Technically Speaking

Tregg Cronin
DTN Contributing Analyst

There are few markets which have a more impressive technical picture than soybeans. After a period of consolidation in early January, soybean futures have exploded, tacking on an additional $2.00 per bushel in a few short weeks. In the process, soybeans have obliterated resistance candidates on the way to new 8-month highs. Looking at the active-continuation chart of soybeans, the next level of legitimate resistance would be the $16.23 corrective high from June 7. Following that level, we are looking at contract highs from May 12 at $16.67 1/2. When we start looking at some of these lofty levels, it is important to recognize there have only been around 16 weeks which have ever spent time above the $16.00 level. While many market participants are quick to point out "this time is different," in the world of commodities, it is rarely different. Momentum is pointed higher and looks strong with little reason to think the March contract will not retest $16.00 and $16.23-$16.67. The gap left on daily charts from the overnight session which will be a talking point in coming sessions to see if it is filled or tested on the way back down, whenever that might be. These issues considered, a full bullish policy remains advised in soybeans with trade sharply below spot levels needed to threaten this call.

A similar technical construct is present in soy meal futures as with soybeans as prices have May and January 2021 highs in the crosshairs. Taking a look at the active-continuation chart, soy meal futures have a nicely unfolding, five-wave sequence dating back the October lows. Wave one ran from $309.30 to $367.50, followed by wave two down to $338.10. Wave three stretched from $338.10 to $431.80 with wave four completing at $387.40. The presumed wave five is currently unfolding with Fibonacci extension targets lining up anywhere from $461.20 to $481.70 depending on whether one uses the wave one measurement or wave three. Soy meal isn't likely to go somewhere soybeans don't, and vice versa. If soybeans make a run at contract highs, we would expect soy meal to follow. If, however, soy meal begins to falter on its ascent higher, we would be watchful for a corresponding failure in soybeans. A full bullish policy remains advised with resistance at 457.20 and support at 432.20.

While the focus overnight has been on the gaps and breakouts in soybeans and meal, soybean oil has yet to breakout of its consolidation phase. Soybean oil is currently working through a pennant formation, which we would expect will resolve itself with a breakout higher similar to soybeans and meal. That said, we do not want to jump to conclusions in assuming a similar bullish breakout will happen. Momentum indicators are not necessarily diverging from price but do show some slowing from the recent ascent. After pushing through resistance at the October corrective highs, soybean oil has the July corrective highs remaining as resistance. If price moves higher toward those highs, we want to be especially watchful for any shorter-term momentum failures which may signal early soybean oil does not have the same underlying strength as soybeans and meal. These issues considered, a cautiously bullish policy is advised with recognition prices are approaching the upper range cap from the last six to seven months of trade.

Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg on Twitter @5thWave_tcronin

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