Technically Speaking

Jan Soybeans: We've Seen This Show Before

Source: DTN ProphetX

Once again, the soybean market looks to be on the threshold of establishing a bullish pattern on its weekly chart. But before we get too excited, let's remember that this market has seen nothing but failed bullish patterns since last October, and that global fundamentals haven't changed all that much since earlier this week.

As the weekly chart for the January soybean contract shows, a new low of $8.44 1/4 was posted on Monday, November 23. However, instead of extending its sell-off the contract has since rallied to a high of $8.69 1/4 (during Tuesday's session) before pulling back slightly to $8.62 3/4 at the close of early morning trade Wednesday (mark inside green ellipse). Last week's high was $8.67 1/2 with a weekly settlement of $8.57 1/2.

Note that this week's trading range is outside last week's, setting the stage for a possible bullish reversal if the contract closes this Friday above last week's settlement. Recalling the old habit of soybeans to close higher the day before and the day after the Thanksgiving holiday, chance seems to favor a higher weekly settlement. Add to that weekly stochastics (intermediate-term momentum indicator, middle study) are in position to establish another bullish crossover (faster moving blue line crossing above the slower moving red line) below the oversold level of 20%.

But, and this is important, we've seen this before. Look back to the blue ellipse circling action the week of June 15 and we see the same thing. Jan soybeans had a trading range of $9.03 (a new low) to $9.52 before settling at $9.45, well above the previous week's high of $9.38 1/4. Also notice that weekly stochastics had already established a bullish crossover below 20% two weeks prior. However, after a rally that saw the contract move to a high of $10.50 1/4 (week of July 13), the soybean market in general turned down again.

So why should we believe this time is different? As of now there is no reason to. But, if open interest in the contract (blue histogram, bottom study) increases this week it would indicate buyers are doing more than covering short futures positions. Last week's open interest was 292,117 contracts, with this week's reading through early Wednesday morning showing 288,682 contracts.

If January soybeans are trying to turn the corn despite the cumbersome world ending stocks-to-use figure of 26.5% in the November WASDE report, then it will take buying from both sides (commercial, noncommercial) to do it. As of this writing the trend of the January to March futures spread is sideways to up, reflecting at least steady commercial buying interest. That puts the deciding action in the hands of noncommercial traders still holding a net-short futures position, last calculated at 27,086 contracts as of Tuesday, November 17.

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