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When Will the 6 Month Price Range in Soybeans Break?


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Strategy of the Day 1.2.2020

When Will the 6 Month Price Range in Soybeans Break?

March 2020 Soybean futures closed down -15.75 cents today, on the back of trade resistance fears; which could have resulted from escalations in the middle east between US and Iran. While it may not be immediately apparent why the two markets closely tracking the US China trade relations (Soybeans and Lean Hogs) are reacting very negatively to escalations with Iran; it may be a result of global unrest negatively affecting trade potential with China (or any nation for that matter). The broader market has seen this same fear today translate into selling the in-stock indices, a rally in crude oil prices, and a flight to safety driving prices of gold higher as well. China has continued to trade directly (and indirectly) with Iran, and US China relations may become strained in the event of a regional conflict in the middle east.

Todays selloff in both the Soybean and Lean Hog futures is likely the result of a few factors in both markets, where failures of key technical setups have also resulted in a round of technical selling (on top of the fear factor now hitting the tape). Both futures markets (beans and hogs) saw price break out to the upside to new January highs beyond the highs of December, only to see a swift reversal and failure to hold onto gain of the last two weeks. While both markets have seen uptrends since December, both markets have fallen back into their December trading ranges. With that being said, the March Soybean futures are also seeing a rejection from the high end of a technical range the market has been trading in for the last 6-7 months (960-970 is that ranges high-end). The low-end of this range is $1 lower around the 870 area and was where the December rally in the Soybeans found its origins.

From a technical perspective, the March Soybean futures are starting to consolidate the trend higher it began in December. The 200-day moving average is at 921, while the 50 day remains above it at 929 (still a bullish signal); both levels the market may want to pull back to test in a deeper correction. The 50% Fibonacci supportive inflection zone is also located in this area at 922, as well as the gap fill (921) for the open gap up from 12/13. Upside momentum indicators signaled over bought conditions on the push to 960, and now the reversal off those highs is confirming the short-term reversal the market needed to hopefully bring those indicators back to their mean. Resistance should be looked out for in the 947-950 area now that the market has traded below, as this is where the lows of 12/30 held to take the market to the 2020 highs (broken support could be tested as resistance).

In the near term, the 940-937 Fibonacci inflection zone has found support, which also correlates with the (highlighted light blue) congestion zone the market found resistance into late December (broken resistance, now being tested as support). There is also a volume valley in the market profile (blue arrow) that is at this area, suggesting that it could be a point of inflection (reversal) in the market as volume typically tapers off at this price area. The kicker in the hole for the soybean bulls right now is that December candle closed as an outside revesral month to the upside, and January making new highs, is a technical confirmation a trend higher might be forming. That trend is still in its infancy, and we know the range highs of 960-970 are a strong line in the sand to be bullish above, and possibly bearish below. We have shorter term rejections of longer term levels, but keeping timeframes in mind, a big move higher could be brewing.

Dan can be reached at (312)277-0110 with any question or further comments, and you can click here to get access to the Zaner Ag Hedge daily newsletter to receive his emailed commentary daily!

Get all of Dans commentary, as well as the entire Zaner Ag Hedge teams thoughts:

http://www.zaner.com/landing/ag_hedge_newsletter.asp?AP=DHUSSEY

March 2020 Soybean Futures 240 min Chart



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About the author


Dan began his career in 2006 as an arbitrage and clearing clerk for Spyglass Options in the Eurodollar futures options pit on the floor of the Chicago Mercantile Exchange. Taking his employing brokers advice, Dan soon left the floor to pursue a career “behind the screens upstairs”, as there was an inherent lack of opportunity for market making in open outcry pits. After graduating from the University of Notre Dame in 2009 (and for the subsequent 10 years), Dan leveraged his IT background in networking and computer programing to begin developing computerized trading algorithms and trading systems for multiple private equity firms and his own account. He eventually found his specialization in trading carry trade dynamics in currency and interest rate futures; while simultaneously building his experience in trading both inter-market and intra-market spreads. His trading experience later expanded to include most commodity spreads, with an emphasis on carry trade economics in agricultural commodities. In 2016 Dan decided to take his career full circle by becoming a series 3 and 34 licensed broker; and expanded his outreach to the agriculture production community. In 2018, he joined Zaner Financial Services Ag Hedge division, bringing his knowledge and expertise of carry trade economics and continues expanding exposure to spread markets. Dan can be reached at (312)277-0110 by phone, @DanielHusseyJr on twitter, @DanSOTD on facebook, and emailed at dhussey@zaner.com.
 
 
Contributing author since 2/15/2019 

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