Soybean Complex Falters, Maintains Broader Bearish Counts; Oil May Be Most Vulnerable

September 13, 2016 8:35AM CDT

NOV SOYBEANS

The market's momentum failure yesterday below Thur's 9.70 minor corrective low is pretty obvious in the hourly chart below.  This bearish divergence defines yesterday's 9.90 high as one of developing importance and our new MICRO risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.  This short-term but important look at HOURLY data shows three pertinent, market-defined technical levels:

  • 22-Aug's 10.20 larger-degree corrective high and key long-term risk parameter
  • 01-Sep's 9.37 low and short-term risk parameter and
  • yesterday's 9.90 discussed above.

While yesterday's bearish action warns of resumed weakness and vulnerability, we highlight these levels because it's far from clear that that "weakness" will result in steep, trendy behavior south.  A continuation of the bear from 10-Jun's 11.86 high may take the form of choppy, challenging-to-trade, lateral-to-lower price action that accomplishes the sentiment-deteriorating bludgeoning more by chop and frustration than by an obvious, quick-kill collapse.  In an environment that could be very volatile and aimless, such smaller-degree, "tighter" technical levels and risk parameters can be quick useful in a period that we believe requires a more conservative approach to risk assumption.

Soybeans Daily

 

Soybeans Daily

There are two main reasons to believe that the downtrend from Jun's 11.86 high has yet to run its course:

  • the market has yet to satisfy even one of our three reversal requirements of
    • a confirmed bullish divergence in mo of a scale sufficient to break the downtrend (a recovery above 10.20 is required for this)
    • proof of trendy, impulsive behavior up
    • proof of 3-wave, labored, corrective behavior on a subsequent relapse attempt
  • bullish sentiment, indicated by our RJO Bullish Sentiment Index, remains historically high DESPITE a 3-month collapse.

Indeed, at a still-whopping 82% reading reflecting 107K Managed Money long positions to just 23K shorts, this degree of bullish sentiment is more indicative of a market TOP rather than a bottom.  Per such we believe the bear has more bludgeoning to do on these long-&-wrong positions before the market can turn higher.

Soybeans Weekly

 

Soybeans Weekly

This said, we continue to believe that Nov'15's 8.44 low ENDED the secular bear market from Sep'12's 17.89 all-time high and that the relapse from Jun'16's 12.09 high on a log scale active-continuation chart basis above and below is actually a CORRECTION within a massive BASE/reversal PROCESS.  But such corrections can be extraordinarily extensive in terms of both price AND TIME.  And now that the market has retraced more than 61.8% of Sep'15 0 Jun'16's rally with relatively limited correction to go in terms of PRICE, further correction may do its damage in terms of TIME.

In BOTH the Jun'05-to-Sep'06 and Jun'09-to-Jul'10 corrective retests of their respective Feb'05 and Dec'08 lows, the INITIAL part of the relapse was steep and quick, lasting between two and five months.  This quick, easier-to-navigate trendy relapse was then followed by MONTHS of aimless, lateral-to-lower chop that bludgeoned all traders into submission.  WE believe this may be the environment we're embarking on in the months and possibly quarters ahead.

In sum, a bearish policy remains advised with strength above 9.90 and/or 10.20 required to defer or threaten this call enough to warrant defensive action.  One's personal risk profile will dictate whether 9.90 and/or 10.20 is the risk parameter to be used.  For those wanting or needing to maintain a bullish/bull-hedge position, this is OK as long as the market sustains levels above your risk parameter at 9.37.

Soybeans Monthly

 

DEC SOYBEAN MEAL

Yesterday's bearish divergence in short-term momentum below 314.3 defines yesterday's 321.3 high as the end or upper boundary of a suspected bear market correction from 02-Sep's 303.9 low and our new short-term risk parameter from which a still-advised bearish policy can be objectively rebased and managed.  Early-Sep's recovery attempt stalled exactly where it would have been expected to stall per a broader bear market corrective count:  former 321-to-323-area support from Aug that, since broken, turns to new resistance.

Soybean Meal 60 min

 

Soybean Meal Daily

The daily log chart above shows the clear and present downtrend from 13-Jun's 418 high that requires a confirmed bullish divergence in momentum above 16-Aug's 337.7 larger-degree corrective high and key risk parameter to break.  Former 322-area support-turned-resistance is also clear.

Bullish sentiment indicated by our RJO Bullish Sentiment Index has certainly eroded over the past few months, but at 72% it remains a better indicator of further weakness and vulnerability than of a bottom.  In sum, a bearish policy and exposure remain advised with strength above 321.3 and/or 337.7 required to threaten or negate this call.

Soybean Meal Weekly

 

DEC SOYBEAN OIL

Similarly, we believe that yesterday's short-term mo failure below 32.97 and the market's rejection of the (33.57) 50% retrace of late-Aug's 34.83 - 32.31 decline defines Thur's 33.53 high as the end or upper boundary of a correction within a still-developing peak/reversal environment from 23-Aug's 34.83 high that could have steep losses yet ahead.  01-Sep's 32.31 low remains intact as a short-term risk parameter the market needs to break to reinforce this call, but we feel such weakness is only a matter of time.

Soybean Oil 60 min

 

Soybean Oil Daily

The daily log chart above shows the market's obvious rejection of the upper-quarter of this year's range.  And despite Aug's relapse our RJO Bullish Sentiment Index shows stubbornly and historically long exposure by the Managed Money contingent.  This warns us of a vulnerability to further and possibly steep losses until this market can prove strength above at least 33.53 and preferably 34.83.

In sum, we anticipate a break of 01-Sep's 32.31 low ahead of a relative collapse to the lower recesses of this year's range around 29.77.  A bearish policy is advised for both short- and longer-term traders with strength above at least 33.53 and/or 34.83 required to threaten or negate this call.  A break below 32.31 will reinforce this call and expose potentially sharp losses immediately thereafter.

Soybean Oil Weekly

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.