In many markets and market sectors of late, we have seen the unique and compelling combination of bearish divergences in WEEKLY momentum amidst historically frothy sentiment/contrary opinion levels and arguably complete long-term Elliott Wave counts that are typical of major peak/reversal processes.  What are also typical of such processes are 2nd-wave or right-shoulder corrective rebuttals to initial counter-trend declines that often times are extensive in terms of both price and time that allow for the factors that have driven the secular bull trends to slow down and then reverse.

The weekly log chart of the Nov bean contract below shows the peak/reversal elements listed above, defining 09-Jun’s 15.85 high as one of developing importance and THE level this contract now needs to recoup to mitigate a peak/reversal count and re-expose its secular bull trend.  Against this backdrop however, corrective rebounds are typical within the major peak/reversal process.

Revisiting 2012’s major peak and reversal on a monthly log active-continuation basis, the chart below shows TWO, multi-month corrective rebounds of substance that preceded Jun’14’s 3rd-Wave meltdown, NINE MONTHS after the Sep’12 high and following Sep’12-Jan’13’s initial counter-trend break.  In 26-May’s Technical Blog we discussed the likelihood that the easy, trending money was behind us and that lateral, choppy, volatile price action was likely to characterize the suspected peak/reversal threats across a number of markets and certainly the entire grain complex.  Since that time, the soybean market (like the rest of the sector) has confirmed a bearish divergence in WEEKLY momentum that at least threatens, if not breaks the secular bull trend.  Historically frothy sentiment levels and an arguably complete long-term wave sequence comprise the list of factors typical of a major peak/reversal process.  But potentially extensive corrective recoveries within this process should hardly come as a surprise.  Indeed, we’ve lamented the poor risk/reward metrics of “chasing” bearish exposure too deep into the initial counter-trend break that leaves one vulnerable to the types of (likely corrective) spikes like the past few days.

The daily bar (above) and close-only (below) log scale charts show the past few days’ rebound.  The market has thus far retraced 50% of Jun-Jul’s 15.85 – 13.02 decline and, as we’ll discuss from a short-term perspective below, recovered above our short-term risk parameter defined by 24-Jun’s 14.02 low and former support-turned-resistance.  Still below at least 30-Jun’s 15.08 larger-degree corrective high and certainly below 09-Jun’s 15.85 high however, this not unimpressive rebound falls well within the bounds of a mere correction within the major peak/reversal process.  The challenge of course is navigating this market from the middle-half bowels of $2.83-range between 15.85 and 13.02 where high volatility and the great odds of aimless whipsaw risk present very treacherous conditions.  And herein lies the importance of technical and trading SCALE.

By recovering above 14.02, the market has certainly recovered enough to break at least the downtrend from 30-Jun’s 15.08 high and possibly even Jun-Jul’s entire decline from 15.85 to 13.02, warranting a return to a neutral/sideline policy by shorter-term traders.  For longer-term commercial players however, the market has not come anywhere near to negating the long-term peak/reversal count that warrants maintaining a longer-term bearish/bear-hedge policy.  The risk to this broader bearish count is to at least 30-Jun’s 15.08 larger-degree corrective high.  And even above that threshold, the market would still be 0.75-cents from last month’s obviously key high and resistance at 15.85.

Drilling down further, the hourly chart below shows the past few days’ impressive recovery that clearly defines last week’s 13.02 low as one of importance and an objective risk parameter from which non-bearish decisions like short-covers can be objectively based and managed.  But concluding anything more than a 2nd-Wave correction of Jun-Jul’s 15.85 – 13.02 decline at this range-center juncture would be premature.

To be sure, at least the short-term if not the intermediate-term trend is up with a bearish divergence in momentum and/or a relapse below 13.02 negating this trend and re-exposing the broader peak/reversal threat.  Commensurately larger-degree strength above at least 30-Jun’s 15.08 larger-degree corrective high remains required however to threaten a longer-term peak/reversal count enough for longer-term commercial players to pare or neutralize exposure.  In effect, the short-term trend is up within the still-arguable new long-term downtrend, with the market’s position deep within the middle-half bowels of the past month’s range presenting poor risk/reward metrics from which to initiate directional exposure.

These issues considered, a bearish policy and exposure remain advised for long-term commercial players with a recovery above 15.08 required to threaten this call enough to warrant moving to a neutral/sideline position.  Shorter-term traders have been advised to move to a neutral/sideline position in order the circumvent the heights unknown of a suspected corrective rebound as well as aimless whipsaw risk typical of such range-center conditions.  We will be watchful for an intra-range recovery-stemming bearish divergence in short-term momentum to present another favorable risk/reward opportunity from the bear side for shorter-term traders in the week ahead.

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