Option play: Beans retreat, corn continues lower

During an exciting week of trading (9/27 thru 5/1), when the U.S. dollar fell through the floor and crude oil flew to the moon, the grains did their own thing.

Fundamentally, with the soybeans I am quite sure we are still sitting on world-record supplies. Argentina, according to The Buenos Aires Grains Exchange, is looking that the nation's soybean production this year reaching 60 million tonnes from their previous estimate of 58.5 million.

Of course, there has been talk of farmers also switching from corn to beans due to falling corn prices. These events all point to a large supply of soybeans. On the demand side, here in the United States we had a GDP number last week that some say would indicate anemic growth, there is continuous talk of bird flu, and economic indicators in China are also pointing to slower growth. These events all point to lower demand.

Technically, I have added my favorite technical indicators to this charts below. They are the 9- (red line), 20- (green line), and the 50- (blue line) day simple moving averages (SMA). I have also added Bollinger Bands (BB, light blue shaded area) and Candlesticks (the red and green bars with the candlestick wicks where on these daily charts each bar represents one day of trading). These few technical indicators can tell me many, many important characteristics about the market.

Technically, on the soybean chart below, I have the market in what I refer to as sideways consolidated trend. I say this because 4 out 5 of my indicators are pointing sideways, and until now the market has failed to make new lows or new highs. If you look on the daily chart below you will see that the top and bottom line of the BB are both pointing sideways and so are the 50-day (blue line) and 20-day (green line) SMA. That, technically, indicates to me for now thtat sideways is the trend.

The BB's show me that the top of the range or resistance in May soybeans is at the highest about $9.95/bushel and the lowest possible end of the range or support is about $9.55/bushel for now. More importantly, last time at the around the end of March the market went above the 50-day SMA, or tested it like it did on Wednesday and Thursday, and it quickly fell back down to the $9.55 area. So it remains to be seen if the market will go on and do this again, make lower lows, or bounce. I believe we go back and test $9.55 and then move onto lower lows.

July daily soybean chart

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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.