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Soybean Correction May Be Over

Soybean futures (ZS) had a huge rally between March and June. The January 2017 contract went from 873.75 to 1182, a 35% gain. Since that high, January soybeans have retraced about 75% of that gain, finding support near the 940 region.

Bouncing off that support region between August and October, soybeans formed a triangle pattern. That pattern was broken in mid-October when soybeans moved above triangle resistance.

Figure 1. January Soybeans, Daily Chart

Given the significant rally at the start of the year, and the smaller (although deep) retracement, the long-term outlook can still be consider up. The short-term picture, with the upside triangle breakout, indicates another move higher (within the longer-term outlook) could be starting.

For context, the 2008 bottom and subsequent rally has similar percentage moves compared to the price action currently playing out. Off the 2008 bottom the price rallied 36.5% and then dropped 21% off the high. In 2016 the price has rallied 35%, and dropped 21% off the high. In 2009 the rally following the pullback was 54% above the pullback low. Once the price starting rallying again, it took 13 weeks for the price to move up 54%

In 2016 the pullback low is 940.25, so an approximate 50% rally puts the longer-term target in the 1410 region.

History doesn't necessarily predict the future, but currently soybeans are playing out a very similar pattern to 2008/2009 (in terms of percentage movements). 1410 is a very aggressive target. A more conservative target is between 1170 and 1200, where the most recent rally met resistance.

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