All of a sudden the trading world has turned its back on the November 2014 soybean contract. After posting a high of $12.79 a mere two weeks ago, the contract has fallen to a low this week of $12.14. Beyond the numbers themselves, technical factors are lining up to indicate new-crop soybeans may be headed for an extended sell-off.
First, go back to the previously mentioned high. Notice that it not only broke through technical price resistance at $12.51 1/2, a price that marked the 67% retracement level of the previous downtrend from $13.33 through the low of $10.88 1/4, but the contract also closed above this level. Normally this would hint at a subsequent spike rally based on late to the party follow-through buying. However, as the weekly chart shows, this wasn't to be for November beans.
Why did the contract start to fall? The rally occurred with weekly stochastics (third study) already well above the overbought level of 80%. Not only does that slow buying interest by noncommercial traders, but a closer analysis of the study shows stochastics established a bearish crossover before the futures contract posted its high.
The last two weeks have seen weekly stochastics become increasingly bearish, implying a downtrend yet to come in the futures market. Initial support for the November contract is pegged at the four-week low of $12.06 3/4. However, given that weekly stochastics are indicating a downtrend already exists a test of retracement support between $11.95 3/4 and $11.68 3/4, the 33% and 50% levels, seems more realistic.
Fundamentally the market remains neutral to bullish, with the November to January futures spread (second study) showing a carry of only 6 cents. Measuring this on a standard cost of carry table shows it to be roughly 35% of full carrying costs, slightly above the bullish reading of 33%. Given this commercial outlook the November contract would be expected to retrace no more than the previously mentioned 50%, putting the down side maximum target at $11.68 3/4 for now.
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