Technically Speaking
Darin Newsom DTN Senior Analyst

Tuesday 09/18/12

Three Strikes Against Nov Beans (Short-term)

I know that there are a number of soybean bulls still in the market, and fundamentally, they have a strong long-term argument. But technically the short-term picture has grown more bearish over the last two sessions. Analysts who are also baseball fans would argue that soybeans, again short-term, are in the classic "three strikes, you're out" situation.

Source: DTN ProphetX

Though painful to some, let's go back to the start of this week's trade with the open of the CME Globex session Sunday evening. The November contract opened at $17.33 1/4 before posting a high of $17.36 1/4. Then the bottom fell out, as we all know, with the contract closing limit (70 cents) down at $16.69. The high though is of the most concern to market bulls, coming in below the low from Friday's session of $17.37 1/2. This establishes a small price gap (solid, thin, horizontal lines right center of chart) that could be viewed a bearish breakaway gap. Yes, the argument is that gaps are usually filled - eventually. The issue is though that this is also usually a clear signal that the trend of the market has turned. Strike one.

Tuesday almost saw another bearish price gap established, with the early high of $16.69 equaling the low and close from Monday. However, follow-through selling from Monday's session drove the contract to an overnight low of $16.32 3/4, breaking below the 50-day moving average (thicker red line) near $16.56. Moving averages of different lengths of time are thought to be triggers for algorithm trading, with one of the most commonly discussed being the 50-day. Therefore, the move below this level could spark increased noncommercial selling as algorithms turn bearish. Strike two.

A traditional signal that I've watched over the years is the four-week low (or high). The idea is that if a contract or market moves below its previous four-week low, then momentum has turned bearish indicating an extended selloff could be seen. In the case of November soybeans the previous four-week low was $16.41 (dashed red line). Again note that the overnight low was $16.32 3/4, establishing a new four-week low. Bearish momentum is growing stronger, and could continue to do so on increased noncommercial selling tied to this signal. Strike three.

Granted, the long-term outlook toward fundamentals remains bullish. Much has been written about that, and though futures spreads have turned down the commercial view is that global supplies will be tight. But short-term technical signals are indicating soybeans have struck out for now, with initial price support pegged near $16.10. Beyond that, longer-term support is between $15.67 and $15.31.

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Posted at 7:34AM CDT 09/18/12 by Darin Newsom
Comments (2)
FUNNY money , they still need the product
Posted by Unknown at 9:03PM CDT 09/19/12
Fundamentally, I agree. The inverted forward curve continues to indicate a bullish long-term outlook toward supply and demand. Technically, it is about the money with trend reflecting moves made by noncommercial (speculative, investment, fund, etc.) traders. I just happened to hear a song on the way to work this morning that summarizes the situation in the markets, AC/DC's "Money Talks". Couldn't help but turn up the radio and smile. Thanks for your comments. We'll see how long this side moves against the fundamentals.
Posted by DARIN NEWSOM at 11:52AM CDT 09/20/12
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