Impulsive Gains from Historic Soybean Range Base Contribute to Major Base/Reversal Threat

July 30, 2018 9:39AM CDT

Soybeans Nov '18 60min Chart

While the market has yet to break 06-Jul's 8.98 high that we have cited as our key longer-term bear risk parameter the market was required to break to break May-Jul's 10.61 - 8.26 downtrend, today's resumed rally contributes to what looks to be a trendy, impulsive, 5-wave-type rally from 13-Jul's 8.26 low. The impulsiveness of this rally from 13-Jul's 8.26 low is an important (A- or 1st-Wave) component to a broader base/reversal count.

Fri and today's continued rally leaves Thur's 8.75 low in its wake as the latest smaller-degree corrective low this market is now required to fail below to confirm a bearish divergence in short-term momentum, stem the rally and expose either a steeper (B- or 2nd-Wave) corrective retest of 13-Jul's 8.26 low OR a resumption of the secular bear trend to new lows below 8.26. In this regard we're considering 8.75 as our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.
Soybeans Nov '18 60min Chart
Soybeans Nov '18 Daily Chart

With the market on the cusp of breaking above 06-Jul's 8.98 high, the daily log scale chart above shows the prospect that 16-Jul's 8.26 low (or 13-Jul's Globex day session low at 8.26) COMPLETED a 5-wave Elliott sequence down from 29-May's 10.61 low. Given the market's gross failure thus far to sustain mid-Jul losses below the PAST THREE YEARS' low and support defined by Nov'15's 8.44 low amidst a return to historically bearish sentiment levels typical of major base/reversal environments, it's not hard to see the developing potential for a base/reversal count that could be major in scope. A failure below 8.26 is now simply required to mitigate our base/reversal count introduced in 18-Jul's Technical Blog.
Soybeans Weekly Chart

Finally, and also a major contributor to our long-term base/reversal count from the lower-$8.00-handle, are the remarkable Fibonacci progression relationships that identify EACH of this markets four major sell-offs since May 197's 9.02 high. That May '97 to Jan'02 major bear saw the market lose 53.88%. 2004-05 and 2008's corrections lost 53.19% and 52.6%, respectively. And with May-Jul's break to the recent 8.26 low, the current major bear market from Sep'12's 17.89 high has spanned an identical (i.e. 1.000 progression) to the 197 - 2002 bear market; TO THE PENNY! Amidst the not unexpected return to sentiment levels at the lower bounds of their historical range, the market has once again provided the technical elements typical of major base/reversal-threat environment.

Of course, one cannot conclude a major reversal from only relatively minor proof of strength. And indeed, the market has arguably only satisfied the first two (a bullish divergence in momentum of a scale sufficient to threaten the broader downtrend and trendy, impulsive behavior on the initial counter-trend rally) of our three reversal requirements. Proof of labored, corrective behavior on a subsequent relapse attempt that admittedly could be extensive remains a key component of a broader base/reversal process and count before moving to a new bullish policy. But the market HAS provided enough evidence to suggest that a bearish policy and exposure "down here" are poor risk/reward bets for longer-term players.

These issues considered, longer-term players are advised to join shorter-term traders in moving to a neutral/sideline position to circumvent the heights unknown of a larger-degree correction or reversal higher. A failure below 8.75 will confirm a bearish divergence in short-term mo that will stem the two-week rally and expose either a correction of the pop from 8.26 an potentially an outstanding risk/reward buying opportunity OR a resumption of the secular bear trend below 9.26. IN lieu of such sub-8.75 weakness, further and possibly accelerated gains should not surprise.

Soybeans Monthly Chart

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