Depending on one's point of view, calling Tuesday merely a "bad day" for soybeans could be an understatement. After posting a high of $13.30 1/2 last Thursday the March contract has fallen, and fallen hard. When the dust settled to start this week, the contract was down 36 cents and within shouting distance of the same trendline support discussed last week (January 13, "Soybeans Slide to Trendline Test"). As we wait the start of the next trading session Tuesday evening, the question is if trendline support will hold this time around.
In the big picture, Tuesday's sell-off didn't change much in regards to the soybeans. Daily stochastics (second study) remain neutral, indicating the contract remains in a minor (short-term) sideways to up trend. The inverse in the March to May futures spread (bottom study, green line) is showing a solid 16 1/2 cents despite losing 2 3/4 cents over the course of the session.
The real problem with soybeans may be psychological. There is an old adage that says, "A market that can't rally, won't rally". This may be applicable to soybeans. With the monster crop from South American drawing closer, the soybean market has had its normal six month window of opportunity - from September through February - to post a rally based on continued tight domestic supply and demand.
Yet, for the most part, the March contract has been stuck in a sideways pattern between $13.77 3/4 (week of September 1, 2013) and $12.33 1/4 (week of November 3, 2012). Admittedly this is a wide trading range for a sideways trend. But the contract seemed capable of so much more given its bullish commercial outlook (inverted forward curve) and continued buying from noncommercial traders (increasing their net-long from 111,738 contracts to 176,981 contracts).
Where does the contract go from here? Initially it looks like another test of trendline support, calculated Wednesday near $12.77 3/4, is imminent. From there, given that the last clear signal on daily stochastics was bullish (crossover on January 10, 2014 below the oversold level of 20%), the contract could make a run at its recent high. However, the series of lower highs might not make market bulls feel that much better longer-term.
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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.