In the Soybean Meal market, commercial hedgers are maintaining their largest net long position in history.
This, combined with public sentiment sitting near multi-year lows and March being the second strongest period of the year, suggest higher prices may be ahead for Soybean Meal.
Structurally, Soybean Meal peaked in late 2012 and has since lost over 50% of its value. More recently, prices have started to find some footing as they approach the 2009-2010 lows. Prices made new lows to start the year, but momentum made a higher low with prices now breaking above the downtrend line from the July highs to confirm a breakout.
Soybean Meal Weekly Chart
This market will need time to deal with all of the overhead supply, but as long as prices are above this downtrend line it makes sense to approach it from the long side.
The daily chart provides a more tactical view of the recent breakout. Prices met their objective at the 161.8% extension of the June-July rally in late February, before quickly reversing above previous low to confirm the bullish momentum divergence and failed breakdown.
Soybean Meal Daily Chart
Prices remain below a downward sloping 200 day, but this breakout looks to be the start of mean reversion toward the confluence of resistance near 295. This area represents the 2014 and June 2015 lows, the 61.8% retracement of the October-February decline, and the 200 day moving average. Also, the risk is very well defined against 266 on a closing basis.
The Bottom Line: The breakout that occurred on March 4th in the Soybean Meal market looks to be the start of an aggressive move higher. With the bullish backdrop provided by commercial hedger positioning, public pessimism, and seasonality, this rally should develop quite quickly.
From a structural perspective, it is appropriate to approach this market from the long side as long as we’re above the downtrend line from the November 2014 highs.
From a tactical perspective, market participants can be aggressively long if prices are above 266 on a closing basis and look to take profits near 295.
As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can. Thanks for reading.
Further reading from Tom: “Cocoa Futures Setting Up For A Tactical Bounce Higher“
Twitter: @BruniCharting
The author does not have a position in any of mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
