Gross Mo Failure, Historic Pessimism Present Classic Major Base/Reversal Technical Conditions in Beans, Meal

July 3, 2017 9:24AM CDT

NOV SOYBEANS

The market's gross failure to sustain last week's losses, first below our short-term risk parameter at 9.36 and secondly above our long-term risk parameter at 9.56, confirms a bullish divergence in momentum that defines 23-Jun's 9.07 low as the END of a 5-wave Elliott sequence from 28Nov16's 10.43 low as labeled in the daily log scale chart below.  In this regard that 9.07 low serves as our new long-term risk parameter from which even long-term players can now objectively base and manage the risk of all non-bearish decisions like short-covers and a new bullish policy.  The extent and impulsive nature of the past few day's recovery are important qualities that contribute to what we believe is a major base/reversal-threat environment.  This said however, and while short positions are no longer warranted, we do believe that a preferred risk/reward condition for bulls will come not from chasing this initial counter-trend rally, but after what we suspect will be an interim corrective relapse in the week or two ahead.

Soybeans Daily Chart

 

The hourly chart below shows today's gap-up continuation of the past few day's explosive reversal that leaves Thur's minor (1st-Wave high) in its wake as a prior high that the bull needs to sustain gains above to maintain its impulsive integrity.  This 9.36 level is considered our new short-term risk parameter to all non-bearish decisions like short-covers.  We suspect this level won't even come into play however, with an interim (suspected 4th-Wave) setback and subsequent 5th-Wave continuation of this rally eventually identifying a tighter, more practical and objective risk parameter for shorter-term traders.

Soybeans 60 min Chart

 

The "classic" nature of this major base/reversal environment stems not only from the bullish divergence in momentum cited above, but also from the unique combination of:

  • the market's expected rejection of the lower-quarter of the past couple year's range amidst
  • HISTORICALLY BEARISH SENTIMENT TYPICAL OF SUCH MAJOR BASE/REVERSAL ENVIRONMENTS

Indeed, we have been discussing this contrary opinion element for weeks as the market encroached the lower-quarter of the long-term range that presented a slippery slope for bears.  Fri/today's confirmed bullish divergence in momentum not only breaks the 7-month downtrend, it renders market sentiment an applicable technical tool in the effective navigation of a base/reversal environment that we expect to be major in scope due to the fact that the huddle masses are short in historic quantities that now leaves the market vulnerable to higher levels as the market forces the capitulation of this now-losing/painful exposure.

Soybeans Weekly Chart

 

Long-term traders are also reminded that the past few weeks' classic base/reversal conditions are also part of an even more massive, 2-YEAR base/reversal process on a monthly log scale basis below.  We have discussed often the major bullish prospect that the price action from Nov'15's 8.44 low is similar to the base/reversal conditions stemming from the Dec'08 and Feb'05 lows circled in blue below.  If correct, our preferred count calls for a move to levels above Jun'16's 12.09 low before the market fails below 8.44.  And after the past few days' component of this process, we could see 12.09+ levels before a relapse below 9.07!

In sum, any/all previously recommended bearish/bear-hedge exposure has been advised to be neutralized above 9.36 and 9.56.  Traders are further advised to maintain a neutral/sideline position and wait for a bearish divergence in short-term momentum needed to stem this initial counter-trend rally and expose an interim corrective setback that could provide one of the great risk/reward buying opportunities for the rest of 2017.

Soybeans Weekly Chart

 

 

DEC SOYBEAN MEAL

Soybean Meal Daily Chart

 

The technical construct and expectations for the Dec Meal market are identical to those detailed above for Nov Beans following Fri's recovery first above our short-term risk parameter at 305.5 and subsequently above 310.  This defines 23-Jun's 297.2 low close as the END of not only a 5-wave decline from 15-Feb's 340.0 high, but also the prospective end to a 3-wave and thus corrective relapse from Jun'16's 432 high in a major base/reversal process to eventual new highs above 432 shown in the weekly log active-continuation chart below.

Soybean Meal Daily Chart

 

Current historic bearish sentiment levels are typical of such major base/reversal environments that, in his case, we believe reinforce an absolutely major base/reversal count similar to those from Dec'08's 235 low and Nov'04's 146 low circled in blue in the monthly log active-continuation chart below.

Soybean Meal Monthly Chart

 

From a short-term perspective Fri and today's rally is likely the 3rd-Wave of an initial 5-wave Elliott sequence labeled in the hourly chart below.  We suspect a steeper corrective relapse to this initial counter-trend rally to provide a preferred risk/reward buying opportunity as opposed to "chasing" this initial rally and poorer risk/reward merits.  In sum, a neutral/sideline policy is advised for the time being ahead of a new bullish policy that could stand for months or even quarters ahead and a run at 2016's 432 high or above.  A relapse below 297 is required to negate this call.

Soybean Meal 60 min Chart

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.