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Agricultural

Trail Bull Risk as Bean Meal Soars

Posted 02/27/2018 1:52PM CT | RJO Market Insights

Today’s break above the past week’s 385-to-387-area resistance reaffirms the developing uptrend and leaves 21-Feb’s 377.5 low in its wake as the latest smaller-degree corrective low the market is now minimally required to fail below to even defer, let alone threaten the bull. In this regard 377.5 becomes our new short-term risk parameter from which the risk of a still-advised bullish policy can be objectively rebased and managed by shorter-term traders with tighter risk profiles.
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soybean_meal_may18_daily_chart
The clearly impulsive nature and magnitude of the market’s obliteration of the entire past YEAR’S 350-area key resistance reinforces are bullish count introduced in 17-Jan’s Technical Webcast that warns of a run at and potentially through Jun’16’s 432 high. The weekly log active-continuation chart below shows the chasm between that 350-ara and 2016’s 432 high that we discussed being totally devoid of any technical levels of merit given the steep and uninterrupted nature of Jun-Sep’16’s meltdown. Thus far the market is behaving exactly as if there is no resistance shy of 432.

Whether the bull will continue to or even through 432 is now totally a function of MOMENTUM; specifically, a confirmed bearish divergence in momentum needed to break the major but simple uptrend pattern of higher highs and higher lows. Minimally, 21-Feb’s 377.5 corrective low provides one (very tight) corrective low, the break of which will certainly stem the bull. But this admittedly short-term mo failure would only allow us to conclude the end of the rally from 05-Feb’s 330.2 low, not THE major uptrend from Jun’17’s 292 low.

On a scale commensurate enough to even threaten what arguably is a new secular bull market the market would have to fail below at least former 350-area resistance-turned-key-support. Setback attempts shy of this pivotal area would be advised to first be approached as corrective buying opportunities by longer-term players.
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The past few weeks’ impressive rally aside, traders are reminded of the THREE YEARS of basing behavior that preceded it. Indeed, the slowdown process that ended up defining Feb’16’s 258 low as THE END of the secular bear trend from Sep’12’s 541 all-time high actually began with Oct’14’s 296 low and (4th-wave) rebound to 414. After a typical highly emotional 4Q15 plunge to new lows below that Oct’14 low that the market failed miserably to sustain, the subsequent bullish divergence in MONTHLY momentum ended the bear and provided the initial (A- or 1st-wave) counter-trend rally in 2Q16 that warned of the subsequent base/reversal process to follow and the type of rally the market is currently experiencing.

The current rally is no flash in the pan, but rather one the market has been warning of for many quarters, if not years. Against this backdrop, even further steep gains should hardly come as a surprise.

These issues considered, a full and aggressive bullish policy remains advised with a failure below 377.5 sufficient to allow shorter-term traders to step aside to circumvent the depths unknown of what we’d suspect is an interim correction ahead of resumed gains. Commensurately larger-degree weakness below the 350-area is minimally required for long-term players to take similar defensive steps. In lieu of such weakness we continue to anticipate further and possibly steep gains straight away.

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RJO Market Insights

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