The entire soybean complex had been holding its collective breath ahead of yesterday’s USDA reports. As is typically the case, it quickly became a case of, “Buy the rumor, sell the fact”. That said, yesterday’s post report action created a strong enough reversal downwards and away from the building overhead resistance to generate a COT Sell Signal. Normally, our chart would include a fourth pane labeled, “Short-Term Market Momentum”. However, for clarity’s sake, we left that pane out of the chart to focus instead on the commercial trader action illustrating their sensitivity to price.
The grain complex, along with most of the other physical commodity markets has been experiencing declining volatility and prices. We discussed this in September’s, “Trading the Decline in Commodity Volatility and Prices.” Today, we take a micro look at the soybean oil futures for equities.com.
Commercial traders have been generally negative on the grain complex since mid-summer. You can see on this annotated Commitment of Traders chart the only periods of bullishness were during the pre-planting period and a brief moment during mid-summer. The late decline in prices into the end of the year did bring out some bargain hunting, which also, briefly turned commercial momentum positive.
Commercial traders bought nearly 40,000 contracts during the month of November and the first week of December. There are two points to be made here. First of all, once the market flushed below $.30 per/lb, commercial traders bought the market hand over fist; adding 26,000 contracts during the week of 11/28-12/3. Secondly, they’re not convinced that these contracts are worth holding on through the typical March futures’ expiration process as the net commercial position is once again lower than it was at the beginning of November. The recent moves by the commercial traders were classic scalping at the institutional level.
I believe that the recent COT sell signal will drive the market back below the support that has built under $.32 per/lb and washout early speculators on the long side. This will create the buying opportunity that I think the commercial traders are waiting for to push the March soybean oil futures higher into their expiration.
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