{

We’ve heard about the The Tulip Bulb Mania and the South Sea Mania.  We remember being 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 level they have been falling almost without interference falling ever since.  If you believe that all price manias implode and end at a level which is as low as, or lower than, the level at which they began, then the Dow Industrials will fall to its level of 1995 – say 4000.

}

{

It can be argued that the advance in Corn prices which began in October 2007 and came to an end in June 2008 was also a mania.  It was driven at least in part 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.  The product contains less energy than the quantity of energy which is necessary to make it; and, paradoxically, the energy which is necessary to make it is almost totally petroleum-derived.  So, from the from the inception, the whole program was promoted 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 asfood for people and feed for animals.

}

{

Now the inevitable result has come to pass.  The mania has collapsed, and the price of Corn is lower now than it was at the time the mania began.  There was no other possible end to the story.

}

{

When we look at the Weekly chart of Corn for 2007-2008-2009 (to date), we note a vertical ascent in prices in 2008 – called 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 (a “hiccup” or an “uh-oh” week?) and then, for the week of June 27, a tall white bar which totally encompassedthe price range of the “hiccup” week bar.  That tall white bar is a classically perfect “Bullish Last Engulfing” pattern, both in terms of its placement at the extreme end of a long uptrend and in terms of its shape.  The Bullish Last Engulfing Pattern is strongly bearish,regardless of its name.  The investor who goes or remains Long after seeing that pattern, believing that the strong uptrend willlikely continue, takes his financial life in his hands.  Indeed, in this case prices started to fall immediately after the emergence of the Bullish Last Engulfing pattern.  Prices fell nearly without interruption for several months, until December 2008, halting at a point at which prices were about 80 cents lower than those which prevailed at the start of the mania in October 2007.

}

{

So, there are two morals to this story: 1) here is new evidence that prices in a financial mania always retrace to a point which is at least as low as the level at which the mania first began to take shape; and 2) the Candlestick Bullish Last Engulfing Pattern is a bearish predictor that must be taken seriously.

}

{

http://candlewave.com

}

{

http://www.commoditiesjunction.com

}