Technically Speaking

Nov Beans: A Bullish Candle in the Bearish Wind

Source: DTN ProphetX

I was intently watching Friday's close in November soybeans, with the contract's late rally coming up just short of establishing a bullish key reversal on its weekly chart. Friday's close was $10.21 1/2 as compared to last week's settlement of $10.24 1/4. This less than 3-cent difference was like watching a baseball team come storming back from a large deficit, only to leave the tying run on third base in the bottom of the ninth.

As I sat back and thought about the close in November beans, I figured there had to be some sort of consolation prize for market bulls following the rally of more than 20 cents off its new weekly low. I changed my chart from a standard bar chart to a Candlestick, and low and behold the answer jumped out at me.

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Note that the body of this week's candle (difference between where the contract opened and where it closed) is very thin, almost to the point of being nonexistent (the actual range was $10.21 1/2 to $10.20 3/4). In "Candlestick-ese" this pattern is considered a doji.

So, what does that mean? In this type of analysis, if a doji forms following a major trend (up or down) it signals uncertainty. In this case, market bears may have lost the control over November soybeans that allowed them to drive it to its new low.

On its own, the doji does not signal a change in trend. However, if we add stochastics (bottom study) into the equation, a doji following the recent sharp downtrend putting the market into a sharply oversold situation (well below the 20% level) may indeed indicate the trend is turning up. And speaking of weekly stochastics, if you look closely, they established a bullish crossover with the faster moving blue line finishing at 5.95% while the slower moving red line ended at 5.77%. This would seem to confirm the idea of a newly established uptrend.

But in Candlestick analysis, as with other chart types, one sometimes has to look at a shorter time-frame to clear up an indecisive pattern such as a doji. Therefore, I changed my daily bar chart for November beans (not shown) to a Candlestick to see what I could see. Sure enough, Friday's session established a bullish engulfing pattern. This means that Friday's body (close of $10.21 1/2, open of $10.02 1/4) wrapped around the body of Thursday's session (open of $10.20, close of $10.03 1/4). Again this indicates that the minor (short-term) trend on the daily chart, as well as the secondary (intermediate-term) trend on the weekly chart, has turned up.

Going back to my standard retracement analysis puts the initial upside price target near $10.93 3/4, a price that marks the 33% retracement of the previous downtrend from the high of $12.79. However, given the weakening carry in the November to January futures spread (second study, green line), the November contract could possibly make a run at the 50% retracement level near $11.40.

A couple of key points: One - The futures spread closed at a 6 3/4 cent carry, even with the smallest this carry has been on its weekly close chart. Further weakening next week could turn the trend of the spread up. Two - A 50% retracement would close the gap left between the weeks of June 30 and July 7.

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

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Comments

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DAVID/KEVIN GRUENHAGEN
9/5/2014 | 10:57 PM CDT
Time to pray for a killing frost, the farmers only hope for any kind of a fair price.The USDA cannot control the weather with their corrupt reports, only "markets" react to lies.