Roberts Inc.

Wilder W.(1987) The Adam Theory of MarketsTrend Research.

Gotthelf P. (1995) TechnoFundamental Trading Probus.

Pardo R.(1992) Design,Testing,& Optimization of Trading

Systems Wiley.

Ehlers J.(1992) MESA and Trading Market Cycles Wiley.

Fischer R. (1993) Fibonacci Applications & Strategies For Traders

Wiley.

Bank of England Charts & Fundamentals in the Foreign

Discussion Pap er Exchange Markets

No.40, August 1989

ANY QUERIESFor any queries about joining the Society, attending one of the STA courses

on technical analysis or taking the diploma examination,please contact:

STA Administration Services (Katie Abberton)

Dean House,Vernham Dean, Hampshire SP11 0LA

Tel:07000 710207 Fax:07000 710208 www.sta-uk.org

For information about advertising in the journal, please contact:

Deborah Owen, PO Box 37389,London N1 OES. Tel: 020-7278 4605


3/12Issue 52 April 2005 MARKET TECHNICIAN 3

The coffee, cocoa and sugar futures, are traded on both the Euronext. Liffeand NYBOT exchanges and are fairly mature and liquid contracts. The

traditional traders of these contracts have tended to be so-called real

users, i.e.traditional hedgers and corporations. Speculators supply

additional liquidity and, in recent years, funds have also been riding the

trends in their search for non-correlated returns to equities. While the

contract specifications are different between LIFFE and the CSCE, the

broad market trends tend to be similar in the respective commodities.

Options on the contracts are also available.

The coffee market

Coffee is one of the most valuable primary products in the world,

second only to oil in terms of international trade. Retail sales of coffee

are estimated at $70bn per annum,with just over $6bn of that sum

going to the producer countries (it is the Starbucks of the world whopocket the rest).

The two most important sp ecies of coffee economically are:

Arabica which accounts for over 65% of world production and is pre-

dominantly grown in Latin America and East Africa.

Robusta which accounts for most of the remainder (almost 35% in the

2004/05 crop year). This species is predominantly grown in Indonesia,

West Africa, Brazil and Vietnam.

Coffee futures are traded primarily on NYBOT and Euronext.Liffe. To a

lesser extent, they are also traded on Brazils Bolsa de Mercadorias &

Futuros (Arabica and Conillion, as well as options) and the Tokyo Grain

Exchange (Arabica, also Robusta).

Coffee a time-line

Legend has it that coffee was discovered by a goat-herder in Ethiopiaaround 850AD. He noticed that his goats seemed more alert and active

after chewing the beans and decided to try them for himself

The bean spread throughout the region. By the 1400s, coffee was somuch a part of Turkish life that men were required to give a regular

supply of the bean, regarded as an aphrodisiac,to their wives or it was

groundsfor divorce.

The first coffee shop opened in Constantinople in 1475. At the time, transportation of coffee out of the Moslem nations was

forbidden by law.

It was not until 1615 that Venetian traders managed to smuggle coffee

to Europe. It was at the time sold in pharmacies as a medicinal remedy. Around 1650, a pilgrim called Baba Budan smuggled the seeds to India.The drink was denounced by the Christian church as a hellish black

brew but Pope Vincent VIII refused to condemn the drink without first

tasting it. He pronounced it so delicious it would be a pity to let the

infidels have exclusive use of it and baptised the drink to make it

suitable for good Christians In 1652, the first coffee house opened in England (years before tea was

even introduced to the country)

In 1688, Lloyds of London began life as a coffee house. Edward Lloydprepared lists of the ships that his customers had insured.

Before launching into the charts,some of the fundamental factors are

discussed below. Although it is anathema to some technical analysts to

look at the background factors, we have found this quite useful in the

analysis of these markets, as they can have a large impact on the price.

Fundamental supply factors

Coffee is a biennial crop, which means that it produces a smaller crop

from the same tree every second year. It takes up to five years to establish

a tree before it can produce marketable beans, but the same tree can then

be maintained for 15-20 years thereafter. That means that once a tree is

established, there is little incentive not to supply coffee to the market,

leading to a rather inflexible supply,though farmers will tend to reduce

pest control and inputs in years when coffee prices are low.

Total global exports reached around 88.73m bags in 2003/04, down from

a record in 2002/03. The next biennial peak will be this season, i.e.

2004/05, though low inputs and bad weather are likely to keep this years

harvest well below the record.

The worlds largest exporter is Brazil, which supplied over 29% in 2004 and

coffee traders watch the weather forecasts really closely throughout the

Brazilian winter (which commences in June) for frost warnings. Frost

damage not only reduces the

current crop, it also reduces the

amount of next years output and in

Brazil the highest risk of frost is in

July. As an example of the impact a

major frost can have, take a look at

the chart 1 below, when the famous

Black frost of 1975 catapulted

prices from below 50c to over 325c.

The second largest global producer

of coffee is Vietnam, whose crop

year runs from October to

September.Vietnam overtook

Colombia as the second largest

supplier in 1999/2000 but it takes a

big rise in supply to compensate for

a bad year in Brazil.

Coffee, Cocoa, Sugar: Using technicalanalysis to avoid a bitter brewSummary of a presentation given to the STA on 9th February 2005 By Elizabeth Miller

Exchange: Trades: Trading Units: Traded Delivery Minimum trading Websitein: Months: fluctuation:

New York Board

of Trade (NYBOT)

coffee has

traded here

since 1882, when

the exchange

was called the

Coffee Exchange

of New York.

Euronext.Liffe

coffee has traded

since 1958.

Arabica

Robusta

37,500 lbs

(approximately

250 bags)

5 tonnes

Cents/lb

$/tonne

March, May,

July, September

and December

January, March,

May,July,

September,

November

5/100 cent/lb,

equivalent to

$18.75 per

contact

$1 per tonne ($5)

www.nybot.com

www.euronext.com

Chart 1



Demand factors

Global consumption of coffee was around 113.7m bags in 2004. Of that,

domestic consumption by the exporter nations was 28.38m,of which 14m

was attributable to Brazil. Export demand was 85.32m bags in 2004 (a

3.41m shortfall).

The top 10 importers of coffee are the USA, Germany, Japan, Italy, France,

Spain,UK, Holland, Bel/Lux and Sweden.

Technical factors

Cycles there is an approximate five year cycle in the NYBOT coffee future,which coincides with the fact that there has been a major frost or major frost

warning every five years,at least since the Black frostof 1975 (see charts 2

and 3 below).However,this relationship seemed to break down at the last

cycle trough in 1999. Interestingly, the next cycle trough shouldcome this

April. Given that the trend seems to have shifted higher we are a little

sceptical that this will have much impact but it is worth bearing in mind.

As a side note, be aware that the NYBOT and Euronext.Liffe contracts can

act quite differently. In September 1994, there was a big freeze in Brazil

and other Latin American suppliers, resulting in a squeeze on supplies and

hence on prices. Note that both the NYBOT and Euronext.Liffe contractswere squeezed. In May 1997 fears of a big frost in Latin America had an

even bigger impact than the real thing in September 1994 on the NYBOT

contract but had a lesser impact on the Euronext.Liffe market.

Chart 6 below shows the performance of the NYBOT contract up to the

beginning of 1994. While the contract was fairly rangebound, most

analysts would have been aware of the resistance lines and hopefully

would have been able to capture some of the steep rally on the breakout.

Current outlook:

Chart 2

Chart 5

Chart 6

Chart 7

Chart 8

Chart 3

Chart 4

Coffee NYBOT Coffee futures



Conclusions from the charts

The NYBOT and Euronext.Liffe coffee contracts appear to be forming a

medium term base, with the Euronext.Liffe contract lagging but forming a

potential double bottom on the weekly charts. The market has cleared

the $1000 barrier mentioned in the February talk and the $1080 double

bottom trigger suggests a longer term target towards $1500. A turn

below $900 would leave a flatter stance (see charts 6 and 7).

The NYBOT active month coffee futures easily breached 110c and look

well on track for the 134c and then 150c levels on retracements (38.2%

and 50% respectively of the decline from November 1999). The 115c area

should offer strong support now.

The cocoa market

The users of cocoa futures tend to be the international cocoa trade, cocoa

processors, chocolate manufacturers, managed futures funds, institutional

investors and,of course, speculators. Cocoa futures are particularly

interesting because there is also an element of foreign exchange risk

when arbitrating between the NYBOT and Euronext.Liffe futures since the

NY market is priced in dollars while the Liffe market is priced in sterling.

That means that additional arb itrage opportunities can arise when Cable

(GBP/USD) moves. Bear in mind though, that there is a slight premium on

Euronext.Liffe cocoa due to higher quality beans.

Cocoa contract specifications

Fundamental supply factorsIt takes roughly 3-5 years before a cocoa tree can be harvested and it

reaches full capacity after 10 years. The trees are productive for up to 25

years and,as with coffee, this leads to rather an inflexible supply curve.

Ivory Coast (Cte dIvoire) is by far the largest single producer of cocoa

beans (supplying around 30% of the worlds supply), with two crops a

year. The main crop runs from October to April, providing 75-80% of the

total harvest and the mid-crop, which runs from April to August,supp lies

25-20%. The bulk of supply hits the market in February, June,and October.

The major producers of cocoa beans are based in West Africa, Latin America

and the Far East. After the Ivory Coast,the largest producers are Indonesia,

Brazil,Malaysia and Nigeria. Ivory Coast produced a record crop of more

than 1.5m tonnes in 2003/04, including an estimated 150,000 tonnes

smuggled to Ghana (the number two producer). The market is subject to

ups and downs associated with Ivory Coast politics as seen below but themarket tends to trend. Note that technical analysts would have had a

heads up about the supply worries well before it was picked up in the

headlines.It also took a while for the market to realise that Ivory Coast

supplies, which could not be shipped due to blockades, were finding their

way over the border to Ghana and exported from there,which meant that

the drop in supplies was not nearly as bad as had been anticipated.

A timeline of Ivory Coasts history (chart 9):

1960: Independence from France.

25 December 1999: Military coup.

2000: Junta leader Guei holds elections. Popular protest at outcome

brings runner-up Gbagbo into power on 26 September 2000.

September 2002: Ivorian dissidents and disaffected members of the

military launch (unsuccessful) coup. Rebel forces seize north of the

country.

January 2003: Rebels granted ministerial positions in government.

September 2003: Rebels walk out.

December 2003: President Gbagbo and rebels resume implementation of

peace accord but issues that sparked the civil war,e.g. land reform and

grounds for nationality unresolved.

At present: Government holds the South, Rebels still hold the North. Several

thousand French and West African troops remain to maintain the peace.

Demand factors

The major importers of cocoa beans are the

USA,Netherlands, Germany,UK and France.

The Netherlands is the biggest cocoa

grinder,not the Swiss or the Belgians despite

their famed chocolate. Of the beans

imported, approximately two-thirds is used

to make chocolate and one-third to make

cocoa powder. The cocoa content makes up

around 10% of the cost of a bar of chocolate.

Technical factors

Exchange: Trading Units: Traded Delivery Minimum trading Website

in: Months: fluctuation:

NYBOT cocoa

has traded here

since 1925,at the

then New York

Cocoa Exchange

Euronext.Liffe

cocoa has traded

since 1928

10 metric tons

(22,046 lbs)

10 tonnes

$/metric

ton

/tonne

March,May,July,

September and

December

March,May,July,

September,

December

$1.00/ton,i.e. $10

per contract

1/ton, i.e.10 per

contract

www.nybot.com

www.euronext.com

Chart 9

Chart 10

Chart 11




NYBOT peaked in January 2003 but only marginally cleared the October

2002 highs before collapsing, whilst the Euronext.LIFFE market dropped

sharply in October 2002 providing a warning signal. The market has

declined a long way, particularly the

Euronext.LIFFE market as the rise in

sterling has made trading through

the London market more expensiveand, from a technical perspective,

there is scope for a bounce.

The NYBOT cocoa futures were able

to recover $1650,highlighting the

potential for a push back to the top

of the wide range at $1830/50 and a

break there would raise the prospect

of a more aggressive retracement

towards the $2000 area (near 61.8%

of the decline from the February

2003 peak). The $1645-41 small gap

marks support and near term risk,

while a turn below $1500 would

heighten the risk of a retreat back to

the $1300 June 2004 lows. The

upside is favoured and a break of $1850 would allow risk to be brought

up to just below $1800.

Euronext.Liffe has fallen somewhat further but is holding trendline

support and the ability to recover 930 highlights the potential to revisit

the 1048/50 key highs from 2004. Gains through the top of the range

there would add confidence in a push towards 1185 (38.2% of the

decline from the October 2003 peak). The 930/900 area should offer

support, with risk below that as a breach would bring the 835 trendline

(drawn from the December 2000 trough) back under pressure.

The sugar market

The users of sugar futures tend to be the international sugar trade for

hedging purposes, as well as sugar millers,refiners and manufacturerswho wish to actively manage their exposure to adverse price movements.

In addition, institutional investors and of course speculators are involved

in the market.

The NYBOT sugar market offers two sugar futures contracts: the world

Sugar No.11 and domestic Sugar No.14.

The major trading volume takes place in the world Sugar No. 11 market.

Note that delivery is free on board (FOB),the seller who delivers the sugar

at the agreed price pays the cost of loading sugar on board the vessel.

That is particularly interesting as it means that freight costs become an

important factor. Freight costs can be up to 10-20% of the entire cost,

which means that trade in the physicals can dry up when oil prices are

high. However,this is not a straightforward calculation given theincreasing use of ethanol as a substitute fuel. That means that high oil

prices can also help to drive up sugar prices.

The Euronext.Liffe contract uses white sugar, delivered FOB in designated

ports across the world.

The contract traded over 1 million lots in 2002, which represents over 50

million tonnes of white sugar that is over three times the volume of

white sugar traded on the world market.

Cane and beet

Identical refined sugar originates from two different plants cane and

beet.

Sugar cane is a type of grass and is grown in tropical climates, mainly in

the Southern hemisphere.

Sugar beet is a type of tuber and is grown in cooler climates almostexclusively in the Northern hemisphere.

White sugar is produced from both cane and beet, the only difference

being the final appearance.

There are four stages in the production of white sugar from cane: juice

extraction, purification, crystallisation into raw sugar and then refining.

Cane by-products are bagasse, molasses and filter presse.White Sugar

from beet has only three stages: juice extraction, purification and then

refining. Beet by-products are beet pulp and beet molasses.

Fundamental supply factors

In 2002, some 148 million tonnes of sugar (raw value) was produced

worldwide with cane accounting for 110 million tonnes and beet

accounting for 38 million tonnes. Sugar production has risen from 135

million tonne in 1999 and 118 million tonnes in 1995.

Freely-traded sugar is only a fraction of worldwide production due to

government programs and intercessions. In the last 20 years however,

the total share of free trade has increased from 18% of world

production,to close to 30%. Brazil, Australia, Thailand, the EU and Cuba

account for more than 72% of the total world free market exports, up

from 65% in 1985. Of that total, Brazil exports more than one third and

since 1994, Brazilian sugars have accounted for nearly 80% of the total

tonnage delivered against the NYBOTs Sugar futures contract, meaning

that this is another market where the weather in Brazil is critical. The

biggest producing countries of sugar (cane and beet) are Brazil, India,

EU, China, USA,Thailand, Australia, Mexico and South Africa. The main

producers of white sugar from beet are the EU, USA, Turkey, Poland,

Ukraine and Russia.

Brazil is both the largest exporter of sugar and the largest producer and

user of ethanol. That means that in times of particularly soft prices,Brazil

is able to manipulate the supply / demand dynamic of the market.

Demand factors

In 2002, annual world consumption of sugar was 141 million tonnes (about

7 million tonnes less than the supply). The worlds largest consumers ofsugar are India, EU,China, Brazil, USA,Russia,Mexico and Indonesia. The

largest importers of white sugar are the Gulf states, the Middle East, North

Africa, Nigeria and Indonesia. Around 80% of world import demand comes

from developing countries.The import demand of 100 countries is equal to

the supply capabilities of the five major exporters.

Exchange: Trades: Trading Units: Traded Delivery Minimum trading Website

in: Months: fluctuation:

NYBOT sugar

has traded here

since 1914, at the

Coffee Exchange

of New York.

(Now changed its

name to the New

York Coffee &

Sugar exchange.)

Euronext.Liffe

sugar has traded

since 1983

Raws

Whites

112,000 lbs

(50 long tons)

50 tonnes

Cents/lb

$/tonne

March,May,

July, October

March,May,

August,October,

December

1/100 cent/lb,

equivalent to

$11.20 per

contact

$5 tick value

www.nybot.com

www.euronext.com

Sugar contract specifications

Chart 12



Currently India watchingis in vogue since severe crop failures in that

country are likely to push up physical demand. Pakistan is also a forced

buyer. Russia and China are particularly large importers too and an increase

in wealth tends to help the sugar market, as well as changes in policy.

Technical factor

Chart 13 is a monthly chart of the NYBOT sugar~11 contract. Note that

from a long term perspective,the market has been largely flat, trading hasbeen in a broad range since the late 1980s between around 4.5c and 15.0c.

From charts 14 & 15,it can be seen that the markets trade in relatively

similar trends.


Although the trend has been bullish since early 2004 both markets

recently faltered at major resistance, with the NYBOT contract failing to

retest the major 10c level, capped at 9.50c. Euronext.Liffe reached the top

of a major range at $280/ton.

These markets are rather chopp y but the rejection from the highs

indicates a deeper retracement despite the supportive fundamental

backdrop which suggests that the good news has been more than

priced in. Downside Fibonacci retracements are noted at 8.28c, 7.88c and7.48c for NYBOT,with risk placed above 9.15c for now. Euronext.Liffe

likewise looks vulnerable. Downside retracements are noted at $244.31,

$233.50 and $222.70. A turn above $270 would leave a flatter tone,

bringing $280+ back into view.

Web Sources

www.NYBOT.com

www.euronext.com

www.CRBtrader.com

www.ICCO.org

www.ICO.org

www.sugaronline.com (formerly the ISO)

www.agriculture.com (very useful)

www.coffeeresearch.orgwww.freshjoe.com

www.arabica.com

www.hawaiianchocolate.com/history

www.Starbucks.com

www.tateandlyle.com

Chart 13NYBOT Sugar 11 futures (monthly)

Chart 16NYBOT May 2005 Sugar

(20-day and 60-day moving averages)

Chart 17Euronext.Liffe May 2005 Sugar

(20-day and 60-day moving averages)

Chart 14NYBOT Sugar 11 futures (weekly)

Chart 15Euronext.Liffe sugar futures (weekly)



Its wintertime in 1940. A family in London cowers under their kitchen tablebehind drawn black-out curtains,quaking as they listen to the air raid sirens

and fearing the sound of German bombers overhead. But, 220 years earlier,

all that their ancestors had to worry about was how to spend the newfound

wealth created when the price of their South Sea Company stock rose nearly

700% in eight months. What happened?

One reason to look back at historical stock charts is to see the patterns in

the past so as to project patterns in the future. Another reason is to learn

more about the social mood of the time,because social mood is reflected

in stock prices. More important, while fundamental events do not cause

changes in wave patterns, changes in wave patterns can forecast changes

in underlying fundamental conditions.

On 2 July 2004 we observed a contracting triangle spanning 220 years

from 1720 to 1940,followed by a thrust from 1940 to 2000. This viewconfirmed that the period in British history from 1720 to 1940 formed a

Grand Supercycle wave IV . (See Figure 1.) In other words,it was a long

bear market.

This article ob serves how social mood was reflected in stock prices duringthis period, by comparing social events in the United Kingdom with the

highs and lows of the British equity markets.

South Sea Mania Kicks Off British Wave IV

The South Sea Company, which was formed in England in 1711, was the

primary vehicle of financial speculation by 1720. The company used its

government-granted monopoly on trade with the New World to attract

investors. As prices surged,aristocrats and common folk alike borrowed

on margin to secure as much stock as possible. The price of South Sea

Company stock rose eight-fold from 128 in January 1720 to 1000 in

early August, then collapsed to 150 by the end of September. Thousands

of people were ruined. An investigation by Parliament discovered

widespread fraud among company directors.

As Bob Prechter observed in Bulls, Bears and Manias, an Elliott Wave

Theorist Special Repor t (May 1997):

Historians characterize manias

as a kind of madness that takes

hold of a population.The widely

shared illusion of endless huge

profits that propels a mania also

produces another kind of

madness: anger Regardless of

extent, every mania is followed

by a decline that ends below the

starting point of the advance.

Considering the heights that

manias reach, this is an amazingfact.

The mania of 1720 was not

limited to South Sea Company

stock. The entire London stock

market rose and fell with the

mania. The Financial Times All

Share Index started from a low

of 24.66 in 1719 and shot up

323% to the bubble top at

104.34 in 1720. Two years later,

in classic form,the index was

down 83% to a lower low at

18.13. This was the kickoff to a

series of broad swings in stockprices and historical events over

the next two centuries.

The British bear market of 1720-1940:A socionomic examination

By Tom Denham

Figure 1

R.N. Elliott discovered and popularized the Wave Principle in the 1930s

to forecast financial markets. Although Elliott recognized that the Wave

Principle could also be used to assess social trends, it was Bob Prechter

who offered an articulate demonstration of how human behavior is

mood-based and patterned, according to the Wave Principle,in his

1999 book, The Wave Principle of Human Social Behavior and the New

Science of Socionomics.

Bob observed that the stock market records the vicissitudes of far more

than stock prices. It records the ups and downs of societys mood

state. More than is generally recognized, speculation in financial

markets results from emotional, rather than rational, decisions.

Stock market investors can respond almost immediately to social mood

changes; investors in the aggregate buy when their emotional state is

positive and sell when it is negative. Their transactions are meticulously

tabulated and, therefore,provide voluminous insight into the net

emotional state of society.

Because social mood determines the character of social events, a rising

stock market serves as a leading indicator of positive social events and

a falling stock market forewarns of negative social events.

WHAT IS SOCIONOMICS?



Socionomic Highlights, 1720-1940

As the 220 years from 1720 to 1940 wore on, anger manifested itself in

various ways as people in the United Kingdom lived through wars,

violent rioting, political repression, and famine. However,they also

experienced the economic progress of the Industrial Revolution,

expanded voting rights, broader educational opportunities, and greater

protection for workers. In other words, even though it was a Grand

Supercycle wave IV bear market, prices (and social mood) didnt simply

move in a straight line.They moved in a common Elliott formation

called a contracting triangle.

In particular, a contracting triangle pattern usually reflects a balance ofnegative and positive social forces. Consistent with the five waves of a

contracting triangle, British stocks went through three Supercycle bear

markets [(a), (c) and (e)] and two Supercycle bull markets [(b) and (d)]

between 1720 and 1940. Moreover,within these Supercycle swings,there

were a number of Cycle degree bull and bear markets.

Lets review in brief some of the events that shaped this period of time. We

will group the events according to whether the stock market (and, thus,

social mood) was on an upswing or a downswing within wave IV .The

broad strokes of the period can be seen in Figure 2. For a more detailed

description of these events,please see the appendix to this report.

Wave (a) down: 1720-1816

After the 1720 collapse, a long period of conflict ensued that had both

local and global features. The global conflict included war with Spain,the

Seven Years War, the American Revolution,and the Napoleonic wars. From

a socionomic perspective:

Major mood retrenchment produces war, as humans finally express their

collective negative mood extreme with representative collective action

The size of the war is almost always related to the size of the bear market

that induces it. (The Wave Principle of Human Social Behavior,page 266)

Wave (b) up: 1816-1825

The British economy began a period of rapid expansion in 1815 after the

Napoleonic wars. Some of the positives during that time:

Exports to the newly independent countries of Latin America boomed.

Large-scale infrastructure projects (e.g., gas lighting, canals, and

railroads) were funded.

Factory legislation in 1819 limited those aged nine and above to a

12-hour day.

Robert Peel became Home Secretary in 1822 and led reforms of thelegal system that removed the death penalty from more than 100

crimes.

On the cultural side, the Royal Academy of Music opened in 1823

in London.

The Bank of England exercised easy monetary policy during this upswing,

and the stock market boom became a bubble as investors bid up the

prices of real and imaginary stocks, such as bonds from the imaginary

South American Republic of Poyais. Another century,another South Sea

Company-style mania. This bubble burst in 1825.

Wave (c) down: 1825-1849

Famine and illness swept through the United Kingdom during the period

from 1825 to 1849.

Two great Cholera Pandemics ravaged the country, the first reachingits height in 1831 and the second in 1848. Cholera killed as many as

1,000 people per day when the disease's devastation in England was

at its worst.

Life in Ireland reached a low point as the Potato Famine tightened its

Figure 2



grip. Between 1845 and 1851,one-and-a-half million people died

during the Irish Potato Famine,and another million emigrated to

escape starvation. The government was slow to respond when the

potato blight first emerged and, in the end,the population of Ireland

decreased by 20%. The French sociologist, Gustave de Beaumont,

visited Ireland in 1835 and wrote:

I have seen the Indian in his forests, and the Negro in his chains,andthought, as I contemplated their pitiable condition,that I saw the very

extreme of human wretchedness; but I did not then know the condition

of unfortunate Ireland.... In all countries,more or less, paupers may be

discovered; but an entire nation of paupers is what was never seen until

it was shown in Ireland.(from www.historyplace.com)

Wave (d) up: 1849-1929

The 80-year long Supercycle wave (d) was a series of Cycle degree bull

and bear markets, some lasting even longer than their Supercycle cousins.

All the same, strongly positive events clustered near Cycle degree highs

and strongly negative events tended to occur near the Cycle degree lows.

Figure 3 takes a closer look.

From the time of the stock market bottom in 1849, the social tide began

to turn positive.

The Factory Act of 1850 restricted all women and young people to no

more than 101/2 hours work a day.

The Education Act of 1870 provided for genuine mass education on a

scale not seen before.By 1874, more than 5,000 new schools were

founded.

By 1906, Parliament began a series of ambitious social reforms:

medical examinations for schoolchildren, free meals for the poorest

students, a program for slum clearance, and the introduction of a basic

old-age pension scheme.

In 1918, the government granted women over the age of 30 the right

to vote, and, in 1928, the right to vote was extended to women over 21.

And, negative events showed up strongly near the lows.

The last public hangings were conducted in 1868.

The takeover of the Transvaal Republic and the first Boer War occurred

between 1877 and 1880.

The worst rioting over Irish Home Rule took place in Belfast in 1886.

Jack the Ripper terrorized London as a serial killer in 1888 and

became a cultural icon.

The First World War began on the Continent, and Britain entered World

War I in 1914. After the war,demobilized soldiers came home to a

poor economy. More than two million people were unemployed by

1921, and strikes increased.

Frustration over unmet demands for Home Rule led to an armed

uprising in Dublin in 1916. The British subsequently executed 15

nationalist leaders and interned 3,000. Civil war continued until 1923.

Figure 3



Wave (e) down: 1929-1940

Britons experienced some of the worst hardships in modern history

towards the end of the Grand Supercycle wave IV .

Unemployment peaked just below three million in 1932,up from the

two million unemployed in 1921 in the aftermath of World War I.

The Irish Republican Army engineered terrorist bombings in London,

Liverpool, Birmingham,Manchester, and Belfast in 1939.

The Second World War officially began in Europe in 1939 when Britain

and France declared war on Germany after deciding that Hitler could

not be allowed to seize Poland.

Children were sent to the countryside for safety, while adults huddled

in basements and feared their country would be invaded.

Conclusion

British social mood reached its low point in 1940.Rationing began in

January.The news filtering in was all bad: Germany bombed the Scapa

Flow naval base near Scotland in March. Germany invaded Denmark and

Norway in April. Germany invaded France, Belgium, Luxembourg, and the

Netherlands in May. In July, German U-boats attacked merchant ships in

the Atlantic and the Battle of Britain began.

But it appears that a critical point in social mood shifted in July 1940. The

Financial Times All Share Index bottomed that month at 18.58 while the

war escalated. Ironically, in a historic big-picture version of sell the rumor,

buy the news, no bomb touched London until after the low was in place.

This low held even though the Battle of Britain wore on through May 1941

and despite Germanys attempt to destroy British morale with nightly

bombing raids on London and other major cities.

The conclusion of the triangle wave pattern confirmed the wisdom of

buying stocks while air raid sirens still blared. Stock prices gained 117%

from the 1940 low to May 1945 when the war ended.

APPENDIX

How well did the stock market serve as a leading indicator of events?

We did a small and admittedly unscientific study by sorting through the

timelines of Britain and England published atwww.bbc.co.uk/history/timelines/ to identify positive and negative events.

The Victorian Web project of the National University of Singapore at

www.victorianweb.org and a few other sources were consulted as well.

The final list included 68 events, 37 of which we labeled as negative and

31 positive (included in the Appendix). The included events are not of

uniform importance. For example, the Napoleonic Wars surely had a

greater impact on society than Elizabeth Garrett Anderson becoming the

first licensed female doctor in 1865. A historian who specializes in this

period could undoubtedly improve upon our list, but we think it presents

an adequately accurate picture of the times. The important thing to know

is that we did not exclude any event in order to improve consistency with

socionomic expectations.

Some important developments extended over a long period and could

not easily be associated with a specific date. One example is the textile

industry, which began to flourish in Britain in 1733 as a series of inventions

made it possible to industrialize spinning and weaving. The development

of the textile industry was a social positive in the sense that people

worked together to create more wealth. On the other hand,owners

violently repressed early attempts to unionize. Underlying fundamental

conditions improved,b ecause England went from an agrarian to an

industrial economy.But new technology did not rehabilitate the social

mood, and the bear market continued until it had run its negative course.

Heres what we learned from plotting the positives and negatives on the

All Share Index chart to see how consistently historical events lined up

with socionomic expectations: Approximately three-quarters of the time,

negative historical events occurred near market lows,and positives

occurred near market tops. See Figure 4. While not a perfect fit, its far

better than a 50-50 chance.

Figure 4

1 1735 People objected to paying toll road fees, and there were

serious outbreaks of rioting in 1735 and 1750.

2 1739 Competition in trade between Britain and Spain grew

increasingly angry until war broke out.

3 1745 Catholic factions tried to reclaim the monarchy. Bonnie Prince

Charlie led an unsuccessful uprising to make his Catholic father, James

Stuart,king.

4 1750 Turnpikes riots see 1735 entry above.

5 1756 Seven Years War begins.

6 1775 Britains North American colonies revolted, and eventually

France, Spain, and the Netherlands entered the war against Britain.

7 1780 Violent anti-Catholic riots broke out in major cities in response

to the repeal of harsh anti-Catholic legislation from the seventeenth

century.

8 1800 Many landowners in Scotland clearedlocal people who were

no longer economically useful. On occasion, this involved burning

their houses above their heads.9 1800 Legislation restricting the freedoms to speak, publish, meet,

and organize suppressed hundreds of local reform societies.

10 1803 Britain resumed war against France to stop the European

conquests of Napoleon. Napoleon was not defeated until 1815.

1 1753 The British Museum founded.

2 1768 James Cook undertook the first of three exploratory voyages

to the Pacific, as British interests in the wider world expanded.

3 1769 James Watt invented an improved steam engine that soon

became the dominant design and helped bring about the Industrial

Revolution.

4 1819 Factory legislation limited those aged nine and above to a 12-

hour day.

5 1822 Robert Peel becomes Home Secretary and leads reforms of the

legal system that removes the death penalty from more than 100 crimes.

6 1823 The Royal Academy of Music opened in London.

7 1824 The National Gallery of Art established in London.

8 1825 George Stephenson built the first public steam railway from

Stockton to Darlington.

9 1825 Export and infrastructure investment boom,which started in 1815.

10 1826 University College,London, founded.

11 1832 The first Reform Bill, which extended voting rights and

redistributed Parliamentary seats,is passed.

BRITISH SOCIAL EVENTS, 1720-1940

Negatives Positives



11 1811 New machines and industrial practices threatened traditional

home workers. Led by Ned Ludd, people destroyed machines and

factories. After 17 Luddites were executed in 1813, the movement

diminished.

12 1815 The Corn Laws were passed to enforce high grain prices and

kept cereal and bread expensive to support farmers who had become

accustomed to high prices during the Napoleonic Wars. Consumers

complained.

13 1819 11 people died when cavalry charged a large meeting of

reformers gathered to hear a speech at St Peter's Fields in Manchester.The government taxed the radical press, sent spies and provocateurs

into the reform movement and empowered magistrates to suppress

public meetings.

14 1825 Bust of the export and infrastructure investment boom.

15 1831 Insurrectionary rioting erupted across the country when the

House of Lords rejected the Reform Bill.

16 1831 Cholera Pandemic of 1826-37.More than 21,500 persons died

in England and Wales. There were 9,500 deaths in Scotland. Ireland

had 25,000 deaths in 1832.

17 1837 Oliver Twist by Charles Dickens began to appear in serialized

form.The popular novel was a thinly veiled protest against the Poor

Law of 1834, which dictated that all public charity be channeled

through workhouses.The old, the sick, and the very young sufferedmore than the able-bodied benefited, according to Dickens.

18 1839 Parliament rejected a People's Charter, which demanded

democratic rights.

19 1845 More than 1 million citizens died during the Irish Potato

Famine of 1845-1851. Another 1-2 million emigrated. Slow

government response exacerbated the problem.

20 1847 Bust of the railway mania. Railway companies lost 85% of their

value and several hundred folded.

21 1848 Marx and Engels publish The Communist Manifesto in London.

22 1848 Cholera Pandemic of 1846-63.The epidemic claimed 1,000

lives a day at its height in England.

23 1870 Parliament passes the Married Women's Property Act, which

allowed women to keep their earnings,inherited personal property,and small amounts of money in a divorce.

24 1854 Britain entered the Crimean War to prevent Russian expansion

into the Ottoman Empire.

25 1857 Hindu and Muslim soldiers mutinied against a series of military

demands by their British commanders.It escalated into widespread

rebellion in India.

26 1868 The last public hangings took place.

27 1877 Britain annexed the Transvaal Republic in southern Africa.In

1880, the Boers of the Transvaal revolted against British rule and

achieved independence.

28 1886 The worst rioting over Irish Home Rule took place in Belfast.

29 1888 Jack the Ripperterrorizes London as a serial killer and

becomes a cultural icon.30 1899 During the second Boer War of 1899-1902, to annex the

Transvaal, many Boers died under opp ressive conditions in British

concentration camps.

31 1914 Britain entered World War I.

32 1916 Frustration over unmet demands for Home Rule led to an

armed uprising in Dublin.The British subsequently executed fifteen

nationalist leaders and interned 3000. Civil war continued until 1923.

33 1918 Industrial profits and wages fell, and demobilized soldiers

found it difficult to find jobs.More than 2 million people were

unemployed by 1921,and strikes increased.

34 1919 British soldiers kill nearly 400 and wound more than 1,000

Indian nationalist protestors in the Punjab.

35 Unemployment peaked just below three million in 1932.36 1939 Britain entered World War II. Britain endured heavy and

frequent bombing raids and feared invasion through 1940.

37 1939 The Irish Republican Army engineered terrorist bombings in

London, Liverpool, Birmingham,Manchester and Belfast.

12 1833 Factory legislation prohibited the employment of children

under nine in mills and further restricted the time children over nine

could work.

13 1846 Parliament repealed the Corn Laws.

14 1847 Top of the railway mania that began to gather steam in 1835.

Railways became fashionable, new railway lines were built, people

poured their savings into railway stocks.

15 1848 The growing Sanitary Reform Movement led to a Central Board

of Health with powers to supervise street cleaning, refuse collection,water supply and sewage disposal.

16 1850 The Factory Act restricted all women and young people to no

more than 10-1/2 hours work a day.

17 1851 The Great Exhibition celebrated British imperial and industrial

might. More than 6 million visitors to the exhibition viewed over

13,000 exhibits. The profits from the event allowed for the foundation

of public works such as the Albert Hall, the Science Museum, the

National History Museum and the Victoria and Albert Museum.

18 1855 The Limited Liabilities Act allowed companies to limit the

liability of their individual investors to the value of their shares. Prior

to this, investors in a company stood to lose all their wealth if

economic circumstances forced the company out of business.

19 1858 The transportation of convicts to remote penal colonies suchas Australia was abolished.

20 1865 Elizabeth Garrett Anderson became the first licensed female

doctor.

21 1867 The Reform Act attempted to redistribute parliamentary seats

in a more equitable manner.

22 1870 The Education Act provided for genuine mass education on a

scale not seen before.By 1874, more than 5,000 new schools were

founded.

23 1848 Five million citizens signed a petition asking for a People's

Charter of rights, and Parliament rejected it anyway.

24 1882 Parliament passes a broader Married Women's Property Act,

which allows married women to keep all personal and real property

acquired before and during marriage in a divorce.

25 1884 The Third Reform Act increased the right to vote and gave

more representation to urban areas.

26 1887 Massive outpourings of public affection were displayed upon

Victoria's Golden Jubilee.

27 1897 More affection was displayed upon Victoria's Diamond Jubilee.

28 1901 Victoria's death was an occasion of national mourning.

29 1906 Parliament began a series of ambitious social reforms and

reversed the 1901 Taff Vale judgment,which had made trade unions

liable for employer's losses during strikes.

30 1918 The government granted women over the age of 30 the right

to vote.

31 1928 The right to vote was extended to women over 21.

Tom Denham is the Editor of European Financial Forecast Service,

a publication produced by Elliott Wave International.

Negatives Positives

Documents

Market Technician No 52