Technically Speaking

Trapped in a Range, Key January Soybean Chart Points Identified

Dana Mantini
By  Dana Mantini , Senior Market Analyst
The chart above is a daily chart for January Soybeans. Key resistance on the upside is $12; a rally and close above would be bullish. On the downside, in the event of a more serious correction, look for the $10.50 to $10.75 range as solid support. (Graph by DTN ProphetX)

January Soybeans:

January soybean futures had been on a bullish surge since early August, fueled by huge China demand for U.S. soybeans and troublesome drought in key Brazilian soy areas.

For six consecutive days, January bean futures approached and even exceeded the $12 level. Since then, soybeans have embarked on a mini correction of the bull move. With rains appearing to be headed for drought-plagued central and northern Brazil this week, and China absent in morning flash sales reports recently, soybeans have set back.

With a bullish supply and demand outlook for soybeans, the soy futures market has paused in the recent bullish run. Until we see a drier pattern setting up in Brazil and Argentina and/or China returns to buy more U.S. soybeans, January looks to be trapped in the $12.00 to $10.75 range. A solid close above $12.00 will likely lead to another leg higher on beans and a run to $13. While the fundamentals do not point to a break below $10.50, that would likely lead to a sharp sell-off. A likely stopping point before that is $10.95 -- the 50-day moving average. With Thursday's December WASDE likely to show a rise in the U.S. export projections, it is more unlikely we see a challenge of the lower end of this range.

Chicago March Wheat:

The wheat markets have endured a barrage of bearish inputs in recent days. Australia and Canada officials have both raised their crop forecasts to what would be the second largest crops ever in each country. Also, Russia's ag minister made credible threats of increasing the Russian wheat export quota from Feb. 15 to June 30 by a whopping 2.5 million metric tons (mmt) to 17.5 mmt. And, if that wasn't enough, rumors circulated that India, not a typical wheat exporter, may have sold as much as 250,000 metric tons (mt) of wheat to Bangladesh.

The wheat chart is also reflecting the bearishness of the recent supply enhancements. Chicago March wheat began Sunday night trade appearing to have a head and shoulders chart formation and what looks like a "bear flag" chart pattern, suggesting lower prices ahead. Likewise, the 20-day moving average crossed over the 50-day moving average to the downside. It is this crossover that often signals a trend change. The chart patterns are not an exact science, but wheat is showing some bearish tendencies that could lead to lower values ahead.

January Soybean Meal:

As goes January soybeans, so too goes January soybean meal. The stumbling block for January meal is the $400 per ton level. Just as January soybeans tested and failed to rise above $12.00, so did Jan meal do the same with the $400 level. For 10 straight days, January meal traded near, but could never close above, $400. Also, just like beans, meal embarked on a correction to the downside. In Sunday overnight trade, Jan meal is nearly $16 lower than that magic level.

January meal will probably need to hold above the $375 level to keep the bull run alive. If dry weather returns to central Brazil, the U.S. continues to capitalize on good meal import demand and the Argentine farmer extends his hoarding look for another run at the $400 level, with a close above that leading to a new bullish leg higher.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grain and soybean futures involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at dana.mantini@dtn.com

Follow Dana on Twitter @mantini_r

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