Options play: What are soybeans down to?

July 20, 2015 12:46 PM

The August soybean futures have fallen well off of the highs to test the second area of support.

Fundamentally, the news on soybeans is said best by Hightower's morning commentary from July 17: "South America meal is booked into the United States, and Argentina continues to sell soybeans to China for October, and even for November delivery. While the United Statets might have a smaller crop this year, the export outlook for the new crop season continues to look weak. Cumulative new crop soybean sales are still down 44% from last year's pace. The short-term weather forecast for the U.S. Midwest looks bearish and the technical action is also bearish. Heat is seen as a factor which could boost crop conditions in the next few weeks."

The bottom line is that the soybean market has made a correction after a rally of astronomical proportions. On the rally, the August soybeans shot up on wet weather throughout the corn belt from a low on June 15 of $9.12/bushel to a high on July 1 of $10.54/bushel. To put that in perspective, that's $1.42 per bushel move in 16 days. Then the market fell off of that $10.54/bushel high down to a low of $9.87/bushel on July 8 only to rally back up to form a pseudo double top at $10.53/bushel on July 14. Since then the soybean market has dropped down to test my second area of support on Friday at $1007/bushel. 

Due to the low demand and favorable weather conditions expected in the coming days and weeks I believe that we could see the soybeans breach my second area of support which is at $10.08 per bushel and go on to well below the $10 per bushel area this coming trading week.

Technically, I have added my favorite technical indicators to the soybean chart below. They are the 10- (red line), 20- (green line), and the 50- (blue line) period simple moving averages (SMA). I have also added Bollinger Bands (BB) (light blue shaded area) and Candlesticks (the red and green bars). On the daily chart below each bar or Candlestick represents one day of trading. I have coined this combination of my favorite technical indicators the 10/20/50/BB Trend Finder system. These few technical indicators tell me several different characteristics about the market at a quick glance. 

These indicators on the daily chart below tell me that August beans are in an upward trend. This occurs when the 10-day SMA (red line) crosses up and over the 20-day SMA (green line) as both indicators point higher and the market trades above the 20-day SMA. Now we have the 20-day SMA (red line) as the first area of support and then the 50-day SMA as the second area of support. The bottom line of the BB's (light blue shaded area) would be the final line of support on the daily chart below.

Resistance would come in at first the 10-day SMA and then the top line of the BB's would the final area according to my "10/20/50/BB Trend Finder." Even though the trend is technically up, to me it's not a very strong upward trend. They also say "the trend is your friend." This time I think "they" will be wrong. So the big question for me is will the 20-day SMA area of support hold to keep this soybean market in an upward trend? I think not.

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.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.