This chart shows the soybean futures intra-day just moments after today's close. After rallying more than 20 cents higher early in the session, soybeans closed only 7 cents higher. Needless to say, today's rally has largely fizzled. After this morning's rally at the open, soybean futures lost momentum fairly quickly, and had shown more and more weakness as the trading session progressed. After closing limit down 70 cents yesterday, closing only 7 cents higher today suggests continued weakness to my mind.Corn gapped lower this morning, and continued to drop throughout the trading session. This is significant because corn and soybeans often tend to trade somewhat in lock step with each other, so when one or the other moves independently of the other, it is very noticeable. Wheat moved higher at the open, but like soybeans, slowly edged lower since. Wheat has now closed near the flatline for the day. This also suggests bearishness. I wouldn't be surprised if more selling/liquidations occur over the coming days, driving prices still lower. Of course, a weather event could change everything -- literally overnight! We will now be trading weather through mid-May 2009.
The daily chart (above) for soybeans shows how strong yesterday's limit down price thrusts were, but it also depicts visually how weak today's attempt at a rebound was. If, following a strong one-day move that crosses over the Exponential Moving Average (in this case, crossing below the EMA yesterday), prices attempt a rebound back toward the previous trend (in this case, soybeans had been on a solid uptrend throughout December and early January), but fails to cross back over (above) the Exponential Moving Average within the next few days, a confirmed new trend (in this case, a downtrend) is confirmed. The fact that the rebound did not cross back above the EMA into bullish territory, increases the probability of a confirmed downtrend. Once an EMA crossover occurs, I will only trade the direction of the new trend, in the hopes of entering the new trend at a fairly early stage to maximize my profit. Since today's rally appears to be faltering, by shorting grains today, I hope to take advantage of the early emergence of a new downtrend in grains, if it occurs. I will continue to place short-only trades as long as the closing price remains below the EMA, or until prices crawl back above the EMA and create a fresh uptrend.A consolidation is obviously a possibility as well with these strong movements in price. It is possible that for several days, price may move erratically back and forth within a range. If a downtrend is not confirmed within a day or two, I will pull back and stop trading until a new trend asserts itself and is confirmed. If the Bollinger Squeeze indicator turns red (not shown), this is an indication of a consolidation pattern and tells me that I should stop trading that futures instrument and watch for a new trend to emerge.
Even though soybeans closed higher today, the daily chart clearly shows the weakness of today's higher close. Corn continued to drop significantly throughout the session, confirming a downtrend, and wheat, while rallying with soybeans early in the session, closed nearly flat, signifying potential further weakness ahead. Since corn futures have greater open interest than the other grains, its movements tend to carry more weight in my decisions. It's lower close today creates a bias in my mind for further downside potential.
