Technically Speaking

The November soybean contract has rocketed higher since finally breaking out of its sideways trend the week of May 20, 2013. In just a couple of weeks the contract has blown through possible retracement resistance at $12.71 3/4 and $12.98, as expected, as well as trendline resistance pegged near $13.05 3/4 last week. The Sunday night through Monday morning CME Globex session saw November beans rocket to a high of $13.31 1/4, in position to test the 67% retracement level near $13.35 1/2 later in the day.

Other technical signals confirm the new-crop bean market is in an uptrend. Weekly stochastics (third study, combined red and blue lines) shows bullish momentum has quickly accelerated, taking the faster moving blue line above the overbought level of 80%. The contract itself shouldn't be considered overbought until the slower moving red line also moves above the 80% mark.

Market volatility (fourth study, thick red line) remains relatively low and could continue to invite noncommercial buying to the party. Open interest in the November contract (bottom study, thin blue histogram) continues to increase, and increasing open interest during an uptrend has historically been viewed as a bullish indicator of fresh buying coming into a market.

Fundamentally the new-crop soybean market remains neutral to bullish, with the 5 1/2 cent carry in the November to January futures spread (second study, thick green line) reflecting a slight uptrend and accounting for only a small percentage of cost of carry. Recall that the smaller this percent, the tighter supply and demand tends to be. Also, the rest of the new-crop forward curve (series of futures spreads through the July 2013 futures contract, not shown) shows a similar small carry meaning the bullish commercial outlook could be classified as longer-term.

Generally the combination of a bullish commercial outlook and a strengthening uptrend tend to result in a retracement of at least 67%. In this case, with the contract near that technical point while volatility remains low and stochastics not overbought, the contract seems capable of a possible 100% retracement back to its previous high of $14.09 3/4.

Keep a close eye on volatility as the market rallies, as investment traders start to get nervous when this figure increases dramatically. Most likely this will coincide with weekly stochastics reaching the overbought level, setting the stage for a possible bearish crossover.

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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.