The US market is emerging slowly from the clutches of the bear wrap it fell into two weeks ago.
But here’s the thing: If you’re looking for the perfect buying opportunity, you might want to wait for a clearer signal as charts show soybeans can lose a lot more.
At Thursday’s settlement, the most-active soybean futures contract on the Chicago Board of Trade (CBOT), November, stood at $13.62-1/4 a bushel, down 27-¼ cents, or 2%.
It was the third day in a row that the market was down, putting it on track to a second weekly loss in three.
With just a week to go before the end of July, CBOT soybeans were also headed for a third straight month in the red—a bearish streak not seen since the pre-pandemic days of March-May 2020, before the market exploded into a record 11-month bull run.
All charts courtesy of SK Dixit Charting
Despite the glum turn of events, soybeans are in a better state than two weeks ago, when they fell into a bear market the first time after losing more than 20% from the nine-year high of $16.67 struck on May 12.
That raises the pertinent question: Is it time for buyers to get in?
Dip-buying is as much a game of chance as a science. While technicals and charts typically decide when we pull the trigger on a trade, animal spirits and fundamentals often vie for our attention in trying to time a market.
Where soybeans’ fundamentals are concerned, it doesn’t look that great, with crop prospects indicating more production coming online.
As of Sunday, the US Department of Agriculture rated the nation’s soybean crop as 63% blooming versus the 57% five-year average for this time of year.
The USDA noted that 23% of the soybeans are in the setting pods stage vs. a 21% five-year average.
Adding to that, some 60% of the crop is rated good/excellent, above 59% a week ago.
Weak export demand is also weighing on soybeans, USDA data showed.
Technically, the market could be headed even lower, indicating that buyers should probably wait a little.
Grains journal The Hueber Report suggested this in a blog circulated among its clients on Thursday that examined the factors leading to this week’s price tumble:
“The outside lower reversal lower that was posted in August beans on Monday, appeared to have been telling us that we had a reaction high in this market, but it was not until this morning that we have now seen signs that this market can break down.”
“While this may be nothing more than a correction within the existing range, seeing that stochastics are at the overbought zone and on the cusp of turning lower, we could be in store for something larger than that,” the Hueber Report said, adding that a more bearish signal after this could “open the door for a larger swing lower.”
Sunil Kumar Dixit of SK Dixit Charting in Kolkata, India, concurs that waiting may be prudent for soy buyers now.
“Weekly chart of soybeans gives a sideways to down bias. Prices are straddling a range between the middle Bollinger Band of $14.53 and the 50-week Exponential Moving Average of $13.02.”
“Breaking above $14.50 seems unlikely for now. Clear break and sustained move below the 50-week EMA of $13.02 would expose the market to the $12.50-$12.00 areas.”
He added that if prices held below $13.00, “extended bearish momentum can expose soybeans to $10.80 in the long run.”
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.