Range Constraints Maintain Grip on Beans, Meal; Bean Oil Still Vulnerable

February 15, 2017 9:30AM CST

MAR SOYBEANS

The market's failure yesterday below 09-Jan's 10.45 corrective low confirms a bearish divergence in momentum on an intra-day hourly basis below.  This mo failure defines Fri's 10.64 high as one of developing importance and possibly the end of the recovery from 30-Jan's 10.19 low, exposing at least an interim correction of this 10.19-to-10.64 pop and possibly a resumption of late-Jan's 10.80 - 10.19 slide that preceded it.  Regardless of what the market has in store to the downside, this 10.64 high serves as a tight but objective short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.

Soybeans 60 min Chart

Soybeans Daily Chart

The fact that this admittedly short-term mo failure stemmed from the upper recesses of the 2-1/2-month, 9.93-to-10.80-range shown in the daily log chart above should hardly come as a surprise, especially when the past SIX-MONTH range shown in the weekly log active-continuation chart below defines the middle-half bowels of the past 2-1/2-YEAR range.  Indeed, against this long-term "ranges-within-ranges" backdrop, waning UPside momentum and rejections of range-CAPS are the counter-punches to our rationale back in 15Aug16's Technical Blog warning of a period of lateral-to-higher prices from the lower recesses of the long-term range.

As a result of the extent of Feb's rebound, a break below 30-Jan's 10.19 low is now required to threaten the broader recovery from Aug'16's 9.38 low and expose the longer-term trend as down.  But while Fri's 10.64 high and short-term risk parameter remains intact, the odds may now be shifting back towards the bear.  And what could prove interesting and reinforcing of such a bearish count is the Fibonacci fact that the rally from 04-Jan's 9.93 low came within a penny of the (10.79) 0.618 progression of Aug-Nov's preceding 9.38 - 10.74-rally.

Market sentiment levels range from indifferent to relatively frothy and won't inhibit a move either way.  But with the market once again acknowledging/rejecting the 10.60-to-10.80-range as resistance, the 87% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC could easily contribute to a period in which the bean market is "vulnerable" to lower levels.

Soybeans Weekly Chart

From a macro perspective we'd like to remind traders of the massive BASE/reversal PROCESS we believe the market has been in since Nov'15's 8.44 low.  WE maintain our call that that 8.44 low COMPLETED the bear market from Sep'12's 17.89 all-time high because of:

  • a confirmed bullish divergence in MONTHLY momentum
  • a textbook 5-wave Elliott sequence from 17.89 to 8.44
  • historically bearish sentiment not seen since 2003 and
  • the Fibonacci progression fact that this 3-year bear is identical in length (i.e. 1.000 progression) to BOTH the 2008 collapse and the 2004-05 decline.

A break below our very long-term risk parameter at 8.44 is required to negate this call.

Within a massive base/reversal PROCESS however often times comes extensive corrective retests of the rejected low; "extensive" in terms of both time and price.  After the initial counter-trend rallies from the Feb'05 and Dec'08 lows, the (B- or 2nd-Wave) corrective retests of those rejected lows spanned 16- and 11-months, respectively, and included insanely choppy price action.

We are currently eight months removed from last Jun's 12.09 high.  Another four to eight months of lateral-to-LOWER prices would be EXACTLY how this market completed the major basing processes in 2006 and 2010 before yielding to major bullish forces.  The market's failure below 01-Feb's 10.17 low would reinforce this call and could easily expose a run at last summer's 9.38 low.  Producers looking for an "early" and favorable risk/reward condition from which to implement the start of a bear-hedge strategy can now consider the 10.64-to-10.80-range as an objective risk parameter from which to do so.

These issues considered, shorter-term traders with tighter risk profiles are advised to move to a neutral-to-cautiously-bearish policy with strength above 10.64 negating this call and re-exposing the broader bull.  Longer-term players are advised to pare bullish exposure to more conservative levels and jettison the position altogether on a failure below 10.19.

Soybeans Monthly Chart

MAR SOYBEAN MEAL

Meal isn't going anywhere that beans are so it's not surprising to see a virtually identical technical construct in meal to that detailed above in beans.  The hourly chart below shows that this market has NOT yet confirmed a bearish divergence in short-term momentum below 09-Feb's 335.9 corrective low, but overnight price action suggests the market may be going for that level today.  The past week's recovery thus far looks to be a 3-wave and thus corrective affair that has stalled in the immediate area around the (344.8) 61.8% retrace of late-Jan/early-Feb's 353.7 - 330.5 decline.  These factors would seem to raise the awareness of a short-term mo failure below 335.9.

Soybean Mail 60 min Chart

Soybean Meal Daily Chart

In recent updates we have identified former key resistance around the 330-area from last Oct-Nov as a pivotal new support candidate.  The past week's recovery has acknowledged this area's importance.  A failure below 07-Feb's 330.5 low and new key risk parameter won;t necessarily confirm the end of the 5-month rally from 27Sep16's 297 low.  But given the clear (textbook, actually) 3-wave and thus corrective appearance of the Sep'16 - 18Jan17 recovery, we believe the threat against a bullish count would be severe enough to warrant moving to at least a neutral/sideline position.

Soybean Meal Weekly Chart

Finally, here too we believe Feb'16's 258 low completed the secular bear from Sep'12's 541 high and that the sharp and impulsive rally to last Jun's 432 high started a major base/reversal process that could still have further (extensive) price and time correction laterally-to-lower.  A failure below 330 would reinforce this count and could easily expose a run at the 310-to-297-range in the four to eight months ahead.

These issues considered, a bullish policy remains advised with a failure below 335.9 required for shorter-term traders to move to the sidelines and longer-term players to pare bullish exposure to more conservative levels.  Subsequent weakness below 330.5 is sufficient for longer-term players to move to the sidelines ahead of a possible return to a bearish policy thereafter.

Soybean Meal Monthly Chart

MAR SOYBEAN OIL

Yesterday's slip below 03-Feb's 33.80 low renders the early-Feb recovery attempt another 3-wave and thus corrective structure consistent with our broader bearish count ahead of expected new lows below 30-Jan's 33.33 low.  As a result, 09-Feb's 34.98 high is considered the latest smaller-degree corrective high and new short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively rebase and manage the risk of a still-advised bearish policy.

Soybean Oil 60 Min Chart

Soybean Oil Daily Chart

This evidence of shorter-term weakness is not surprising against the backdrop of a major head-&-shoulders reversal pattern labeled in the daily log scale chart above that projects to the 30.85-area.  The market's gross failure to sustain 4Q16 gains above a ton of resistance-turned-support from the 34-handle reinforces this broader bearish count as does the historically bullish sentiment that accompanied the Nov-Dec rally.

IN sum, a bearish policy remains advised with strength above 34.98 required for shorter-term traders to move to the sidelines and for longer-term players to pare bearish exposure to more conservative levels.  Ultimately, a recovery above 12-Jan's 36.96 larger-degree corrective high and key risk parameter remains required to negate a bearish count altogether.  In lieu of strength above at least 34.98, further and possibly accelerated losses should not surprise.

Soybean Oil Weekly Chart


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