Technically Speaking

Nov Beans Daily vs. Weekly Charts

By Darin Newsom , DTN Senior Analyst
Source: DTN ProphetX

Monday's blog post talked about all the bullish signals seen on the November soybean weekly chart. Yet the overnight session saw the contract fall almost 20 cents, erasing most of Monday's gains. If the market is so bullish, and indicators are the contract should be going up, why then did such a strong sell-off occur?

The answer lies in the ongoing debate on what is the best chart to use. Last August I wrote an On the Market column talking about the issue at the time, with the move to a 100-plus hour trading week eliminating the need for daily charts. However, the move back to somewhat more traditional trading hours immediately raised the question of whether or not daily charts had become relevant again.

A look at the daily chart for November soybeans gives us a clue as to why the contract has come under pressure. Notice that after posting its low of $11.86 1/2 on April 24 Nov beans went into a consolidation phase. Meanwhile, daily stochastics (bottom study) as they climbed back above the oversold level of 20%. Then on May 23 the contract broke through its previous spike high of $12.40, setting the stage for a sharp rally to Monday's high of $13.31 1/4 that took daily stochastics into overbought territory not only above 80%, but above 90%.

Tuesday's sell-off has the contract in position to establish a bearish crossover by daily stochastics, indicating the minor (short-term) trend could turn down without changing the secondary (intermediate-term) uptrend on the weekly chart discussed in Monday's blog. If so, note the interesting retracement levels that would be created. Using Fibonacci retracements the 38.2% level is near $12.76, in line with the low of $12.77 1/2 from May 30. The 50% retracement level is back near $12.58 3/4, while a 61.8% retracement (12.41 3/4) would result in a test of the spike high of $12.40 mentioned earlier.

Again, it needs to be remembered that just because the minor trend appears to be turning down it does not mean a change for the secondary (weekly) trend. On Wednesday I'll post the major (long-term) trend on the monthly chart, just to add to the confusion.

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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.

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DARIN NEWSOM 6/12/2013 | 9:43 AM CDT
Update: The Nov bean contract seems to be in the process of establising minor (short-term) bearish signals on its daily chart. A move below Tuesday's low of $13.14 sets up a potential bearish outside day if the contract closes below Tuesday's settlement of $13.27. Also, daily stochastics are nearing another bearish crossover (faster moving blue line crossing below slower moving red line) with both above the overbought level of 80%. Support is pegged between $12.84 1/4 and $12.77, prices that mark the 33% and 38.2% retracement levels of the previous uptrend from $11.86 1/2 through the recent high of $13.33.