Few markets have put on the kind of technical symposium as the soy complex in 2020, especially soybeans. Normally, we are able to focus on a single contract for technical analysis, but with the ongoing rally effort, we are forced to look at an active continuation chart of soybeans given new contract highs are being set on a daily basis. The most active soybean contract hit the highest levels since June 2014 overnight with plenty of blue sky up to the $14.50 to $15.00 area from the spring of 2014. Looking at a Fibonacci retracement from the all-time highs at $17.89 down to the $7.91 lows from May of 2019, we see spot prices have pushed through the 38.2% retracement level and are well on their way to the 50.0% retracement level at $12.90. We continue to watch momentum indicators such as stochastics for any sign the current leg of the rally is slowing or beginning to diverge from price. While the indicator is up at levels some would associate with being overbought, that term offers zero help in determining when the bull run is over. Once momentum indicators have diverged from price, notching a clear bearish divergence, and price has dropped under a technical risk parameter of merit, we will be able to definitively say the current leg of the rally is complete. For our money, we would like to see trade below the $12.00 corrective high from the week of Nov. 23 at a minimum, but more preferably, the $11.42 corrective low from the week of Dec. 7. Admittedly, these are not tight stops, but in a market that has left little in its wake in terms of technical risk parameters, these are what one has to work with. If this market is able to hold the $12.00 level on corrective setback attempts, we would view this as a bullish factor as the market reloads itself. These issues considered, a bullish policy remains advised in the soybean market with additional and possibly accelerated gains still ahead.
A similar but slightly different technical picture exists with the soy meal market, although the spot contract is seeing the highest levels since 2016 as opposed to 2014. In addition, Thursday's price action saw a key reversal after fresh highs were made during the session followed by a settlement under the previous day's close. This has caused stochastics to tip down, although we would not call this a divergence in the classic sense, especially with the stabilization overnight. To see a textbook divergence, price would need to make another set of fresh highs while momentum makes a series of lower highs. That sort of price action would still need to play out in the days and weeks ahead. That said, momentum from a weekly perspective paints a slightly different picture, and one which is a bit more concerning. Stochastics on a weekly scale is clearly trending lower while price continues to trend higher, dating back to mid-September. From this scale and perspective, one could say momentum is diverging from price and more caution should be exercised. Another difference with the soybean market to note, soy meal is through the 50% retracement of the $541.80 to $258.90 sell-off at $400.30 with sights set at the 61.8% retracement up at $433.70. We've always preferred to view either the soybean market or the soy meal market in the context of the other, looking for early clues in price action for one versus the other. In this instance, we would continue watching soy meal for clues toward the soybean market, especially given the aforementioned take on momentum.
March Soybean Oil:
Soybean oil has more closely resembled the soybean market than the soy meal market of late, hitting the highest spot levels since June of 2014 this past week. Unlike soybeans and meal, which hit their all-time highs in 2012, soybean oil hit its all-time record high at $72.69 in March of 2008. At the time, crude oil was as much of an influence as the other legs of the complex. That said, for our weekly retracement analysis, we chose to draw from the 2011 highs at $60.41 down to the 2020 lows at $24.68. When doing that, we see spot soybean oil prices are through the 38.2% retracement and on their way to the 50.0% retracement at $42.55. Momentum indicators are still trending up from a weekly perspective with little reason to be concerned about a potential divergence. These issues considered, a bullish policy remains advised in the soybean oil market with trade below the $39.32 corrective high from Nov. 20 needed minimally to arrest the current uptrend, let alone threaten or end it.
Tregg Cronin can be reached at firstname.lastname@example.org
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.
(c) Copyright 2020 DTN, LLC. All rights reserved.