The market gorged on grains Monday as soybeans logged their most impressive move in years on an unexpectedly bullish Agriculture Department report. But just like animals, beans may need some time to digest the gains before traders regain an appetite to initiate fresh long positions. In the report, the USDA said the 2002-2003 crop will be the smallest in six years, spurring talk that soybean usage may have to be "rationed" for the first time in nearly a decade. Monday's move was extremely healthy for the bean complex. After all, one of the strongest things a market can do is reverse a reversal signal. And November soybeans (SX2:CBOT) now appear on track to reverse the weekly outside bar reversal pattern I recently wrote about . While the verdict is still out on whether Monday's surge and reversal of the reversal will hold (we'll have to wait until Friday to confirm that the market holds above the low of the previous weekly bar), the market is definitely overbought, after beans opened 46-cents-a-bushel higher Monday. Now look for beans to back and fill before continuing higher in order to absorb the gains. Here are some of the initial levels I will be watching for support: 544 3/4, 535 1/2 and 527 1/2.
In the metals, September silver (SIU2:COMEX) triggered Monday out of a daily pullback from a low setup , setting the stage for a test of contract lows.
December gold's (GCZ2:COMEX) inability to stay above the 318 level on a closing basis, which I've pointed out , continues to leave the market vulnerable to further downside. Notice how the closes and highs of the past four sessions are clearly defining 317 as resistance.
Potentially breaking stride in the metals, September copper (HGU2:COMEX), a market I've been pessimistic on, appears to have found support at its 78.6% retracement and is displaying higher lows off support. Look for a potential countertrend move higher here.
The September Canadian dollar is also tracing a pullback from a low setup. The obvious confluence of resistance factors -- the unfilled 7/23 gap, the 200-day exponential moving average, or EMA, and the 38.2% and 50% retracements of its two most recent swings -- make 0.6380 stand out as an area to test the theory that this market will resume its downtrend.
Notice how October sugar (SBV2:NYBOT) broke down after failing to close above the 7/18 and 7/24 gap areas, which I recently indicated could play a key role in sugar's technical picture. The most recent Commitment of Traders report indicated there is a large speculative position, which also makes the contract vulnerable to a long-covering selloff.
Back in June, I pointed out corn's "Rule of Four Breakout," a pattern detailed by Jeff Cooper. December corn (CZ2:CBOT) has exploded more than 20% to nearly a five-year high since the breakout of the pattern.
Late last week, September cocoa (CCU2:NYBOT) also broke out in a Cooper "Rule of Four" pattern, portending an extension of its already impressive rally.