Technically Speaking

Vegetable Oil Prices Moving in Tandem

Soybean oil prices found support at the exact 61.8% retracement of the preceding rally as well as the 200-day moving average, which is denoted by the yellow indicator line. (DTN ProphetX chart)

March Soybean Oil:

After one of the most impressive rallies of 2019, soybean oil prices have undergone one of the most impressive corrections so far in 2020. For this examination, we will be looking at an active-continuation chart of soybean oil prices. If measuring from the rally's beginning in May to the rally's conclusion on Jan. 2, the current correction spanned almost exactly 61.8% of the preceding rally. The fact the correction did end at almost the exact 61.8% retracement of the preceding rally is technically significant and could signal the correction is complete. Lending support to the idea the correction is over is the fact the stochastic measure of momentum logged an almost textbook version of a bullish divergence with price. As price continued to new lows, momentum bottomed and began tracking higher. If price can rally back above the corrective high at $32.11, the divergence would be confirmed, and higher prices expected straightaway. One final supportive element would be the fact the correction bottomed out right at the 200-day moving average, which lined up perfectly with the 61.8% retracement of the entire 2019 rally.

Malaysian Palm Oil:

One of the largest influences on soybean oil prices in 2019 and 2020 has been Malaysian palm oil, arguing for a technical look here. As one would imagine, the technical characteristics of palm oil are very similar to soybean oil, although the rally in the former didn't begin until July. In addition, the correction in palm oil has been less severe than the one in soybean oil, spanning between 38.2% and 50.0% of the preceding rally. While the correction in soybean oil found support at the 200-day moving average, palm oil found support at the 100-day. The same characteristics leading to the bullish divergence in momentum in bean oil are present in palm oil with lower trending prices being met with steadily rising momentum. Palm oil has not yet recovered above a corrective high of merit, such as the Jan. 22 high at 2,975 ringgits per ton, but this is our target of interest moving forward. If palm oil can recover above 2,975 ringgits, it could conceivably render the entire sell-off from 3,150 to 2,575 ringgits complete and corrective in nature ahead of a resumption of new highs.

March Canola:

Sticking with the vegetable oil theme, canola prices exhibited some of the same elements as the soybean oil and palm oil rallies of 2019. After a sharp rally in May and June, canola saw a correction, which gave back the entire rally by the beginning of July. After some consolidative behavior for much of the summer, a more methodical rally began in September, which lasted until mid-January. Following the former commodities, canola has been under heavy pressure so far in 2020 until bottoming Feb. 3. We would expect the overall trend in canola prices to mirror those in soybean oil and palm oil as they have done since the bottom in early February. Canola prices have recovered 38.2% of the preceding sell-off and have now become lodged between their 100- and 200-day moving averages. The prior range of $469.50 to $452.00, which held trade from mid-October to mid-December, would be expected to add support and resistance in the near term.

Tregg Cronin can be reached at tmcronin31@gmail.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.

(BAS/CZ )

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