Macro: Sandcastle economics
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Soft Commodities warming up to break out of ranges?
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Soybeans seems to be range bound between $1.180 and $1.300/bsh. On the bigger picture on weekly chart however, Soybeans is in a down trend that can only be reversed with a break above 1.300. RSI is indicating bearish sentiment. If Soybeans break below the support at around 1.180 there is no real support before around 1.035 level i.e. around the 200 weekly SMA.
Wheat is short term in a down trend currently testing the medium term rising trend line.
A break below $768/bsh could fuel a sell-off down to around $700.
On weekly chart Wheat has formed a rising wedge like pattern with a peak and reversal in the form of a Doji Evening pattern. Despite not text book perfect the lower rising trend line and possible break there of could be crucial for Wheat bulls.
RSI is showing divergence which underlines the picture om imbalance i.e. the uptrend is long in its teeth.
A break below the rising lower trend line is likely to further fuel the selling down to $700-677.
Corn is trading in a more and more narrow range forming an Ascending like triangle (You could argue it is an slow rising wedge). Conclusion would be the same, however. A bearish break out is likely to lead to a drop to around $550 support. A close below 547 next support is at around $500.
The divergence on RSI indicates the pressure is to the down side. However, if Corn bulls manage to lift the Future price above $594 it could trigger a lot of stops shooting the price higher towards $700.
Coffee has been on the rise for three Quarters by now. Robusta coffee is trading close to decade highs in a narrow steep rising channel. RSI Divergence is however, growing indicating the uptrend could be ripe for a correction. A break below $2.18 could signal the end of the uptrend and a larger correction. A scenario where Robusta is trading below $2.18 will take the commodity below 55 SMA for the first time in months. If that scenario plays out we could see a sell-off down to around $1.90-1.80 with support at around 2.1
RSI Divergence explained: When an indicator such as RSI is displaying lower peaks while the underlying price is still making new highs. It is a sign of imbalance in the market, the strength of the trend is weakening. It could be an indicating of an ending of a trend. However, imbalances in financial markets can go on for quite some time. To cancel Divergence out RSI must either 1. Make a new high simultaneously with the price or 2. Close below 40 threshold.
Same can be observed in bear market just here market makes a new low but Indicator doesn’t.
Same can be observed in bear market just here market makes a new low but Indicator doesn’t.
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