RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

We’re going to begin this analysis from the very long-term and work our way down to finer technical levels we believe will prove important before, during and after next Fri’s key crop report.  Reiterating, we believe the unique and compelling combination of:

  • Apr’16’s confirmed bullish divergence in momentum amidst
  • historically bearish market sentiment and
  • a complete Elliott sequence down from Sep’12’s 541.7 all-time high

defines Feb’16’s 258.9 low as THE END of the secular bear market and start of a major base/reversal PROCESS.  The relapse from last year’s 432.5 high is considered the (B- or 2nd-Wave) correction of early-2016’s initial (A- or 1st-Wave) rally TYPICAL of such base/reversal processes.  Indeed, the price action from Feb’16’s 258.9 low is virtually identical to the two prior major base/reversal processes from Dec’08’s 235.5 low and Nov’04’s 146.6 low circled in blue in the monthly log scale chart below.

On this major scale Feb’16’s 258.9 low serves as the secular risk parameter the market needs to break to negate this count.  In lieu of such sub-258 weakness long-term traders are advised to acknowledge what could be extraordinary risk/reward merits of a bullish policy from current and genera; 300-area prices.

Soybean Meal Monthly Chart


Soybean Meal Weekly Chart

IF this long-term bullish count is correct, then by definition the relapse from last year’s 432 high on an active-continuation chart basis shown in the weekly log scale chart above would be expected to 1) unfold in a 3-wave and thus corrective manner and 2) bottom at a level higher than the 258 start of the move.  Given the magnitude of the secular bear trend from 2012 t0 2016, such an “extensive” correction in terms of both price and time is not unusual.  With the lower-quarter of a range a sort of fish-or-cut-bait time and condition with respect to this suspected correction ending, it should not be a surprise that the bear is having difficulty making any headway into the lower-quarter of the range.

The generally “flat” price action in the soon-to-be-prompt Dec contract (below) from last year’s high an proximity to the extreme lower recesses of its past year’s range also alerts us to a condition in which the market might be vulnerable to higher levels rather than lower ones.

Contributing mightily to a base/reversal-threat condition are currently historically bearish levels in both of the market sentiment indicators we monitor closely: the Bullish Consensus (marketvane.net) and our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC.  In a nutshell, contrary opinion theory basically states that the odds of a trend reversal increase when a predominant number of the trading establishment (i.e. traders, investors, analysts, media, economists) is decidedly bullish or bearish.

In effect, the huddled masses are virtually always most bullish at market tops and bearish at market bottoms.  If you’re bearish soybean meal- and apparently there are plenty of reasons to be bearish- you have a LOT of company.  This does not mean the market cannot continue lower as long as it sustains the broader downtrend from Feb’17’s high.  If/when the market breaks this slide, the COMBINATION of that bullish divergence in momentum AND historically bearish sentiment is a powerful one that we believe will warn of a reversal higher that could be absolutely major in scope.

Soybean Meal Weekly Chart

The key technical issue then becomes one of MOMENTUM.  Only a glance at the daily log close-only chart of the Dec contract above is needed to see that the trend from 15Feb17’s 340.0 high remains arguably DOWN.  Former 310-area support from early-Apr has thus far played its role as new resistance well judging from the past week-and-a-half’s relapse from 09-Jun’s 309.9 high.  Should the market close above 310.0 however, it will confirm AT LEAST the intermediate-term trend as up.  And given the prospect that 31-May’s 303.0 low COMPLETED a 5-wave Elliott sequence down from the Feb high, we believe such 310.0+ strength would expose at least a correction of this year’s 4-month decline and possibly a resumption of a major base/reversal count that’s been developing since Feb’16’s 259 low.

Need less to say a relapse below 31-May’s 303.0 low and short-term risk parameter will mitigate any base/reversal threat, reinstate this year’s bear and expose potentially steep losses thereafter.


Soybean Meal Daily Chart

Drilling down to a very short-term scale the hourly close-only chart below details the past week-and-a-half’s relapse from early-Jun’s 302.4 – 313.4 rally.  We currently act on the premise that we DO NOT KNOW whether this 302 – 313 rally is another correction within the past YEAR’S decline or the initial a- or 1st-wave of a broader correction or reversal higher.  The key third of our three reversal requirements needs the market to show a labored, 3-wave, correction to an initial counter-trend rally.  A recovery above 13-Jun’s 309.3 high and micro risk parameter will provide the first evidence that the sell-off attempt from 08-Jun’s 313.4 hgih is exactly such a 3-wave, corrective structure. Such 309.3+ strength will raise the odds of a base/reversal count, but the ultimate confirmation will come from a rally above 08-Jun’s 313.4 high hourly close (or a daily close above 310.0).

In sum, we believe the market has identified the 310 and 302 levels in the Dec contract as the key directional triggers heading forward.  Ample technical evidence is in place for a base/reversal count that could be major in scope.  A move above 310 will reinforce this call and expose further and possibly extensive gains.  Conversely, a relapse below 302.4 would reinforce a broader bearish count and expose further and possibly steep losses.  Traders are advised to acknowledge and be flexible to both counts, establishing a cautious bullish policy above 309.3 and ramping bullish exposure up more aggressively on a close above 310.0 and/or an intra-day move above 313.5.  Risk on any bullish exposure is to 31-May’s 302.4 low.

Soybean Meal 60 min Chart


RJO Market Insights

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