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A soybean bounce in store Tuesday?

10/30/2012 @ 8:21am

November CBOT soybean futures plunged sharply lower Monday pressured by a weather forecast from Brazil calling for rain in the northern soybean growing regions. The rain is expected to strengthen the newly planted crop. The weather news fostered expectations that a large soy crop could be seen from Brazil, which could help alleviate the tight global supply situation.

Wheat closed modestly lower, and corn ended little changed on Monday.

Trading action could be thin on Tuesday, as U.S. stock and bond markets are closed as Hurricane Sandy beats down on the Eastern seaboard, and many financial market traders are away from their desks.

Technically, the sharp selloff is a clear rejection of resistance at the $15.74 3/4 area. The bulls tested that price zone twice, first on Oct. 9 and again on Oct. 24. The swift retreat from near that ceiling confirms that as a major high and keeps the long-term trend dynamics bearish.

The soybean market had been falling since the Sept. 4 price peak, but recently the market shifted into a sideways pattern. Since early October, November soybeans have trended back and forth between the $15.74 area and strong support at $14.85 3/4, the low hit on Oct. 15 which represents the lowest price level since early July.

Given the market's hefty selloff Monday, and deeply oversold intraday momentum tools, consolidation or a modest upside correction is possible early Tuesday. But, short-term resistance lies at $15.41 1/4. As long as that ceiling holds, any bounces will be short-lived.

December Chicago Board of Trade corn futures closed little changed Monday, as much of the financial trading community ground to a halt as Hurricane Sandy lambastes the East Coast and has shut down stock and bond trading in the U.S. Monday and Tuesday.

In the news Monday, Ukraine asked China to grant it corn export allocations for next year after agreeing an innovative loan-for-crops contract, according to the country's agriculture ministry.

While December corn traded both higher and lower intraday Monday, the market couldn't maintain strength or weakness. On the downside, the contract touched major chart support at $7.32 1/4, previous support from the Oct. 15 daily low. That represents the lowest price level since Sept. 28 and major technical chart support on the downside. Fresh fundamental news would likely be needed to trigger a sustained sell-off under that price floor. Traders are waiting for official news on the final size of the U.S. corn harvest, and that could be the fundamental trigger for the next big price move.

Strong underlying cash prices for corn have also been a recent support to the futures market. Amid the smaller crop size, in the wake of this summer's historic drought, and because the current harvest is nearing its end, buyers have faced higher prices for physical corn in the cash markets.

Since Oct. 1, December corn futures have largely been locked in a large sideways range between major resistance at $7.76 and support at $7.32 1/4. The market is now hovering near the range bottom. Market action has been heavy in recent sessions, with corn bulls unable to defend rallies. Strength has been viewed as a selling opportunity.

Traders should continue to watch action closely around $7.32 1/4. Given volatile and thin Hurricane trading conditions, whipsaw risk is seen. It would take sustained losses and a close or two under the $7.32 1/4 level to confirm a downside breakout. If that occurs, it would represent a major downside breakout from October's price range, and would unleash a fresh selling wave on the downside.

-Write to Kira Brecht at copydesk@dowjones.com
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(END) Dow Jones Newswires
October 30, 2012 08:00 ET (12:00 GMT)
DJ Technical Analysis: U.S. Corn, Wheat Futures - October 30->copyright

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