Technically Speaking
Darin Newsom DTN Senior Analyst

Tuesday 03/04/14

Soybeans: Long-term Signals in Cash Lead Futures

Since establishing a key reversal last August, the soybean market has been slow in building bullish momentum. However, as the market's monthly chart shows, February saw the nearby futures contract finally break free, pushing into a technical resistance area between $14.01 3/4 and $14.75 3/4. These prices mark the 38.2% and 50% retracement levels of the previous sell-off from $17.89 (August 2012, when a bearish key reversal was posted) through the low of $11.62 1/2 (August 2013).

Source: DTN ProphetX

Much of the support has come from the noncommercial side of soybeans, with CFTC numbers (third study, blue histogram) showing this group building to a net-long futures position of 211,816 contracts through late February. Fundamentally the market remains bullish as well, with the nearby futures spread (bottom study, green line) showing a modest 4 3/4 cent carry. More importantly, with the March contract in delivery and soon to expire, the May to July futures spread is at an inverse of almost 30 cents reflecting a longer-term bullish commercial outlook.

But despite the market's relatively bullish structure, it is still difficult to proclaim it is in a strong uptrend. Note that the bearish key reversal from August 2012 coincided with a bearish crossover by monthly stochastics above the overbought level of 80%. However, the bullish key reversal on the monthly chart last August saw the faster moving blue stochastics line slightly above the 20% level when the crossover occurred. Technically, this keeps the major (long-term) trend sideways while the secondary (intermediate-term) trend is up.

Regardless, the nearby contract should still be able to work higher based on support from the commercial side. If noncommercial traders continue to add to their net-long futures position based on bullish fundamentals, then the nearby contract should be able to test the area between the 50% and 61.8% retracement levels, or between $14.75 3/4 and $15.49 3/4. At that time, monthly stochastics could be near the 80% level again indicating another possible sell-off.

Now, about the cash market. The monthly chart for the DTN National Soybean Index (NSI.X, not shown) gives us a different picture. This index of the national average cash price did see a bullish crossover by monthly stochastics in conjunction with its own bullish key reversal last August. This would imply that the cash market, or the intrinsic value of soybeans, has established a major uptrend, bringing the previous downtrend to a close.

Again, given the bullish commercial outlook, the long-term upside target for the NSI.X would be the 67% retracement level of the previous downtrend, or near $15.70. At the end of February, the NSI.X was priced near $13.71.

The bottom line is this: the overall structure of the soybean market is bullish, led by cash. This should provide at least some support to the new-crop market as well this spring.

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


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.

Posted at 8:13AM CST 03/04/14 by Darin Newsom
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