December 5, 2008

The Chicago Board of Trade January soy futures overnight hit a fresh 19-month low of US$8.17 1/4 a bushel.

Prices remain in a five-month-old downtrend from the early-July contract and all-time high of US$16.48 a bushel.

This market, like many other raw commodity markets, has received a price haircut to the tune of 50 percent in less than six months.

The next downside price objective for the soy bears is to push and close January futures prices below major psychological support at US$8.00. It would take a close above psychological resistance at US$9.00 a bushel to provide the bulls with some fresh upside near-term technical momentum to also suggest that a market low is in place.

The weekly continuation chart for nearby soy futures shows that a big and bearish head-and-shoulders top reversal has played out. Solid technical support is located at US$7.90, basis nearby futures. Recent price action on the weekly chart has seen a bear flag develop, with price action this week producing what could be a bearish downside breakout from the flag pattern. A drop below longer-term technical support at US$7.90 would likely prompt a challenge of major psychological support at US$7.00 a bushel, basis nearby futures.

Importantly, soy and other grain futures market traders are paying more attention to the key "outside markets"--crude oil, the value of the US dollar and the US stock indexes--than they are paying to the supply and demand fundamentals in their own markets. Such will likely continue to be the case in the near term. Once the crude oil market starts to bottom out, which likely means that the US stock indexes have begun to sustain an uptrend, then it's likely the soy futures market bulls can feel confident that prices can sustain an uptrend.