Technically Speaking

Soy Complex Remains Mixed Bag

May soymeal futures are encountering support levels around the $400.00 mark, which should be monitored closely in coming sessions. (DTN ProphetX chart by Tregg Cronin)

May Soybean Oil:

While May soybean oil is now the front-month contract, an active-continuation chart is needed for technical analysis as this oil continues to make new contract highs. At current spot levels, soybean oil is trading at the highest level since September of 2012. The technical performance of soybean oil since the rally began in the spring of 2020 has been one of the most impressive in the commodity space. A rally of this magnitude is also a perfect example of why momentum indicators such as stochastics or the Relative Strength Index shouldn't be used as overbought or oversold indicators. For most of 2021, stochastics on soybean oil have been above 80.0, the level most would consider overbought. Using this indicator in that manner would have left a person on the sidelines while the rally has continued. Instead, momentum indicators should be used to look for divergences with price, something soybean oil has not done in any meaningful capacity since the end of 2020. With managed fund length not at frothy levels, we see little reason to believe bean oil will not retest the 2012 highs between $58.60 to $60.41. These issues considered, a full bullish policy remains advised in soybean oil with weakness below the $50.95 corrective high from Feb. 25 needed to threaten or defer this call.

May Soybeans:

While nothing like soybean oil, soybeans continue to maintain a positive technical bias with uptrends present across all time scales. Depending on how one wants to draw their trend lines, the soybean market has an ascending triangle pattern unfolding, which is a bullish formation according to technical trading handbooks. Trendline support stemming from the lows on Jan. 25 and Feb. 11 was tested Friday and overnight but continues to hold so far. May soybeans are below the 5- and 10-day moving averages but above the 20-day, speaking to the sideways to higher trend of the last two to three weeks. Momentum indicators speak to the consolidative trade as stochastics sit in neutral territory at $45.84 to $47.90. On balance volume (OBV) should still be considered a positive at 451,808 contracts over the last 20 sessions. OBV is in a short-term downtrend that needs to be monitored but shouldn't raise red flags. Generally speaking, a supportive policy remains advised in the soybean market with weakness below the aforementioned trend-line support or the corrective low at $13.80 needed to threaten this call.

May Soymeal:

In sharp contrast to the soybean oil and soybean market, soymeal remains the ugly duckling of the soy complex. Soymeal remains in a persistent downtrend, which has been in place since contract highs were set in early January. Soymeal is currently testing support from the former resistance now turned new support at the November 2020 highs of $400.00. This support level is two-fold as it consists of previous resistance but also the psychologically important round number of $400.00. We would expect buying interest to surface at this level, unless strength in the other two legs of the complex begins to falter. That area also generally represents the 38.2% retracement level of the entire rally from the August lows to the January highs. While one does not exist yet, we would be watchful for any developing bullish divergence in momentum around one of these support candidates. Stochastics have stopped trending lower, although they have not been able to notch a divergence with price. With these issues considered, a bearish policy is advised in soymeal with participants urged to watch for any short-term divergence in momentum, which could begin a larger corrective bounce higher.

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.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg Cronin on Twitter @5thWave_tcronin

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