Soybean Meal has rallied roughly 70% off it year-to-date lows, as Agricultural commodities are back in vogue. The current weight of the evidence however, suggests that the tactical bias in Soybean Meal has shifted from bullish to neutral / bearish. In short, that means that the soybean meal rally is likely over.
Let’s review the chart.
Soybean Meal Daily Chart: The Soybean Meal rally off the March lows occurred in almost a straight line. However, it is now running into former support and the 61.8% Fibonacci retracement of the 2014-2016 decline. There is also a momentum divergence.
This is all occurring while prices have been struggling to stay above this key support level. Price is now breaking back below the April highs to confirm a failed breakout.
Typically failed moves lead to fast moves in the opposite direction, especially when paired with a momentum divergence. Personally, I don’t see why this time should be any different. As long as prices remain below the April highs of 420 on a daily closing basis, the bias remains to the downside. Price targets show up at former support near 375 and 345.
It’s also worth noting that the “smart money” commercial hedgers are maintaining their third largest net short position in history, which has only been exceeded in 2012 and 2015. After a 70% soybean meal rally, this is further evidence suggesting that a neutral / bearish bias is appropriate as we head toward July. The month of July has historically been the second worst month of the year for prices.
The Bottom Line: If you’ve been waiting for a short setup in Soybean Meal where the risk is well-defined and the risk/reward is elevated, I think this is as good as any. Given the recent confirmation of a failed breakout and the bearish momentum divergence, I think shorts remain in control as their risk is very well-defined versus the April highs. A positive development for this market would be further consolidation through time to work off this momentum divergence and allow the 200 day moving average to catch up. I think that is the lower probability outcome, but am remaining open-minded and will adjust my thesis as the weight of the evidence changes.
Thanks for reading. As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.
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.
