Technically Speaking

March Soybeans: Thrust, Parry!

Source: DTN ProphetX

Okay be honest, how many of you after seeing the headline of this blog post didn't immediately think of the classic Looney Tunes cartoon with Daffy Duck as Robin Hood? I had to go back and watch a couple of video clips, causing me to chuckle as I wrote this out. Let me sound like an old geezer (a fact the picture from Sunday's post confirms), but kids today have no idea what great Saturday morning cartoons are.

Anyway, back to the markets. Monday I talked about how the March soybean contract had fallen back to a test of both retracement and trendline support. A break of the latter would have established a possible bearish flag continuation pattern, indicating another sharp leg down could occur. But fundamentals still rule, eventually, and supply and demand remains bullish for soybeans. Therefore, the contract was able to rally.

And what a rally it was. After hitting a low of $12.66 1/2 Monday, March soybeans peaked at $13.16 3/4 Tuesday. This was above technical resistance pegged near $13.10, a price that marks the 61.8% retracement level of the previous downtrend from $13.39 1/4 through the low of $12.62 1/2. However, as has so often been the case recently, this thrust rally was met by a parry (countermove) allowing the market to fall back at the close.

Tuesday's settlement back below price resistance wasn't the only problem that developed late in the day for March beans. The contract actually wound up losing ground to the May, to the tune of about 1 1/4 cents, after posting strong gains earlier in the day. This move in the spread would indicate commercial traders were more active sellers as the contract climbed above $13.00, possibly covering increased cash sales by producers. Confirmation of this could come in Tuesday night's basis readings, or in other words, how the DTN National Soybean Index (national average cash price) relates to the March futures contract. Monday evening saw national average basis come in at 29 cents under. If more cash sales were behind the late move in the futures market, look for basis to weaken despite the continued strength of export demand.

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