Soybeans have been sideways since early November 2014. Nevertheless the market is in an interesting period. Our cycle analysis indicated three major cycles turning in November. These were Gann's 45yrs, 20yrs and 14yrs cycle.
This post discusses the current situation in the soybean market focusing in cycles, swings and momentum indicator. So far it is not clear for us if these cycles have aligned with market tops or bottoms.
Cycle and swing analysis for January soybeans
Figure 1 is a daily price-time chart for January beans [1]. It includes the 2-day swing chart and indicates two possible scenarios regarding Gann's cycles. We presented a window of tolerance for each cycle in a previous post.
Gann's 45yrs cycle had a window spanning from Nov 1st to the 14th. It could have aligned with the Nov 5th swing bottom or with the Nov 12th swing top. Gann's 20yrs cycle had a window of tolerance from Nov 5th to the 19th. It could have aligned with the Nov 12th swing top or with the Nov 19th bottom. Finally, Gann's 14yrs cycle was due to turn in the later part of November or early December. In this case it could have aligned with a top in Nov 26th or a swing bottom in the near future.
It is interesting to note that the market has traced a head and shoulders pattern since late October 2014. This is a possible indication that prices could go lower and that we are in a bearish scenario.
The 5, 3 and 1 day momentum indicator were diverging against market action between the swing tops of Oct 30th and Nov 12th indicating a reaction. The faster 1-day momentum curve diverged against price indicating a rally in Nov 19th. In late November this faster 1-day momentum curve diverged against market action an prices fell abruptly on Friday November 29th.
The stronger 5-day and 3-day momentum curves are showing that most likely prices will decline. If the 5-day momentum curve drops and stays below the zero line will be a good indication that prices are finally declining.
Market behavior in the recent future will confirm which scenario is right. We believe that we are at a very interesting and perhaps very profitable point in the market.
[1] Chart drawn using free charting software Gannalyst Professional 5.0 which includes several basic Gann techniques.
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| Figure 1 Daily prices for January soybean futures. 2-day swing chart and a bearish (red) and bullish (green) scenarios related to Gann's cycles. |
Gann's 45yrs cycle had a window spanning from Nov 1st to the 14th. It could have aligned with the Nov 5th swing bottom or with the Nov 12th swing top. Gann's 20yrs cycle had a window of tolerance from Nov 5th to the 19th. It could have aligned with the Nov 12th swing top or with the Nov 19th bottom. Finally, Gann's 14yrs cycle was due to turn in the later part of November or early December. In this case it could have aligned with a top in Nov 26th or a swing bottom in the near future.
It is interesting to note that the market has traced a head and shoulders pattern since late October 2014. This is a possible indication that prices could go lower and that we are in a bearish scenario.
Momentum
Figure 2 is a daily price-time chart for January soybeans containing a momentum indicator. |
| Figure 2 Daily prices for January soybean futures and a momentum indicator. Divergences between price and momentum action. |
The 5, 3 and 1 day momentum indicator were diverging against market action between the swing tops of Oct 30th and Nov 12th indicating a reaction. The faster 1-day momentum curve diverged against price indicating a rally in Nov 19th. In late November this faster 1-day momentum curve diverged against market action an prices fell abruptly on Friday November 29th.
The stronger 5-day and 3-day momentum curves are showing that most likely prices will decline. If the 5-day momentum curve drops and stays below the zero line will be a good indication that prices are finally declining.
Summary
A short discussion on the current soybean market situation has been presented. Even if most indications hint at the possibility that prices will decline it is still probable that Gann's cycles aligned with market bottoms taking prices higher.Market behavior in the recent future will confirm which scenario is right. We believe that we are at a very interesting and perhaps very profitable point in the market.
[1] Chart drawn using free charting software Gannalyst Professional 5.0 which includes several basic Gann techniques.
Ricardo Da Costa
Grain Market Analysis
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