A Closer Look at the Soy Complex
November soybeans remain locked in the persistent downtrend that has dominated price action dating back to mid-June. The declining trend channel stemming from the July 15 and Aug. 13 highs provided near-term resistance on Friday, which price action is respecting Monday. The placement of the 50-, 100- and 200-day moving averages illustrates how dominant the downtrend has been with the nearest indicator being the 100-day at $8.89 3/4. Momentum indicators such as the stochastic measure of momentum are not providing any hint at the downtrend slowing ahead of a turning point. Stochastics are sitting in neutral territory with no sign of divergence in either direction. Short-term risk parameters from which to gauge directional conviction exist at Friday's high of $8.77 3/4 as well as last Wednesday's low of $8.52 1/2. A more salient corrective high sits at $8.96 3/4 from Aug. 13, which if broken, would end the series of lower highs in place since early summer. Short of that development, we would expect the downtrend to remain in place with choppy, corrective price action offering selling opportunities.
Soymeal is locked in a similar pattern as soybeans with a major downtrend dominating price action dating back to late May. The major difference in our opinion between soymeal and soybeans is the rate of descent has slowed much more dramatically in soymeal than soybeans. If one looks at stochastics, it could be argued momentum is offering a potential bullish divergence with price as futures have consolidated above $295.00. To confirm such a divergence, we would need to see strength back above a corrective high of merit such as Thursday's high of $301.60, or more preferably, the $306.30 corrective high from Aug. 14. If the Aug. 14 corrective high was violated, it would likely lead to the closure of the roll gap between July 29 and July 30 at $304.20 to $309.00 on active-continuation charts. All of this said, based on our preferred wave count, intermediate-term strength could very easily just be a corrective wave four ahead of a resumption of the downtrend with a fresh round of lows below Monday's $294.10 low.
On the other end of the spectrum, soybean oil has an almost inverse relationship with soybeans and soymeal, maintaining an uptrend dating back to early May. So far, soybean oil has respected trend-line support from the rising trend channel with further strength expected in the days and weeks ahead. To void the preferred bullish count, prices would need to take out last week's low of $28.22, which would decidedly break trend channel support. Moving average indicators are present with the 50- and 100-day moving averages touching Tuesday's candle while the 100-day rests down at $28.19. If the mostly inverse relationship with soybeans and meal continues, and we expect downtrends in those markets to persist, it would not be unreasonable to assume steady to higher price action continues in soy oil. Soybean oil's share of total crush value has been in an even stronger uptrend than soybean oil prices by themselves, and would be a good indicator to watch to see if the relative strength of oil over meal continues. A breakdown in this relationship could be a canary in the coal mine for bean oil prices outright.
Tregg Cronin can be reached at email@example.com
Follow Tregg Cronin on Twitter @5thWave_tcronin
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
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