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Soybean Flag Formation Signals Extended Gain: Technical Analysis

Soybean futures that have rebounded from an 18-month low in August probably will rise 9 percent further, according to a technical analysis by the Linn Group in Chicago.

Prices on the Chicago Board of Trade formed a flag formation after reaching an 11-week high of $14.095 a bushel on Aug. 27, with prices and volume declining. Soybeans are up 20 percent since this year’s low of $11.625 on Aug. 7 as drought conditions expanded in the U.S. Midwest, reducing yield prospects for a crop farmers will start harvesting this month. After soybeans closed yesterday at $13.96, a settlement above $14 will signal a gain to $15.22, said Linn’s Roy Huckabay.

“We have a smaller crop, and the chart pattern points to a rally,” Huckabay, an executive vice president, said by telephone from Chicago. “We should see an increase in buying” from speculators and processors, he said.

Soybean futures for November delivery jumped 2.8 percent yesterday, the most in two weeks, after the U.S Department of Agriculture cut its forecast for the domestic crop by 3.3 percent. Soybean meal, an animal feed made from the oilseed, rose to a three-month high, signaling the price of the crop is headed higher, Huckabay said.

“The rally may extend to weekly technical resistance at $15.34,” Huckabay said. “Higher prices may help to shift some demand to Brazil and Argentina and encourage more planting in South America.”

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a bond, commodity, currency or index.

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