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 Committee
decided 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 conduct

their 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 an

ethical 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 ethical

way, 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 other
technical 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 advisory

services must be regulated by the FSA to give investment advice to
retail clients.

The company must give the STA written confirmation that the advert
being placed has been approved by the companys compliance
department.

The STAs ethics committee must approve all adverts that go in the
journal 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 members
of 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 ISSUE
31st May 2005
PUBLICATION OF THE NEXT ISSUE
July 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 FOWConference
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
MARKET TECHNICIAN Issue 52 April 2005 2
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: adam.sorab@cqsm.com
TREASURER
Simon Warren: warrens@bupa.com
PROGRAMME ORGANISATION
Mark Tennyson d'Eyncourt: mdeyncourt@csv.org.uk
LIBRARY AND LIAISON
Michael Feeny: michaelfeeny@yahoo.co.uk
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: jrlcameronta@tiscali.co.uk
George Maclean: seoras@aol.com
EXTERNAL RELATIONS
Axel Rudolph: axel.rudolph@dowjones.com
IFTA
Anne Whitby: anne.whitby@btinternet.com
MARKETING
Clive Lambert: clive@futurestechs.co.uk
Richard Ramyar: richard@ramyar.co.uk
David Sneddon: david.sneddon@csfb.com
Barry Tarr: barrytarr@openworld.com
Simon Warren: warrens@bupa.com
MEMBERSHIP
Simon Warren: warrens@bupa.com
REGIONAL CHAPTERS
Robert Newgrosh: new.skills@networld.com
Murray Gunn: murray_gunn@standardlife.com
SECRETARY
Mark Tennyson dEyncourt: mdeyncourt@csv.org.uk
STA JOURNAL
Editor, Deborah Owen: editorial@irc100.com
WEBSITE
David Watts: DWattsUK@aol.com
Simon Warren: warrens@bupa.com
Deborah Owen: editorial@irc100.com
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 responsible 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 not
provide 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.
Networking
WHO 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 Magic Wiley
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 Values
Reported 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 Markets Trend 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 Paper Exchange Markets
No. 40, August 1989
ANY QUERIES
For 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
Issue 52 April 2005 MARKET TECHNICIAN 3
The coffee, cocoa and sugar futures, are traded on both the Euronext. Liffe
and 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 who
pocket the rest).
The two most important species 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 Ethiopia
around 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 so
much 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
grounds for 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 Lloyd
prepared 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 technical
analysis to avoid a bitter brew
Summary of a presentation given to the STA on 9th February 2005 By Elizabeth Miller
Exchange: Trades: Trading Units: Traded Delivery Minimum trading Website
in: 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
MARKET TECHNICIAN Issue 52 April 2005 4
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 frost of 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 should come 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 contracts
were 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
Issue 52 April 2005 MARKET TECHNICIAN 5
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 arbitrage 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 factors
It 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, supplies
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 the
market 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
MARKET TECHNICIAN Issue 52 April 2005 6
Conclusions from the charts
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 expensive
and, 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 manufacturers
who 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 the
increasing 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 almost
exclusively 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 of
sugar 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
Issue 52 April 2005 MARKET TECHNICIAN 7
Currently India watching is 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 has
been 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.
Conclusions from the charts
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 choppy 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 and
7.48c 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.org
www.freshjoe.com
www.arabica.com
www.hawaiianchocolate.com/history
www.Starbucks.com
www.tateandlyle.com
Chart 13
NYBOT Sugar 11 futures (monthly)
Chart 16
NYBOT May 2005 Sugar
(20-day and 60-day moving averages)
Chart 17
Euronext.Liffe May 2005 Sugar
(20-day and 60-day moving averages)
Chart 14
NYBOT Sugar 11 futures (weekly)
Chart 15
Euronext.Liffe sugar futures (weekly)
MARKET TECHNICIAN Issue 52 April 2005 8
Its wintertime in 1940. A family in London cowers under their kitchen table
behind 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 view
confirmed 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 observes how social mood was reflected in stock prices during
this 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 Report (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 amazing
fact.
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 stock
prices 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?
Issue 52 April 2005 MARKET TECHNICIAN 9
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 of
negative 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 the
legal 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 reaching
its 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
MARKET TECHNICIAN Issue 52 April 2005 10
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, and
thought, 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 10
1
/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
Issue 52 April 2005 MARKET TECHNICIAN 11
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 at
www.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, because 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 cleared local 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
MARKET TECHNICIAN Issue 52 April 2005 12
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 suffered
more 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 Ripper terrorizes 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 oppressive 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 such
as 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