Technically Speaking

Nov Beans' Slippery Slope

Source: DTN ProphetX

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.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

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.

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

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]

Comments

To comment, please Log In or Join our Community .