Technically Speaking

Mixed Bag in Soy Complex

May soybean oil is currently experiencing a bull flag formation which is considered a supportive technical feature inside an uptrend. (DTN ProphetX chart)

After the relentless climb higher from November to March, the last couple weeks' worth of price action have been, dare we say, mild in soybeans. The May contract has clearly entered a period of consolidation with objective risk parameters to the upside and downside. Fortunately for bulls, trends remain up on an intermediate- and long-term basis with significant technical damage still needed to flip trends lower. Momentum indicators have understandably dropped as price action has turned sideways. This has also coincided with a drop in total volume following the surge in mid- and late-February. The most interesting thing about the volume component in our opinion is the on-balance volume (OBV) which has dropped sharply and is solidly in negative territory. On-balance volume is a running total of volume over the previous 20 sessions in which an up day's volume is added to the total while a down day's volume is subtracted. A negative value would suggest bears are in control, which is clearly the case in May soybeans with an OBV value of -233,725. Simply put, there has been more participation on down days than up over the last three weeks. To navigate this market moving forward, we would look first to the $17.02 corrective highs from March 10 followed by the $17.34 corrective high from March 9. Trade above those levels would clearly reinstate a bullish bias with an expectation for trade above contract highs. To the downside, the $16.51 1/2 corrective low from Friday and $16.38 from March 15 would be our preferred corrective lows.


Of the three contracts in the soy complex, soybean meal has enjoyed the strongest trends of late. While soybeans and soybean oil have entered consolidation phases, soy meal continues to charge higher, albeit at a slower pace than at previous times during the rally. Soymeal has also witnessed a slowdown in volume, however, with total volume across all contracts dropping to 48,042 contracts on Friday, the lowest volume since March 3, 2016. On-balance volume, on the other hand, has remained in positive territory, another sign bulls still have control. While not wanting to describe any market in this environment as "straightforward," the soymeal market does seem to be just that. Trends are up on all applicable time scales with continued gains expected until a corrective low of merit is violated to threaten the current uptrends. Depending on risk profile, the shortest-term corrective low we would use would be that from Thursday at 471.50 followed by 441.70 from February 25.


Soybean oil appears to be a market caught between consolidation and correction with both technical viewpoints valid. An argument could be made soybean oil is currently posting flagging action, which during an overall uptrend would be considered bullish. A bull flag in an uptrend would be expected to resolve itself with a breakout higher. That said, the bull has to perform in that scenario, taking out several corrective highs first like that from March 14 at 77.22 and March 9 at 78.58. Until such time, the short-term trend is down and only a divergence in momentum on at least a short-term basis will arrest that correction to turn trends higher. Momentum indicators such as stochastics are pointed sharply lower with no hints yet for a divergence with price. Total volume remains in a downtrend, although did turn up late week. These issues considered, an overall bullish policy is still advised in soybean oil, acknowledging that the current corrective phase may take some time

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.


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