Beans, Bean Meal Still Technically Constructive, But Beware Further Chop | RJO Futures

December 9, 2016 2:51AM CST

JAN SOYBEANS

Our own Randy Mittelstaedt informed me yesterday that, especially ahead of Jan's HUGE crop report, today's early-Dec crop report is typically one that produces little excitement from a fundamental perspective.  And both he and his Kansas City Chiefs have been hot lately.  From a technical perspective, we've been constructive since late-Oct's bullish divergence in momentum broke Jun-Sep's major downtrend.  But before getting into short-to-intermediate-term specifics, we'd like to remind traders of what we believe the long-term technical backdrop is within which current smaller-degree oscillations should be considered.

In 20-Sep-16's Technical Blog we reiterated the prospect that Jun-Sep's major relapse is actually a correction of Nov-15 - Jun'16's initial counter-trend rally in a BASE/REVERSAL ENVIRONMENT that could be absolutely major in scope.  Mar/Apr's bullish divergence in momentum, in fact, broke the secular bear trend from Sep'12's 17.89 high and defined Nov'15's 8.44 low as the END of a 5-wave Elliott sequence down from Sep'12's 17.89 high.  In this regard that 8.44 low is THE low and key long-term risk parameter the market needs to break to negate this base/reversal count and reinstate the secular bear to levels indeterminable lower.  Until such sub-8.44 weakness is shown, we believe that the relapse from Jun's 12.09 high is a (B- or 2nd-Wave) correction within a major base/reversal environment that will ultimately produce levels well above Jun's 12.09 high.

HOWEVER, for months now we have likened this year's technical environment to the Jul'09-to-Jul'10 and Nov'05-to-Oct'06 periods circled in blue in the monthly log scale chart below.  These PROLONGED, multi-QUARTER, frustratingly lateral periods of aimlessly choppy chop FOLLOWED initial counter-trend rallies that broke previous major bear trends just like the Nov'15 - Jun'16 rally did.

While we have been constructive this market since 24-Oct's bullish divergence in momentum discussed in that day's Technical Blog .  But traders are urged to keep the Jul'09 - Jul'10 and Nov'05 - Oct'06 periods in mind heading forward as near-term failures below 10.22 and/or 9.75 would reinforce counts calling for choppy, range-bound behavior that could span months or even quarters ahead, or basically until the middle of the 2017 crop year.  Another six-to-eight months of rangey behavior between, say, 10.80 and 9.25 should not come as a surprise.

Soybeans Monthly

From an even longer-term perspective the quarterly log scale active-continuation chart below shows a GENERATION of now-former resistance from the general 9.00-to-10.00-range that should not surprise as a new supportive base for what could be years ahead.  We also find it interesting that Nov'15's 8.44 low came within a mere 6-cents of the 50% retracement of the secular bull trend from Jul 1999's 4.05 low to Sep'12's 17.89 all-time high.  This fact would seem to reinforce the long-term base/reversal environment discussed above.

Soybeans Quarterly

Soybeans Weekly

The weekly log scale chart of the Jan contract above shows 24-Oct's break of Jun-Sep's downtrend.  This is a technical fact that exposes the new longer-term trend as up.  The daily log scale chart below shows the market thus far holding levels above former resistance-turned-support from the 10.20-to-10.30-range.  MINIMALLY, a failure below 01-Dec's 10.22 smaller-degree corrective low and short-term risk is required to threaten a bullish count while a commensurately larger-degree failure below 14-Nov's larger-degree corrective low and key risk parameter remains required to break the past quarter's uptrend, render it a 3-wave and thus corrective affair and re-expose Jun-Sep's downtrend to eventual new lows below 9.40.  So while this market's upside potential is indeterminable, we know exactly what risk levels the market needs to break to threaten or negate a still-advised bullish policy: 10.22 (for shorter-term traders with tighter risk profiles) and 9.75 (for longer-term players and end-user hedgers).

Soybeans Daily

Drilling down to a very short-term basis, the hourly chart below shows the past couple weeks' mere lateral chop.  The sell-off attempt from 28-Nov's 10.60 high is clearly only a 3-wave affair thus far.  Left unaltered by a relapse below 10.22 , this 3-wave sell-off attempt is considered a corrective/consolidative event that warns of a resumption of Nov's 9.75 - 10.65 rally that preceded it.

These issues considered, a bullish policy remains advised with weakness below 10.22 required for shorter-term traders to move to the sidelines and longer-term players to pare bullish exposure to more conservative levels.  Ultimately however, commensurately larger-degree weakness below 9.75 remains required to negate our broader bullish count and warrant a move to the sidelines by long-term players.  In lieu of weakness below at least 10.22 we anticipate a resumption of the past quarter's uptrend to new highs above 10.65.  The market's upside potential above 10.65 is indeterminable and should not be underestimated.  EVERYONE knows how bearish the fundamentals are.  But we're fond of saying that market fundamentals are always most bearish right at major bottoms, when technical facts warn the market is vulnerable to reversing.  Good luck on today's numbers.

Soybeans 60 min

JAN SOYBEAN MEAL

Soybeans Monthly

From a very long-term perspective we believe the meal market has the same technical construct as that detailed above for beans.  A major base/reversal environment is easily argued with a break of 27-Sep's 294.1 low required to threaten this call.  However, the PROCESS of reversing Jun-Sep's steep relapse could easily span months or even quarters.

Soybeans Weekly

Soybean Meal Daily

While Jun-Sep's downtrend has clearly been broken mid-Oct's bullish divergence in momentum, the directional jury remains out as to whether this recovery is only a 3-wave correction ahead of a resumption of the preceding slide OR a more significant reversal higher.  On the heels of Sep-Oct's rally, the past six weeks' mere lateral price action shown in the daily log chart above and hourly chart below is advised to first be approached as corrective/consolidative ahead of a resumption of the preceding uptrend to new highs above 330.  What the market does above 330 is anyone's guess, but we urge traders to never buck an uptrend.

The 329-area that marks the upper boundary of the 6-week range is obvious resistance from which interim non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.  By the same token however and within the context of a larger-degree base/reversal threat, 03-Nov's 307.2 low remains intact as the key longer-term risk parameter this market needs to break to threaten a broader base/reversal count, render Sep-Nov's recovery a 3-wave and thus corrective affair and re-expose the broader downtrend from Jun's high.  In effect the market has identified 330 and 307 as the key directional triggers head forward.

In sum, a general but conservative bullish policy remains advised with weakness below 307.0 required to move to the sidelines. A break above 329.3 will reinforce this call and expose further and possibly accelerated gains that should not be underestimated in terms of potential scope.

Soybean Meal 60 min


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