MAY SOYBEAN MEAL
We’re only a month removed from 26-Feb’s 258.9 low, the lowest meal prices in almost six years and the low to a secular bear market from Sep’12’s 541 high. Talking bullish about meal can, at this juncture, only be in a shorter-term context that may, at times, provide an interim counter-trend surprise. But from a very short-term perspective and if the market can generate even intra-range strength above Thur’s 270.8 high detailed in the hourly chart below, a developing case can be made for at least a slightly larger-degree correction within the secular bear and possibly a more surprising recovery.
Against the backdrop of the secular bear trend and as we discussed in 09-Mar’s Technical Blog, sustaining 04-Mar’s gap-up price action would be rare so early in a base/reversal prospect. Now that the market has closed that gap and come within a smidge of the (264.8) 61.8% retrace of late-Feb/Mar’s 258.9 – 274.4 rally, a recovery above Thur’s 270.8 high would, in fact, confirm at least the short-term trend as up. This further reinforces 16-Mar’s 265.1 low as one of developing importance and possibly the END of a (b- or 2nd-Wave) correction of that 258 – 274 rally ahead of a resumption of that rally to new highs above 274.4. And once above 274.4, a new longer-term uptrend would be arguable.
As discussed often in this technical blog, we have three requirements for a reversal:
- a confirmed bullish divergence in momentum of a scale sufficient to break the longer-term downtrend
- proof of 5-wave, impulsive behavior on the initial counter-trend rally attempt, and, most importantly,
- proof of 3-wave, corrective behavior on a subsequent relapse attempt.
The market has yet to satisfy the first requirement of a confirmed bullish divergence in momentum on a scale sufficient to break the secular bear trend. Strength above at least last week’s 274.4 high and preferably above 12-Jan’s 279 high is required for this. But as labeled in the hourly chart above, the early-Mar rally looks to be about as 5-wavish as they come. And near-term strength above 270.8 will increase the odds that the setback to 265.1 is corrective enough to base new bullish exposure from that 265.1 low ahead of suspected gains above the increasingly pivotal 274.4 high.
Also contributing to a developing base/reversal threat are historically bearish sentiment levels shown in the weekly log active-continuation chart below. A recovery above 12-Jan’s key 279 high will, in fact, break the major bear trend from AT LEAST 16Jul15’s 357 high. COMBINED with historically bearish sentiment levels, the extent to which this market would then be vulnerable to higher levels should not be underestimated.
These issues considered, traders are advised to maintain bearish exposure with a recovery above 270.8 required for shorter-term traders to move to a cautious bullish stance and then use 265.0 as the risk parameter to that stance. Subsequent strength above 274.4 would reinforce this call and warrant even long-term traders’ move to a neutral-to-cautiously-bearish position. Needless to say a relapse below 265.0 would mitigate this base/reversal discussion, reinforce a broader bearish count and expose a run on and eventually through 26-Feb’s 258.9 low.
MAY WHEAT
The technical points detailed above for meal also exist in the May Wheat contract. Fri’s 4.58-1/2 low hourly close is the exact 61.8% retrace of early-Mar’s 4.46 – 4.79 rally, “suggesting” this setback might be the (b- or 2nd-Wave) correction of that initial counter-trend rally ahead of a resumption of that rally to new and potentially significant gains above 4.79.
While a recovery above 14-Mar’s 4.80 high and key risk parameter remains required to confirm the recent setback as a correction needed to satisfy all three of our reversal requirements, the market’s rejection thus far of the exact 61.8% retrace would seem to reinforce such a count as long as the market now sustain gains above Fri’s 4.57 low and new short-term risk parameter. COMBINED with historically bearish sentiment that warns of upside vulnerability AND the market’s failure thus far to sustain WEEKLY losses below the past year-and-a-half’s 4.66-area support-turned-resistance, it’s not hard to see the developing potential for a base/reversal threat that could produce surprising gains.
These issues considered, shorter-term traders are advised to move to a neutral-to-cautiously-bullish stance with a failure below 4.57 required to negate this specific count and re-expose the secular bear trend. Longer-term players are advised to pare bearish exposure to more conservative levels and jettison the position altogether on a recovery above 4.80, a recovery that could produce surprising gains immediately thereafter.
