Technically Speaking
Darin Newsom DTN Senior Analyst

Sunday 09/02/12

No Clear Turn Signals in Beans

In my recent On the Market column "The 100-Hour Plus Trading Day", I wrote about the evolving view of chart analysis due to expanded hours. In the piece I concluded that weekly charts are now creating more reliable signals than daily charts, with the latter becoming what intra-day studies used to be.

Source: DTN ProphetX

This blog is going to look at signals generated on weekly charts as compared to what was discussed on September 1 when looking at the monthly corn chart. Recall that no clear bearish signal had been established in corn, yet the market looked to be putting in a possible top.

Contrast that with what we see on the weekly chart for November soybeans. The contract remains in a solid uptrend, having posted a new high of $17.71 1/4 during last week's trade. However, the contract is also sharply overbought as indicated by weekly stochastics (fourth study, or second from the bottom) well above 90% (the 80% level usually marks an overbought market). Also, market volatility (third study) is elevated, coming in at almost 24.7%.

High prices and elevated volatility is not a good combination for pulling new buying interest into any market. Note that the noncommercial long futures position (bottom study) decreased the week ending Tuesday, August 28 as traders begin to pocket some of their recent gains. Given this combination of factors noncommercial selling could increase in coming weeks regardless of the continued inverse in the nearby futures spread (second study, green line) that shows a bullish commercial outlook.

Note that there are still no bearish technical signals to indicate the trend is set to turn. The only thing we have at this point is a situation where factors show the market is vulnerable to a selloff, and then if a signal is established initial support would be pegged more than $2.00 lower near $14.48. This price marks the 38.2% retracement level of the current uptrend from $9.25 1/2 through this past week's high.

Therefore, this chart does not make a strong case either way, but does show how certain factors can be used to warn of possible market turns.

To track my thoughts on the markets throughout the day, follow me on Twitter: www.twitter.com\DarinNewsom

Posted at 8:39AM CDT 09/02/12 by Darin Newsom
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