"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, November 12, 2014

Soybeans and Shortened Life Expectancy

If you ever see me on the street and I am making some incoherent mutterings, I ask for your sympathy. You see, I am suffering from what is referred to as an acute case of SOYBEANITIS.

This is a serious condition brought on traders by prolonged, incessant exposure to the bean market. It impacts different traders in different forms but the one common among them all is that it results in an inability to form complete sentences. Short bursts of random words such as:

"What the ****!"

"You've got to be kidding me!"

" I am not believing this"!

"What kind of idiot would do that"?

"NO way"!

"What planet do they live on?"

When a trader afflicted with soybeanitis attempts to string all these expressions together, the words come out  in rapid fire succession, more often than not, completely jumbled, intermixed, interposed and transposed with the result that it produces a strange amalgamation of sounds that some have said sounds a great deal like the Klingon language from the old Star Trek shows.

What I am referring to is a follow up to the chart I posted earlier today. After today's session, those zombies on "The Walking Dead" are probably former soybean traders.

Here is the updated chart AFTER the close of trading today.

There are a couple of things to point out here. First, in the early part of the session, funds went on a buying binge across the entire grain floor. They took this month bean contract up through the 100 DMA yesterday and proceeded to push it even higher. In the process they closed the gap formed on the continuous chart back in mid-July. That gap was formed from the transition from the July contract to the August contract which was trading at a discount to the July as traders had begun to dial in the enormity of this year's crop.

However, after the fund buying exhausted itself, the market began to slowly fade. I get the impression that a lot of guys were looking at the huge rally from off the lows near $9.00 and turned to one another remarking: "What in the hell are we doing way up here?"

Whether or not that is true is immaterial. What did happen however is that the market seemed to run out of buyers up here. Price then faded and as it did, it looks as if some of the longs began to bail out. I am unsure at the moment but I suspect we finally awakened some serious commercial hedge-related selling.

The point is that the bulls failed to hold the priced above the 100 DMA. If they had been able to come in and buy it near that level and push it back away from there, I would have to say that they had a very good chance at changing the bear trend and actually cementing a longer term bottom. Now, I am unsure once more.

Not only did they fail at the 100 DMA, they also failed to hold the price at the BOTTOM OF THE FORMER GAP. They had pushed into that gap in yesterday's session and actually closed the gap, but they penetrated through the upper edge of the gap again today. However, by the time the closing bell rang, price had fallen below the low of the gap. From a technical analysis perspective, that constitutes a failure and would normally usher in some selling.

With this market however, who the heck knows? I thought the same thing after we got that USDA report on Monday. Then yesterday all hell broke loose to the upside with that outside reversal day ( in the meal) erasing the outside reversal day lower from Monday.

I was actually hoping we would see yet one more outside reversal day today so we could make it a perfect trifecta. By the way, I am trying to recall any time in my entire trading career in which I ever saw three back to back outside reversal days. Guess that will have to wait for another time?

The way this market has been of late, who the heck knows what it will do next. As of today however, the bulls have been wounded somewhat as the beleaguered and shell-shocked bears managed to land a body blow. Stay tuned - this one ain't finished yet... but maybe the bears are starting to dig in up here.

Quick comment on gold - nothing doing right now... just stuck in a range as I had noted the other day. It might be a season for price consolidation before a fresh leg lower or the bulls might be able to take it up through $1180 and try changing the handle to a "12". Just like the beans, the jury is still out.

Soybean Bulls Recapture the Bean Market

I have been writing of late how the strength in the meal has led the entirety of the grain floor higher, as it has been dragging not only the actual beans higher, but also the corn. It now appears that the beans themselves, which had been moving higher but had not put in as impressive a performance on the charts as had the meal, are now doing just that.

Bulls have not only managed to close a significant chart gap, but they have also bested a key technical indicator, namely the 100 day moving average. That level should now serve as support on any downside tests for the bulls to maintain control of this market.

If it does, the next likely target for the bulls is near the highs made in August. As unlikely as it seemed based on the size of the mammoth crop, the logistics involved in an historically low 2013-2014 carryover of some 90 million bushels, have set meal and bean buyers competing against each other to secure sufficient supplies to meet current demand.

I do not know how long this can last in front of such a massive crop but one cannot argue with the charts and expect to either prosper or survive, especially in this day and age of gargantuan hot money flows which obliterate everything in their path. With so very few commodity markets moving higher on account of the strong Dollar, when funds do find a market that they can push from the long side, as they recently did with cattle, they will mercilessly force it higher to maximize their profits.

It is interesting that the Brazilian Real continues to sink against the Dollar making US beans less and less competitive on the global market but for now, no one seems to care as the mad scramble is on to obtain meal supplies, regardless of cost. How the bean and meal markets end this week is going to be key to whether or not this is the merely the waning moments of a counter trend move or the actual start of a new bull trend.

I will be the first to admit that I did not think this was possible given the currency differentials, the soaring Dollar, and the size of the crop, both here in the US and what is expected in S. America. There is certainly not going to be any shortage of beans based on all the available information we have but apparently demand is there to absorb it all, at least for now. I still wonder what is going to happen to prices when the supplies of meal become more plentiful and crushers' margins start to erode.