Some Relief for ‘Squeezed’ Consumers as Corn falls and Forms a Potentially Bearish Head & Shoulders Top

Consumers who have been squeezed by the rising price of everything from petrol to cereal should begin to feel some relief as wholesale prices of almost all commodities retreat from their May highs.

Thanks to high inflation (due to massive money printing) and unfavourable weather, the price of corn increased 134% between June 2010 and its peak in the summer of 2011. It has since fallen and has trace out a classic Head and Shoulders pattern.

Source: StockCharts.com

A Head and Shoulders reversal pattern forms after an uptrend, and its completion marks a trend reversal. The pattern contains three successive peaks with the middle peak (head) being the highest and the two outer peaks (the shoulders) being lower. The low point of each peak is connected to form support, or a neckline, and once decisively broken the neckline becomes overhead resistance.

The downside potential for a Head and Shoulders pattern is calculated as the distance between the neckline and the top of the head. If corn were to break sharply lower from here we should see a further fall of around 23%. However, as the red circle on the chart shows the pattern has not yet completed decisively.

Temporary Respite

There is a lag period between when new money is created and when it shows up as inflation, however with new QE already announced and more on the way any fall in the cost of living will be short lived.

 

 

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