At first glance the monthly chart for soybeans shows a strong major (long-term) uptrend. Dating back to the bullish key reversal posted in August 2013 (discussed in Technically Speaking on August 19, "A Long-Term Bullish Signal Brewing in Beans") that projected a test of $14.75 (50% retracement) to $15.89 (67% retracement), the market has been on a quest to fulfill those projections after a period of consolidation from September 2013 through January 2014.
Now in early April 2014 the market seems to be gaining bullish momentum as the nearby May contract pushes past the target price near $14.75 and now could set its sights on the range between $14.59 and the aforementioned $14.89. Again, these prices mark the 61.8% and 67% retracement levels of the previous major downtrend from the high of $17.89 through the August low of $11.62 1/2.
A sidenote for those who are skeptical over the value of retracements: Note that the August low was a test of the previous uptrend's 67% retracement level near $11.89 1/4, while the next target high ($15.49 3/4) held interim rallies in both May 2013 and June 2013, giving it more weight as resistance during this uptrend.
Monthly stochastics (second study) remain neutral to bullish. Why neutral? Because the key bullish reversal last August was not confirmed by a bullish crossover in monthly stochastics below the oversold level of 20%. The bullish crossover that did occur in August did so with the faster moving blue line fractionally above the 20% level (20.6%). Does this make a big difference? Probably not, as the market was driven higher by solid buying from both noncommercial and commercial traders anyway.
And as bullish as the market appears early this month, there are potential problems on the horizon. First let's look at noncommercial activity. Recall that it is this group that sets the trend (price direction over time) of the futures market. A look at CFTC Commitments of Traders numbers late in each month (third study, blue histogram) shows that this group increased their net-long futures position from about 80,000 contracts (late July 2013) to roughly 212,000 (late February 2014). However, by late March this position had been trimmed to just over 176,000.
Pressure is also being seen on the commercial side of the market. The nearby futures spread (bottom study, green line) saw its inverse strengthen to 34 cents at the end of March, only to weaken dramatically to 24 cents the first couple of days in April. If this continues it would indicate that demand for U.S. soybeans is finally starting to slow and cash merchandisers can back on their push to secure supplies.
Given the current (today's) structure of the soybean market, a last gasp extension of the rally could push the nearby contract toward the 61.8% retracement level. However, this market can turn bearish quickly (e.g. September 2012) so will need to be watched closely and handled carefully.
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