Bullish potential for soybeans

August 9, 2016 10:23 AM

The macro story for price action in soybeans appears to be developing bullish potential. The high in 2012 was an “upthrust position,” which ended the bull market that started in late 2008 and early 2009. The decline/bear market,” from the high in 2012 ended the downtrend in 2015 with a spring. The rally to the high in June 2016 is the response to the spring. The decline from the recent June 2016 high is a decline, which may have the potential to hold at price levels above the low in 2015, creating a friendly, “retest” of the spring.

A retest of the 2015 spring would be a positive development in the larger but still developing price action. After a positive retest of a spring, prices should be positioned to rally.

Analytically, if a rally does not follow a retest of a spring or multiple retests of a spring, the next step usually becomes a trading range. In order to finally get the market to rally, the trading range (TR) often ends in a “terminal shakeout,” [i.e. new lows followed by a reversal upward in a strong rally].

The larger potential that may be currently developing, as price action unfolds, can be followed on the daily chart for November 2016 Soybeans. However the price action works out, there should be good trades in both directions. Nonetheless, because of the longer term potential, the “buy side” of trades should be favored, assuming the development of appropriate forthcoming price action.

Daily price action in Nov. beans is attempting to turn up (See price action in the red circle on the chart below). After the high in June 2016, prices turned aggressively lower in July. Price action in the month of August is currently making a bullish attempt to “shorten the downward thrust.” If the downward thrust, from the June 2016 high, is shortening, the interpretation is: the current price action, on the daily and therefore the monthly chart, is “retesting” the older price action recorded in late 2015 and early 2016. A successful retest, on the monthly chart, of that important long term low, could have long-term bullish potential.

Notice that after a late July bounce, prices traded to a new low within the existing downtrend (green), but importantly, the new low on Tuesday, Aug. 2, did not result in a sustainable decline. Therefore, the combination of daily price and volume characteristics are indicating the potential for the low on Tuesday, Aug. 2, to be a positive, “short term spring.” Importantly, a successful short-term spring can also become a more important retest of the long term low recorded in late 2015 and early 2016.

If the daily price action on the November soybean chart continues to develop as positively as the most recent price action implies is probable, indicating not only a positive retest of the short term spring, but also a positive retest of the “longer term” lows in 2015 and 2016, the trading range that develops, thereafter, could eventually create a count (point and figure count) for a very large rally.

About the Author

Robert Burgess has been a broker and trader, and published the Burgess Technical View, a newsletter featuring his technical views on stocks, bonds and commodities, which developed an extensive subscribership, which included large financial institutions, pension funds, and Fortune 500 companies.  He continues to keep a watchful eye on markets. robertnoelburgess@gmail.com