The bid price in soybean futures (ZS) continues to take a beating. After staging a rally in the early part of 2014, late June saw a big drop followed by continued selling in July.
Trading on August 1 is again pushing the contract toward short-term support. Following the sharp drop the price has been consolidating between 1118.75 and the July low at 1057.
A lower low -- at 1110 relative to 1118.75 in the consolidation -- indicates sellers are still more aggressive than the buyers.
If the price continues to move below 1057 the expectation is for a continuation to the downside.
Figure 1. Soybean Futures (ZS - November contract)
The initial target, based on subtracting the height of the consolidation from the breakout price, is 996. This is a relatively conservative target given the strong selling seen recently, and is also a 61.8% Fibonacci extension level. The 100% Fibonacci extension level is more aggressive and calls for a decline to 932. This would require a move of similar magnitude to what was seen in late June and early July.
While the trend is down, false breakouts are always a possibility, especially when everyone is expecting a move lower. A break below 1057 followed by a sharp rally back above it is probably a false breakout, and warns of a short-term pop higher.
There is no reason to get bullish about the commodity until it climbs back above 1118.75 though. That would create a higher high, providing evidence an uptrend is potentially underway.
Special Offer: Check out our FREE 5 Chart Patterns You Need To Know about to improve your trading skills report.