Technically Speaking
Darin Newsom DTN Senior Analyst

Saturday 10/13/12

A Look at Weekly Soybean Studies

Source: DTN ProphetX

With all the talk of fundamentals (tight long-term global supply and demand) in the soybean market, the fact it continues to follow technical patterns on the continuous weekly close chart is interesting.

To begin with, the market remains in a downtrend. Usually, this means that noncommercial traders (speculative, investment, fund, etc.) are selling. The weekly CFTC Commitments of Traders report would seem to bear this out, with Friday's release (the week ending Tuesday, October 9) showing this group's long futures position decreasing by another 5,585 contracts. Since early July this group has reduced their long holdings by about 61,000 contracts, or almost 20% or the record large position of 322,317 contracts.

As the weekly close chart indicates the downtrend is testing secondary trendline support (dotted green line), though this past Friday's close in the November contract of $15.22 1/2 was below the trendline near $15.24. Long-term trendline support (dashed green line) is down and $12.33, and most likely won't come into play on this move.

With trendline support appearing to be breached, the market could move fall to retracement levels (a combination of Fibonacci and Dow Theory) before finding renewed noncommercial buying interest. The initial support area looks to be between $14.75 3/4 and $14.31 1/2. These prices mark the 33% (Dow) and 38.2% (Fibonacci) retracement levels of the long-term uptrend from the low weekly close of $9.05 3/4 (week of June 28, 2010) through the relatively recent high of $17.56 1/2 (week of August 27, 2012). It is interesting to note that this range includes key price support near $14.52. This price marks the 50% retracement level of the previous rally in the November contract only. Combining with the previously mentioned price target area, the weekly close chart should find support closer to the 33% retracement level of $14.75 3/4.

The market remains long-term fundamentally bullish. The inverted forward curve from the November 2012 through the July 2012 (also extends to the September 2013, but it and the August 2013 are less important) contracts indicates commercial traders (those involved with the underlying cash commodity) are concerned about sourcing supplies through the course of the 2012-2013 marketing year (running from September 2012 through August 2013). A market with this type of forward curve (inverted) tends to post no more than a 50% retracement of its previous uptrend. The stronger the inverse, the smaller the retracement (generally speaking) meaning the above-mentioned projection of the 33% to 38.2% retracements would seem more likely.

Other factors to consider: seasonally the market doesn't tend to post a low until late October (weekly close only). This would indicate that the test of retracement support could occur over the next few weeks. Secondly, soybeans continue so show elevated market volatility (almost 28%) while the November contract closed in the upper 7% of its price distribution range (last five years). This is not a combination that is conducive to renewed investor buying interest. Traders could sit back and wait for the move to retracement support to lower market volatility before rebuilding their long futures position.

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Posted at 9:58AM CDT 10/13/12 by Darin Newsom
Comments (4)
Update: During the CME Globex overnight session, November soybeans fell below $15 for the first time since the first week of July. Weekly stochastics are approaching oversold levels as the market makes its way toward long-term support near $14.50.
Posted by DARIN NEWSOM at 6:39AM CDT 10/15/12
any updated thoughts on beans?.............assume today's bounce doesn't do much..........but should not completely filling the gap left on daily charts....... and then so far bouncing be considered a positive sign?
Posted by JeremeyFrost at 11:15AM CDT 10/16/12
Jeremey, thanks for the questions and comments. No, I don't think Tuesday's rally does that much to the trend. However, the market is finding increased support as it nears 50% retracement level discussed in blog. Interesting you should mention daily chart. As I've talked about in the recent past, given the expanded trading hours weekly charts can be viewed as daily charts in the past, in my opinion. I don't get a lot of good signals on actual daily charts any more. We'll see how things move over the latter part of the week. Thanks again.
Posted by DARIN NEWSOM at 1:51PM CDT 10/16/12
According to the daily chart we are in an uptrend. How far it will go I don't know. I am wanting to buy call options on a retest of the 10 day ma @ about 1539. I want to calculate the value of the Jan. 1700 calls at that point using the black scholles option calculator. However I do not know the volatility of the Jan. soybeans. Is there a chart where I can find the volatilities of the grains. Is this a good idea in your opinion? Would appreciate your comments. Thanks
Posted by JIM TRENERY at 11:05AM CDT 10/26/12
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