Although I was an economics major in college, I’ve been a technical trader for most of my trading career. I don’t disregard the fundamentals, but I find them hard to trade off of. (Not to mention that there’s always someone with better access to fundamental info). I’ve found technical analysis to be a more level playing field; successful technical trading is available to anyone who applies themselves to it.
Why do I bring this up? I’m looking at today’s trade in the soybean futures. This morning the USDA released a supply and demand report for the grains. On the face of it the report was bullish. They lowered their estimate of the world stockpile of soybeans, citing strong demand, notably from China. The opening call was for them to open 10 to 12 cents higher. They actually ended up opening about 15 cents higher, and then fell like a stone this morning. Why? The fundamentals don’t seem to support this action.
The chart tells a different story. From a technical standpoint today’s break made sense, and had a good tradable pattern in the process. Let’s take a look at it.
From mid January soybean futures have been in a down trend. This pattern is actually much like last year, when we made a high on January 15th, then declined into late February.
Last Thursday and Friday formed a short term bottom. By the Taylor Technique Thursday was a Buy day, forming a short term bottom. Friday was the Sell day; there was a slight advance, although it closed about unchanged forming a doji. Friday’s range was also the narrowest of the previous seven days; these two patterns meant we were looking for a breakout move on Monday. ( For the basics of the TT, go here.)
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We did get a breakout rally yesterday, albeit a small one. Friday’s high and trend line resistance were taken out early; and it reached a rally objective at last week’s high of 934-0
Today was the day to take profits on yesterday’s breakout longs. The Taylor Technique tells us that market moves tend to end with an ‘excess move’, and what better way to create excess than with a breakout, one way move? Any time a market makes a breakout move, I look for a reactive move in the opposite direction the following session. This meant that today we should have been looking for a TT Sell Short day.
A Sell Short day should have high to low intraday action; the key is to look for a short sale opportunity early in the session to take advantage of this move.
This morning’s open gave us that opportunity, as it gapped over yesterday’s high. This gap higher was the end of the ‘buying auction’, and we watched for a move back under yesterday’s high to mark the start of the decline and a short sale opportunity.
The 10 minute chart below shows today’s action. The break and short entry came shortly after the open, and a sharp decline ensued. I identified targets for the decline at 928 (the trend line off the daily lows) and 922-0 (a 50% retracement of the rally off Thursday’s low).
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Where do we go from here? For today, I would continue to watch the 922-0 level for support; a drop under there could lead to a retest of the 900 area. On the upside, watch 940 to 944 – the ‘excess’ high created today.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
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