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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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Chart patterns I am watching this week

 

The following is the weekly Factor Update sent to members of the Factor service for the week of September 7, 2014. To become a member of the Factor service, click here for “Subscription Membership.”  If the pdf is not visible below, click here.

 

http://www.scribd.com/doc/239067009/Factor-Update-September-7-2014

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Charts that have my attention

 

Some charts that have my attention

$AUDUSD — on a closing price basis the advance yesterday re-completed the H&S bottom (black neckline) and there is follow through so far today. I will always try good pattern twice — and this one qualifies. I bought the June futures overnight at .9011.
Inline image 1
$GBPAUD — the cross is attempting to punch through the neckline of a 3-month H&S top. The 1.8118 level is key — although a close below 1.8196 would close below the lowest close of the right shoulder of the pattern. The right shoulder of the 3-month H&S is a smaller H&S top.  — and a weak close today would complete this smaller launching pattern. In fact, I would consider a decisive close below 1.8180 as commencing a Factor Move.
Inline image 2
Canadian Dollar — the weekly chart remains a disaster waiting to happen. The current 8-week congestion has been a trying period for the shorts (including me). I believe this 8-week triangle will be completed by a decisive close below .8940.
Inline image 4
Inline image 3
Soybeans — The life-of-contract H&S bottom pattern in May Soybeans met its initial objective, but I believe the party may be just starting. Make no doubt about it, the weather, not the charts, will dictate Soybean prices. But if planting or growing problems develop, Soybean prices could easily trade at $16.
Inline image 5
Corn — Corn is at an all-time historical value to Soybeans. Thus, if Soybean prices advance, Corn prices could explode. I think the bottom is in place for at least the next few months. The daily chart is forming a small pennant. Another thrust up is possible.
Inline image 6
Palladium — I believe this market has entered a bull phase. I am hoping to get a dip toward 753 to establish a long position with more manageable risk. The 753 level would retest the January high and the upper boundary line. This market is thin and I have not wanted to chase the advance.
Inline image 7
Dec. 2017 Eurodollars (the interest rate, not the currency) — This could become the mother of all H&S patterns — this one dating back to mid 2012. The right shoulder, currently under construction, could become a double-type top (different than a real double top).
Inline image 8
Copper — the weekly chart has completed a massive descending triangle on the continuation chart with the first-notice-date roll-over (shown), but not on the continuation chart with the last-trading-date roll-over. I am looking for a low risk short trade. If the March contract expires with the May contract trading under $3, then both continuation charts will have completed the triangle.
Inline image 9
Silver — While my instincts (not to be trusted, by the way) tell me that precious metal prices have bottomed, I cannot rule out a possible bearish descending triangle in Silver.
Inline image 10
plb
$SI_F, $HG_F, $GBPAUD, $USDCAD, $ZC_F, $ZS_F, $PA_F, $GE_F
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Is $5 Corn just around the corner?

 

 

Rounding bottom, strong momentum indicators and cheapness to Beans all point to higher Corn prices

The advance on February 14 confirmed the completion of a rounding bottom on the continuation daily Corn futures chart. Note that the momentum indicator (MACD) is very strong. Downside reactions in Corn should be minimum and brief. The pattern target is 4.72 with a possible swing target of 5.08.

2.20_Corn

The 5.08 target from the daily chart also represents a test of the 2012 low on the weekly chart. The rally on the weekly chart is relieving the extremely oversold condition in Corn.

2.20_Corn_weekly

Corn remains historically cheap in relationship to Soybeans. The quarterly graph below represents the value of one contract of Soybeans minums two contracts of Corn. As this graph shows, Soybeans are near an all-time high premium to Corn. This fact does not mean Corn prices will advance, but it is a strong indication Corn would have limited downside potential.

2.20_Beans_Corn_quarterly

Traders should consider a long position in the Dec. 2014 contract, as shown below.

2.20_ZC14

There is a chance that the 2014 low has been registered in Corn.

$ZC_F, $ZS_F

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The charts I am watching this week

 

The PDF below is an example of the correspondence sent weekly to members of the Factor Email Service.  To receive information about the Factor Email Service, please send an email to:

  • plb.factorco@gmail.com
  • The subject line should read: Factor Service

If the PDF below does not appear, click here

[scribd id=207416514 key=key-wg86sti669zm4hh6g3a mode=scroll]

 

Markets: $SI_F, $GC_F, $SLV, $GLD, $USDMXN, $USDCAD, $GBPUSD, $AUDUSD, $CPST, $LIVE

 

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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Chart of the day, August 29, 2012 (Soybeans)

 

Charts are like onions — they unfold layer after after layer with each layer revealing something a little different.

I know some readers do not like the fact I am bullish one day and bearish the next only to be bullish again a week later. Sorry, but that is the way I am. I am a trader not an analyst. I am constantly on the alert for subtle changes in market behavior. Also, keep in mind that as a charts I can be constructive on a market for one time frame yet guarded, or even negative, on a market for a different time frame. I realize that for you Silver bulls this is just uncomprehensible.

A monthly chart is made up of many chart patterns from the weekly chart. The weekly chart, in turn, is comprised of many patterns from the daily chart. The daily chart consists of many patterns from the intraday charts. In the above, most of the patterns fail and morph into larger patterns within the same time framing.

Intraday patterns are far less dependable than are daily charts. Daily patterns are less dependable than are weekly patterns, and on it goes. You get the point. Nevertheless, as charts unfold every time frame must be considered. Rather than a comparison to an onion, charts are actually like a three-dimensional jigsaw puzzle.

And all of the above bring us to Soybeans.

The quarterly chart is powerfully bullish. The advance in Dec 2007 completed a multi-decade rectangle. The advance in Jul 2012 completed a 4-year triangle. The triangle projects prices to the $22 level.

It is important to always remember that the longer term charts trump the shorter term charts. Shorter term patterns that run contrary to longer term trends have the highest probability of failing.

The weekly graph of Nov Soybeans shows the sustained rally during the past three years. The incredible advance since Jun 2012 reflects this summer’s drought in the important growing states.

The daily chart shows that a possible 5-week pennant was completed on Aug 20. Patterns such as this are often “half-mast” or half-way patterns, indicating in this case that the rally from the Aug low will equal the distance of the move from the Jun low to the Jul high. This “half-mast” target is is $19.90 per bushel. Please, please, please, please remember that targets are NOT sacred. Markets are not obliged to travel to targets. Markets are always subject to morhping and revision.

Next, note the small congestion area of the past seven days. Given that chart confusion (a congestion area is a confusion area) resolve themselves in the direction of the next larger-scale trend, this small pause should lead to a further rally — or to morphing before a further advance occurs. Chances are greatest that this current pause in the daily chart will be quickly resolved. Thus, for scalp and swing traders this small pause could be used for a quick trade.

Yet, this current pause can be seen as a possible H&S top on the intraday chart. This is where it gets dicey for me as a chartist. On one hand I understand that charts tend to resolve themselves in the direction of the next larger scale trend. On the other hand I know from experience that massive trends (such as we have in grains) often end with very brief tops. So, I must respect this small H&S if it is completed by a downward breakout.

So, how should a chartist play the Soybean market?. Well, it depends upon the time frame of your analysis and trading. Are you a position trader? You would have no reason to care about this current pause. Are you a swing trader? You would use this pause as an excuse to go long for another thrust up. Are you a scalper? Then you could play this intraday H&S for quick short trade (selling against the Aug 26 high or waiting for a breakdown before selling).

As for me, I am already long the grains (Soybean Meal). I would wait for the Soybeans to break back toward $17.00 and then I would place a buy stop above today’s high. Or I would wait for this small H&S top to breakdown, but fail, then I would go long for a swing trade.

But remember, charts morph. What I think today may change by next week. There is a major difference between a longer term view point (for me, that is being a Soybean bull) and a shorter term scalp or swing trade (for me, that could be in either direction despite my longer term bias).

Markets: $ZS_F, $RJA, $DBC

 

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Note: There are three seats left for the Oct boot camp in Colorado Springs. The odds are very high this will be my last teaching/training (at least in North America). Past attendees tell me that this training is the most impactful learning they have experienced as traders. In the boot camp I attempt to “hand over” every thing I have learned in 30-plus years of market operations. To secure a seat click the link below.

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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