Friday's Last Call: Soybean Charts

• The major (long-term) trend of the intrinsic value of soybeans - the Barchart National Soybean Price Index - has been down since last June. 
• The secondary (intermediate-term) uptrend of the NSPI and various futures contracts could be nearing its end. 
• All while minor (short-term) trends look to be turning down as well. 

Late Thursday evening I was asked my opinion on another analysts technical analysis of a couple soybean charts. Those of you who have followed me through the years know I have no problem speaking my mind, even if it means telling another analyst they are wrong. This personality quirk has helped me get disinvited from television programs, trade shows, and family gatherings. As for the charts in question, the first sentence of the analysis tells us everything we need to know. It reads, “We had some concerns from some clients that the consensus in March Soybeans was turning very negative.” Here’s what I see: 

• March soybeans are moving to delivery. Both noncommercial and commercial traders have rolled their positions to May, as evidenced by the May issue having the largest open interest. Analysts should’ve followed suit. 
• If you follow an analyst that uses “negative” and “positive” rather than “bearish” and “bullish”, you may want to find another analyst. Markets move both ways, and someone who is holding short positions will view a downtrend as “positive” while an uptrend would be “negative”. This analyst is obviously one who plays to the bullish-only crowd. That’s one way of staying popular. 
• As Mark Twain taught us, “Substitute ‘damn’ every time you’re inclined to write ‘very’; your editor will delete it and the writing will be just as it should be.”

Now that all the housekeeping is done, let’s look at what a variety of soybean charts are telling us. 

If I’m a commodity investor, the first set of charts I’ll look at are long-term monthly. As I talked about last time with corn, in the case of soybeans I’ll start with the Barchart National Soybean Price Index (ZSPAUS.CM), the intrinsic value of the market. As I’ve talked about in Monthly Analysis on my website since last summer, the major (long-term) trend of the NSPI is down. A look at the monthly chart shows a clear bearish key reversal[i] last June. Wave A (first wave) of the new major 3-wave downtrend extended to a low of roughly $13.00 this past October. 

As the analysis in question points out, soybeans have been in an uptrend since October 2022. The weekly chart for March soybeans (ZSH23) shows a secondary (intermediate-term) sideways-to-up trend since mid-July, though a close inspection of the bar chart shows a number of reversal patterns – both bullish and bearish – along the way. Depending on Friday’s session, the March issue could see a bearish reversal pattern completed. This would indicate the secondary trend is set to turn down again. 

What does this mean for the NSPI’s major trend? The secondary uptrend since October would be considered Wave B (second wave) of the 3-wave pattern. If the NSPI completes a bearish spike reversal[ii]during February it would indicate the cash market is set to move into Wave C (third wave) of the major downtrend. By definition, Wave C would be expected to take out the Wave A low. Also note the NSPI’s monthly stochastics are well above the oversold level of 20% meaning the market has time and space to move lower. The most recent bullish crossover below 20% occurred at the end of October 2018 as the NSPI was gearing up for its previous 5-wave major uptrend. 

The analysis in question also mentions the November 2023 contract (ZSX23). The continuous monthly chart for November soybeans (Nov beans only) does not show as clear a picture as the one for the NSPI, nor is it expected to given annual futures contracts have carry/inverse to deal with. Still, the 2022 issue completed a bearish key reversal last June as well before falling to a low of $12.8850 during July. If I squint my eyes just right I can pretend to see a major downtrend, though the reality is more of a sideways pattern. 

Does the intermediate-term weekly chart clear the matter much? No, not really. Similar to old-crop March, the general trend has been sideways to up since last July (low of $12.1550) all while the contract stays below its high of $14.4825 (week of April 25, 2022). Narrowing the scope, we see what looks to be a secondary 3-wave downtrend with the minor (short-term) uptrend on the contract’s daily chart a normal Wave B. As I mentioned before, Wave B will eventually turn into Wave C which would then be expected to take out the Wave A low of $13.3025 (week of January 23). 

Is all this set in stone? Absolutely not. As the Absolute Truth tells us, the only Absolut in market analysis is vodka. And we still have bullish short-term and long-term fundamentals to factor into the equation, but that’s a subject for another day. 

[i] A bearish key reversal is when the market takes out the previous period’s trading range and closes lower for this period. Key reversals – bearish or bullish – are the more reliable reversal patterns I look for. 

[ii] A bearish spike reversal is when a market posts a new high for the move before closing lower for the period. Spike reversals are less reliable than key reversals.  

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