How long will corn and soybeans fall?

Soybeans (CBOT:SN15)

Fundamentally, the soybeans are no doubt in a weather market in my view. According to a great Bloomberg article today, "Damage from flooding and hail may cut planted area for corn and soybean by 2 million acres, Michael Cordonnier, the president of Soybean & Corn Advisor Inc. in Hinsdale, Illinois, wrote in a report today." So if expectations like that heading into the report are not met, then we could see the falling knife continue in the beans.

However, as they say on LaSalle Street in Chicago where the Chicago Mercantile Exchnage pit is located, "Rain Makes Grain." So I'm in the Bear camp. If expectation are not met and we get a much lower acreage number for soybeans on this USDA report on June 30, I would expect further declines in prices or maybe sideways action even.

Technically, I have added my favorite technical indicators to this chart below. They are the 9- (red line), 20- (green line), and the 50- (blue line) day Simple Moving Averages or SMA's. I have also added Bollinger Bands or BB's (yellow lines) and Candlesticks (the red and green bars with the wicks). These few technical indicators tell me 8-10 different characteristics about the market at a quick glance so I have them saved on my charts in MARKETHEAD, so they can populate a chart at the click of a mouse.

My favorite technical indicators show me that soybeans are in what I have coined a "SUPER-TREND" down that started on June 9th when the 9 day SMA (red line) crossed down and under the 20 day SMA (green line) as both indicators pointed sharply lower and the market traded below the 9 day SMA. This now makes the 9 day SMA the critical resistance area for the "SUPER-TREND" down to remain in full effect. Currently the market traded up to the 9 and held. We will see if it goes on to make new lows from here. I believe the 9 day SMA will hold and the market will go on to make new lows and the "SUPER-TREND" will remain in full effect.

The most important technical that I have added to this August soybean chart is the Royal Blue arrows that form what I call a Symmetrical Triangle. You should look it up. To me it is one of the most reliable indicators that I have found. Nothing works 100% of the time as we know, but I like this one. Not always, but typically Symmetrical Triangle formations come out of the formation in the direction of the trend before the Triangle was formed. Clearly in this case, the trend was down before the Symmetrical Triangle formed. So I expect the market to continue lower as we break out of his formation. 

 

 Chart by eSIGNAL

 

NEXT PAGE: CORN

Corn (CBOT:CN15)

 

Fundamentally, there is talk of China, flooding here in the U.S., weaker U.S. dollar index futures, and speculative short covering. For the most part it's supportive stuff for the market. For example, according to a Hightower Report today (June 25th), "Overall, we view the weather forecast for the U.S. Corn Belt as bearish, but temperatures will be important to watch as we enter July as pollination begins across the growing region. Any pattern that suggests cooler evenings should trigger a bearish reaction by the trade.". I would like to add that Crude Oil (NYMEX:CLN14) is very comfortable over $100/barrel and if that is not inflationary then I don't know what is. Again these are supportive or bullish fundamentals for the Corn market. 

I figured this out by going back and forth from a daily to a weekly chart by the click of a mouse which I found here, which is a web application that we have developed for our clients called MARKETHEAD where I get about 85% of all my research from. That means I get both technical and fundamental research from this web app and I am a veteran series 3 Broker of 15 years. I do this day in and day out. So if I'm using it then maybe my readers should check it out. Yes? 

As the majority of the grain is in the ground it would seem to me to be a weather market, and we all know that Mother Nature can be vicious and beautifully amazing all in the same week. Things to look out for would be in my opinion, drought, floods, infestation, and disease for higher prices. If not then look out below in my view.

Technically, I have added my favorite technical indicators to this chart below. They are the 9- (red line), 20- (green line), and the 50- (blue line) day Simple Moving Averages or SMA's. I also Bollinger Bands or BB's (yellow lines) and Candlesticks (the red and green bars with the wicks). These few technical indicators tell me 8-10 different characteristics about the market at a quick glance so I have them saved on my charts in MARKETHEAD, so they can populate a chart at the click of a mouse.

These indicators don't disappoint on this daily July corn chart below either. From a technical stand point the daily July corn chart was in what I refer to as a "SUPER-TREND" down. Why? Well here are the characteristics of what I have coined a "SUPER-TREND" down. They include the 9 and 20 day Simple Moving Averages (SMA's). As the 9-day SMA (red line) crosses down and under the 20-day SMA (green line) as both indicators point lower on sharp angles AND the market trades below the 9-day SMA (red line) as it acts as resistance, then I see a "SUPER-TREND" down. We are now back in a "SUPER-TREND" down as the market is back below the 9-day SMA (redline). Even though on the 19, 20 and 21 the market rallied up to the 20-day SMA (green line) as it held as resistance and was in an upward trend still, we fell right back below the 9-day over the last couple of days.

So I've got the top line of the BB's (yellow line) pointing lower on a sharp angle, the 50 day SMA (blue  line) is also pointing down on a sharp angle lower , and so is the 20 day SMA (green line). The 9-day SMA is, pointing lower if only a little. So that is 4 out of my 5 indicators that are bearish leaving only the bottom line of the BB’s (yellow line) pointing up...barely.

I figured this out by going back and forth from a daily to a weekly chart by the click of a mouse which I found here, which is a web application that we have developed for our clients called MARKETHEAD where I get about 85% of all my research from. That means I get both technical and fundamental research from this web app and I am a veteran series 3 Broker of 15 years. So if I'm using it then maybe my readers should check it out. Yes? 

So, these are just my favorite technical indicators and my opinion on what they tell me about this July corn market and when used on a consistent basis they tell me a lot on any chart and time frame. Remember nothing works 100% percent of the time and if they did then I would be on my private tropical island right now writing this commentary.


Chart by eSIGNAL

 

Option play

Some good plays I think could be to buy puts or put spreads with a call for a hedge or "insurance" in case the trend changes to up dramatically. I would recommend this a 3 to 1 ratio as always. Puts or put spreads give a limited risk and an in the case of outright put options, unlimited profit potential to zero for the price of the underlying future or commodity.

I believe this could be an opportunity, of course not without commensurate risk, to sell deep out of the money call options and collect premium. This is due to the current downward action or maybe the potential for future consolidation.

 

About the Author

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.