Meal Chop Likely Corrective, But Beware Above $343

August 15, 2018 9:03AM CDT

In Mon's Technical Blog we identified last Thur's 338.5 high as a short-term risk parameter the market needed to sustain last week's losses below to maintain a more immediate bearish count. Yesterday's recovery above 338.5 stems that more immediate bear risk and reinforces the 322-area as one of developing importance as a support area. And per such Mon's 321.5 low is considered our new short-term risk parameter from which non-bearish decisions like short-covers can be objectively based and managed.

This said, the clear 3-wave decline from 31-Jul's 343.2 high to that 321,5 low and generally lateral price action from 13-Jul's 322.0 low is arguably textbook (3-3-5 "flat") corrective/consolidative behavior that warns of a resumption of May-Jul's major decline that preceded it. To be sure, there's no way to know what lies above 31-Jul's 343.2 high, so this level remains as our key longer-term risk parameter to a bearish policy. But until and unless the market breaks that 343.2 high, yesterday's rebound is advised to first be approached as the completing c-Wave of a larger-degree (4th-Wave) correction from 13-Jul's 322 low. And despite the short-term, intra-range whipsaw, this return to the upper-quarter of the past month's range offers a favorable risk/reward selling opportunity per this count for shorter-term traders with a recovery above 343.2 negating it and warranting its cover.
Soybean Meal Dec '18 60min Chart
Soybean Meal Dec '18 Daily Chart

The daily chart above shows the bear-flag behavior the past month or so that, on the heels of May-Jul's collapse, is advised to first be approached as corrective ahead of a resumption of that May-Jul slide. From a broader perspective however, the weekly log active-continuation chart below shows the market still wafting within the middle-half bowels of the past couple years' range where exactly such aimless chop is considered the rule rather than the exception. As we always discuss, such range-center environs are typically rife with such aimless whipsaw risk that warrants a more conservative approach to risk assumption. Herein lies the importance of identifying tighter but objective risk parameters like 343.2 and 321.1.

We would remind traders that this far the decline from 02-May's 406.5 high has stalled around the immediate 318.9-area that makes it 61.8% (i.e. 0.618 progression) of Jun'16 - Jun'17's preceding 432 - 292 decline. With the expected erosion in what was particularly frothy bullish sentiment and against what still is arguably a multi-year BASE/reversal environment, traders are urged not to underestimate this market's UPside potential if/when it breaks above 31-Jul's 343.2 high.
Soybean Meal Weekly Chart
Soybean Meal Dec '18 Weekly Chart

Indeed, the weekly log close-only chart of the Dec contract above shows waning downside momentum and the market's rejection thus far of the (324) 50% retrace of the entire 2016 - 2018 rally from 274 to 384. Additionally, the monthly log active-continuation chart still shows virtually identical base/reversal-threat behavior from Feb'16's 258.9 low to both previous base/reversal environments from Dec'08's 235 low and Nov'04's 146 low.

From such a long-term perspective, this does not preclude a relatively "shorter-term" continuation of the past four months' downtrend to the (295-area) lower-quarter of the multi-year range. But this longer-term base/reversal count does suggest that any such sub-321 break should be approached as a terrific long-term buying opportunity for commercial end-users.

These issues considered and despite yesterday's rebound above 338.5, both short- and longer-term traders are advised to maintain a bearish policy from 337 OB with a recovery above 343.2 required to negate this specific call and warrant its cover. In lieu of such 343.2+ strength we anticipate a resumption of May-Jul's downtrend to at least one more round of new lows below 321.5.

Soybean Meal Monthly Chart

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