Meteor Shower? I'll be watching November Soybeans.

My customers know I like technical analysis. I like it because I look for black and white answers in a world of color. I like clear, clean answers to questions. I like timely and immediate answers. We used to say that 95% of traders traded fundamentals. In today’s real-time world that is no longer the case.

Let’s talk about the Stochastic Oscillator.

Developed by George C. Lane in the late 1950s, the Stochastic Oscillator (SO) is a momentum indicator that shows the location of the close relative to the high-low range over a set number of periods. According to an interview with Lane, the Stochastic Oscillator "doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price." As such, bullish and bearish divergences in the Stochastic Oscillator can be used to foreshadow reversals. This was the first, and most important, signal that Lane identified. Lane also used this oscillator to identify bull and bear set-ups to anticipate a future reversal. Because the Stochastic Oscillator is range bound, is also useful for identifying overbought and oversold levels.

On Friday May 16th the Oscillator I follow was for Nov Soybeans was a little over 2 (anything under 20 is oversold). I told customers to avoid sales and wait for the oversold condition to correct with the caveat that markets can remain overbought/oversold for long periods.

Yesterday, May 22, just 4 trading sessions later Nov Soybeans were rallying and the Oscillator went to 95 (anything over 80 is overbought). I told customers that even though other indicators I follow led me to believe the contract would trade higher this market move was indeed a selling opportunity.

I’m writing this before the market open on Friday morning but my expectations is that with the long weekend at hand and farmers planting at a torrid pace we will clear his overbought condition and see Nov Soybeans trade lower either today (Friday May 23) or on Tuesday.

A good explanation of the Stochastic Oscillator at this link.

At any rate, watching Nov Soybeans this weekend will surely be more entertaining than watching any old meteor shower.