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A Soybean chart you will see nowhere else

 

The agribusiness world does not want to believe Soybeans can return to $7.50.

But the chart shown below suggests such a decline is very possible. Factor is the only trading firm that has constructed a 2015 crop year graph.

The weekly graph is a construct shown by no other printed or online chart service. The chart displays only the 2015 Soybean crop year. The chart is constructed by only using crop year 2015 contracts on a continuation basis.

As shown, the 2015 Soybean crop year completed a massive 43-month H&S pattern in Aug 2014. The rally into the Nov 2014 high was simply a retest of this top. This H&S pattern has targets as low as $6.50, but the $7.50 to $8.25 zone is more realistic.

2015 Crop Year Soybeans

Assuming normal growing conditions in 2015, the fall harvest will bring all-time record Soybeans supplies to market. The daily chart of the Nov 2015 contract posted a new contract low this week and has completed an arguable 8-month descending triangle. An advance above 9.73 would cast some doubt on this interpretation. Only a close above 10.10 would negate this analysis.

5.19_ZSX5_D

Markets: #SOYBEANS, $ZS_F, $ZM_F

Disclosure: Factor is short Soybean futures

Peter L. Brandt and Factor LLC do not endorse products or services advertised on this blog site

A technical analysis of the old crop Soybean charts — A MUST read for all farmers and ag businesses

 

The 2014/2015 Soybean chart strongly suggests a decline to $7.50 and lower

[Note: Factor LLC is a proprietary trading and research firm dating back to 1981 at the Chicago Board of Trade. Since inception, Factor LLC has traded its own capital using classical charting principles. Sometimes the charts are right — sometimes they are wrong. But when a large weekly chart pattern presents itself in the grain markets, traders, farmers and ag businesses must be alert for the possibility indicated by the chart.]

Factor LLC has created a proxy chart for the 2014/2015 Soybean crop year by splicing together the life-of-contract graph of the expired 2014 November Soybean contract with successive delivery months.

The picture is not pretty. Farmers….ignore it at your own risk!

The proxy old-crop Soybean chart completed a massive 3-1/2 year H&S top in mid-July 2014. The market then drifted sideways until late August before drop sharply to the $9.04. Soybeans then rallied into a mid-November retest of the neckline of the H&S top. The July 2015 contract is presently about $1 lower than the mid-November high.

3.30_ZS_W

Factor LLC believe the Bean market is just buying time before a sizable decline. There is a strong seasonal tendency for Soybean prices to top when planting is complete and bottom when the crop is in the bin. The seasonal should exert some upward or sideways pressure through early to mid May. Farmers should use any strength during the next six weeks to sell old crop Soybeans and hedge new crop Beans. The pattern target of this H&S top to $8.25. The swing target is to $7.25.

3.30_ZS_seasonal

Of course, farmers will say to themselves and each other…

“No way can Beans go to $8.25 much less $7.25. Beans have averaged $12 (at the CBOT) for seven years and I cannot make money at $8. Besides, I have $1 million in new equipment to pay for. “

Unfortunately, the market could care less about the cost of production in the short term. The chart below tells a real story. From 1983 through 2007 the average carryout-to-usage ratio of Soybeans was 12.5% — prices at the Board averaged just north of $6.50. The past seven years have been historic, with an average carryout-to-usage ratio of 4.7%. This is why prices have been high since 2007 — and the only reason. The USDA projected carryout-to-usage ratio for the 2014/2015 old crop Beans is 10.4%. But there is more bad news. The current Soybean/Corn ratio is 2.6 to 1. This will encourage farmers to plant even more acres to Beans than were reported today –setting up another record harvest in the fall.

3.30_ZS_carrout

The chart of the November 2015 Soybean contract exhibits a descending triangle. There is room for prices to rally toward $9.80 to $10 to fill out this triangle. The spike down on Tuesday after the planting intentions report no doubt trapped some short sellers. A rally will be needed to wear out the premature bears. Will prices play out as I have marked on the chart? Probably not, but it is something to watch for.

3.31_ZSX5_D

I have no desire to be short futures at this time. I will watching this market for a shorting opportunity. A decisive close below 940 would be such an opportunity.

Markets: $ZS_F, $ZM_F, $ZL_F

 

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Why I believe Corn prices are at or near a bottom

 

The price of Corn is at an historic low vs. the price of Meal

 

In a previous life I traded grains at the Chicago Board of Trade. My focus was on the price relationship of various grains and grain-by products — Corn vs. Wheat, Spring Wheat vs. Winter Wheat, Meal vs. Oil, Soybeans vs. Corn, etc. Extremes in historic relationships often yield excellent trading opportunities.

Presently the price of Soybean Meal is at an historic high conpared to the price of Corn. The first chart below shows the value of one contract of Meal minus the value of one contract of Corn. Obviously, this could be traded as a straight spread.

The second chart shows the value of a tonne of Meal minus the value of a tonne of Corn. There are 100 tonnes of Meal in each Meal contract and 140 tonnes of Corn in each Corn contract.

 

12.3_ZM_ZC contract value 12.3_ZM_ZC cost per tonne

I have no urgent desire to pick the top of this spread, although I believe history will show that we are at or near the top. Yet, I have a desire to be long Corn based on this market pricing structure. Here is why:

1. Meal supply is very tight. Meal spreads have been inverted for some time, with the nearby expiring December contract presently trading at a $25 premium to the March contract. As a general rule, it is never wise to be short a market that is inverted.

2. The nearby continuation chart of Corn displays a small H&S bottom (see below) — the individual contract charts do now show this pattern. A continuation chart tends to better reflect the cash market.

12.3_ZC057

For the reasons cited above I am prepared to be net long Corn futures and will continue to monitor the Meal/Corn spread.

$ZC_F $ZM_F $ZS_F

Chart of the day — a potential top in Soybeans

 

A Head and Shoulders is not a Head and Shoulders until the neckline is decisively broken on a closing basis

A chartist deals in possibilities, not probabilities. The H&S top in Meal is a possibility worth watching.

Markets: $ZM_F, $ZS_F

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Soybeans — comparing the current bull market with the bull move of 1972/73

 

If history is any indication, the bull market in Meal has a long way to go

I could provide many links to past blog posts touting a major bull market in Meal. For starters, click here.

I maintain that the bull market of 2011-2012 will replicate the bull trend of the early 1970s. So, both charts are shown below.

Let’s examine both bull markets:

1972/73

  • Total advance = $350/ton in 8 months, a 4.25-fold increase
  • Final thrust = $285 in 2 months, a 2.75-fold increase

 

2011/12

  • Advance to date = $230, a 1.91-fold increase
  • Final thrust = $125 in 11 weeks, a 1.35-fold increase

Thus, the current bull market has a long way to go if 1972/73 is an analog period. The quarterly Meal chart indicates a target of 620. Yet, if the final blow off in the current market equals the 1973 blow off, the target would be $1,086 per ton. Not even I believe this figure, so I am using a 620 target.

Markets: $ZM_F, $ZS_F

 

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Charts I am watching, week of July 22, 2012

 

I will periodically share a copy of the weekly market update I have sent to a private list of professional traders since 1981. I send this as part of a “market-idea exchange” among the group of these traders.

[scribd id=100773085 key=key-10o0fxuqbpm5630fvyot mode=list]

 

Markets:  $ZM_F, $ZC_F, $ZW_F, $ZB_F, $GC_F, $SI_Z, $NG_F, $USDCHF

 

Charts I am watching, week of July 8, 2012

 

The following is a report I email weekly to select group of friends and fellow chart traders. This report provides a status update of chart patterns that are strong candidates for my annual Best Dressed List (these are the patterns I am interested in trading). Periodically I will also point out shorter-term patterns of interest.

 

July 8, 2012

Ongoing moves

Ongoing special situation moves include:

  • Soybean Meal
  • Canadian Dollar futures
  • Natural Gas

Soybean Meal

The grains are locked in a classic weather market. If the weather in the corn belt remains hot and dry the grain markets will continue higher. Wide and plentiful rains with cooler temperatures will cause a sharp decline in grain prices. Charts are of little usefulness in a weather market. Nevertheless, the Soybean Meal chart has emerged from a 4-year trading range. The upside target of 630 is very achievable given certain growing conditions. Cooler, wet weather in the corn belt will negate the implications of this chart pattern.

 

CAD nearby futures

The rising wedge continues to have a target of .9360 to .9400. A bear flag may be developing. 

Natural Gas

A close below the late June low at 2.659 would indicate that a much more prolonged bottom process is likely for Natural Gas.

 

 

Pending Factor move

 Gold

The dominant pattern in Gold continues to be the violated multi-year trendline on the weekly graph and the pending 10-month descending triangle on the daily chart. The trendline violation projected a thrust to the December low (which was met). A decisive close below 1500 would establish a target of 1200. The chart is building a textbook top. The daily chart is forming a possible 6-week continuation triangle.

 

  

Gold/Swiss Franc

I continue to view this as the leading indicator for Gold. The daily chart shows that the price of Gold in Swiss Francs has not broken down and remains in a tight continuation pattern.

 

Silver

Similar to Gold, Silver could be developing a top of major significance. A close below the support line at 26.00 could lead to a substantial decline.

 

 Copper

The dominant chart development in this market is the ongoing construction of a possible H&S top on the weekly chart.

 

 Short-term chart developments

 There are several short-term chart developments worthy of note.

EURUSD and USDCHF

TheUS$ has completed continuation symmetrical triangle patterns against the Euro and the Swiss Franc. The daily charts provide targets of 1.2063 in EURUSD and .9900 in the USDCHF.

  

U.S. 30-Yr. T Bonds

The daily continuation chart of T-Bonds displays an unmet target of 158-17 based on the 8-month rectangle completed in mid May. The market has been holding just above the upper boundary of this pattern. The daily continuation chart and chart of the Sept. futures display a 4-week continuation triangle. A close above 150-18 would complete this pattern in the Sept. futures and likely lead to the fulfillment of the daily continuation graph target. Because of the construction of the rectangle on the daily continuation chart, the completion of the small triangle on the Sept. chart would qualify as a possible Best Dressed List candidate.

 

 

Concluded patterns

Wheat

The target of the massive “W” bottom at 8.43 in Dec. Wheat has been reached.

Markets: $ZB_F, $USDCAD, $G6C_F, $GC_F, $SI_F, $GLD, $SLV, $SI_F, $ZM_F, $HG_F, $EURUSD, $USDCHF, $ZW_F

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My dilemma over the prices of corn & soybean meal

 

The long-term chart of Soybean Meal is outstandingly bullish. Yet, the chart of Corn is potentially quite bearish. Which one is lying? What does a trader do?

Being double minded is a dilemma every discretionary trader faces from time to time. It is not a fun place to be. It is where I am presently on grain prices.

The daily and weekly charts of Corn are quite negative (at least potentially). The daily chart (not shown) displays a possible H&S top. The weekly graph shows a descending triangle. In fact, the Corn charts point to a price target of $4.00 +/- $.25, pending the completion of the large top. I am short Corn. I have a strategy to add to this short position as my current holding becomes profitable.

Yet, the long-term charts in Soybean Meal are potentially explosive. The quarterly and monthly graphs display a potential 4-year continuation triangle that portends a price of $550 per ton.

 

The daily Soybean Meal chart is in a strong advancing trend — but is, in fact, quite overbought by just about every measure.

So, I have reason to be constructive about Meal and negative about Corn. There is reason to believe Corn can lose to Meal. The chart below displays the relationship of Meal to Corn prices (expressed in terms of the dollar value of the nearby contracts). Historically Meal remains cheap compared to the price of Corn. But there is no way Meal can go to $550 while Corn goes to $4.00. Such a relationship would become a new all-time high in the relationship by a country mile. And this is not going to happen.

Here is where I come out on this dilemma.

  1. Meal has met its upside target on the daily graph, so I will not chase the rally. It would take at least an 8-week consolidation period to interest me in the long side.
  2. The spread (one contract of each) has moved about $6,000 in favor of Meal in the past three months, so I am late to this party.
  3. The Corn market has given some early warning signs of a top, although a top is far from complete.

So, I will remain a light short in Corn, protected by stops. In the final analysis, my opinion is that each chart needs to be traded on its own merit. One of these markets is lying. But I can only trade what the market shows me at the moment.

Markets: $ZC_F, $ZM_F

 

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Mama said there would be days like this

The chart of the day:

And…the corresponding song of the day 

In the life of a trader there are good days and there are bad days. Both come with the territory. Today was a bad day — NAV down about 1.8%.

I was stopped out of the bulk of my Meal position today. I bought a low risk spot against last week’s low in Soybeans — and got nicked. The charts of both Meal and Beans have been damaged.

USDCAD failed to close above 1.000 today. The 3:00 PM (MST) close is important to me in this forex pair in order to go long.

I developed some doubts about the flag in the stock market early this morning — and noted the same on a post and Clart.ly. I have been trading the S&Ps in 1/3rd layers. I came in short a 2/3rds position. I was stopped out of 1/3rd at 1152 and remain short a 1/3rd position. The flag theory has some serious holes in it based on the duration of the pattern and today’s minor reversal. The long-term bear case is completely intact. I am just not sure how the market will get to the S&P 1,000 level.

I shorted a very light position in Silver at about the closing levels (by light, I mean one mini contract per $150,000). I will not let this position get very deep into my pockets before covering. I do not have a good feeling about the trade because the pattern had a diagonal boundary, and I dislike diagonal boundaries, but my feelings are not necessarily a good predictor.

No change in my positons (P) or trading strategy (TS) in the Dollar Index (P), EURUSD (P), Rough Rice (P), Crude Oil (TS) or Nasdaq (TS).

The only sweet spot of the day was Sugar. The market held exactly where it had to today before turning higher. The continuation H&S pattern is unfolding. A close above 28.65 would begin to give me confidence. In the meanwhile, Monday’s low is a great spot to protect long positions. I like two features of the May contract and am turning my attention to this delivery month. First, the neckline is horizontal. Second, the left and right shoulder lows are almost identical. In short, the May contract has the best symmetry. A decisive close above this level would indicate to me that we are off to the races to 60 cents.

Markets: $ZMZ, $SPY, $SLV, $SB_F, $EURUSD, $CL_F, $OIL

Silver is a cross dresser!

 …and other charts I am watching the week of September 12, 2011

One of the goals of this blog is to focus on the purity of price charts without the clutter of any number of indicators. Not a single chart in Schabacker’s manuscripts or in the Edwards and Magee book contains such indicators as RSI, stochastics, MACD, ADX, DMI, Bollinger Bands, oscillators, %R or the like. Yet, who can question the brilliance of their legacy?

All of these indicators are derivatives of price. I take nothing away from traders who make their living using indicators. All the more power to you! Heck, some of my good trader friends use various indicators. But, in my mind, why should I study price derivatives when I can directly study price itself? Am I discouraging novice traders to avoid the use of indicators? No, not at all! But for me, price is king.

The markets and charts I am watching the week of September 12, 2011 include:

  • Silver
  • S&Ps
  • Nasdaq 100
  • Soybean Meal
  • Soybeans
  • Euro Currency (EURUSD)
  • Canadian Dollar
  • U.S. Dollar Index
  • Crude Oil
  • Rough Rice
  • Sugar

It is highly unlikely that I will become involved in any markets besides these. I select my trading list each Saturday for the following week and I attempt to keep the list intact without additions.

So, here we go, folks

Silver

Often times a market will become a cross dresser – putting on bearish clothing one moment and bullish clothing the next. Such is the present case in Silver. Both a bullish and bearish story can be told technically. The bullish pattern is a bull horn, or sloping bottom (solid lines). Note that the final breakout of the horn has stalled in the form of a symmetrical triangle. A move into new highs would complete this triangle and confirm the horn – and establish a target of 52.00.

The bearish narrative is a rising wedge from the June low (dashed line). The same small 4-week triangle is also in play in the bearish scenario. A completion of this triangle in a downward direction should provide the thrust to complete the wedge, establishing a target of 32.50.

I am without a position in this market, but I have the market bracketed with buy stops above and bear stops below.

S&Ps

Like all other of the broad stock indexes, the S&Ps are forming a 5-week flag. I continue to view the H&S top completed in early August as a MAJOR reversal in stocks.

I am short two layers. I will attempt to extend leverage next week on any minor rally. I believe that Friday will become to the upcoming decline what August 1 was to the early August decline. I have given up (for the moment) on the idea of a BOGI gap. Instead, I am labeling the flag as the BOGI flag. I will extend leverage further upon the completion of the BOGI flag.

Nasdaq 100

The Nasdaq is forming a flag as a retest of its massive broadening top. The broadening top is a rare, but potentially powerful chart pattern. According to Schabacker, “In most cases a rally will develop shortly after the level of the fourth reversal has been broken, and in most cases this rally will carry prices about half way back….” The retests of broadening tops are notorious for digging back into the completed pattern.

In fact, the retest rally in the Nasdaq retraced 55% of its July to August decline. I believe this flag will resolve itself in the direction of the broadening top with a flag target of 1899, slightly lower than the target from the broadening top.

I am short one layer, looking to extend short leverage. I think that Friday will be the counterpart to the upcoming decline as July 27 was to the first major leg down.

Soybean Meal

A firm retest of the underlying rectangle took place this last week. The market seems to lack any ability to rally. We will see if this retest holds. A move below the August 22 low negates the rectangle. I am fully committed to the long side. I do not have a very good feeling about this trade, but I am not willing to trump my trading rules to satisfy my feelings.

 

Soybeans

The daily Soybean chart is almost identical to the Meal chart. A break below last week’s low will begin to put the bull trend in Soybeans into doubt. I will buy a retest of this past week’s low with very tight protective stops.

 

Euro Currency (EURUSD)

The decline this past week resolved all of the confusion of the past 4 to 5 months on the daily chart by completing a decisive descending triangle. To label this price action as a descending triangle I am ignoring the one-day spike down in July. It was an event Edwards and Magee define as an out-of-line movement. The descending triangle has a target of the test of the January low in the area of 1.2900. I am short one layer.

Canadian Dollar

Two charts are shown. The upper chart is the weekly CME futures contract. This chart displays a possible double or “M” top, requiring a close below par (1.0000) for completion. The lower chart is the daily graph of the spot USDCAD which trades at a reciprocal value to the futures. Thus, the spot chart shows a possible bottom pattern, requiring a close above 1.0000. I will wait for the completion of this pattern before taking a position.

 

U.S. Dollar Index

The market completed a rare triple bottom on Friday. This bottom is almost identical to the DX bottom in 2008 (not shown). The target of this pattern is 81.50. I am long one layer.

 

Crude Oil

The Crude Oil is setting up for another leg down in a bear market that began in May. As shown on the weekly chart, there is plenty of empty air underneath the market.

The daily chart displays a 5-week rising wedge. Normally this is not a long enough pattern for me to trade, but given the strong downtrend I will short this market if the wedge is completed. The CFTC COT data shows that the commercials continue to be significant sellers of futures. Notice how volume has dried up during all sideways periods. This volume profile confirms the major bear trend.

Rough Rice

The market has now confirmed the completion of the 7-week inverted continuation H&S on the daily chart (top graph), which in turn, confirms the 5-month triangle on the daily graph, which in turn confirms the massive 5-month H&S bottom on the weekly chart (bottom graph). The target is 2280. I am long one layer.

 

Sugar

I want to once again show the quarterly chart. The massive base completed in 2009 is the dominant pattern driving this market. This base has an eventual target of 60 to 70 cents – and this has biased my interpretation of the daily charts for the past two years.

The daily chart (March) is forming a possible 2-month continuation H&S pattern. I have bought this market in anticipation of a right shoulder low. I am not sure this will prove to be a successful trade, but the reward to risk ratio is quite favorable with this maneuver. If the market can hold last week’s low I will attempt to quickly build leverage. The Sugar ETF, SGG, is also shown.

I am basically willing to bet that this current area of consolidation will lead to another leg of this bull trend. If my foundational bias is incorrect I will almost surely be wrong on the majority of my trades in the months to come.

 Markets: $QQQ, $NQ_F, $SPY, $ES_F, $ZM_F, ZS_F, $SB_F, $SGG, $USDCAD, $G6C_F, $FXC, $ZR_F, $EURUSD, $G6E_F, $FXE, $DX_F, $UDN, $UUP, $CL_F, $OIL, $$

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