Is the Soybean Oil Bear Market Over?

Soybean Oil is one of the many agricultural futures traded on the Chicago Board of Trade (click for contract specs). After peaking at over $72 in March 2008, BO (the symbol for soybean oil futures) dropped hard and then recovered to about $60 in April 2011. Since then, the price dropped to a recent low of $26.80 in January. Today, the front month contract closed today at $38.99.

Like all agricultural commodities, many Soybean oil futures contracts with different expiration months trade simultaneously. The following table shows the volume, 20 day average volume, and closing price of 13 of these contracts. The highest volume contracts currently trading are BOH14, BOK14, BON14, and BOZ14. 

The following daily charts show the price of the four highest volume contracts over the last six months and how price adhered to a clear downward channel (until recently).

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The red downward channel is nothing more than a line drawn through two "lower highs" (LH), extended in time. A parallel of the upper channel was created and placed at, or near, a "lower low" (LL) swing point. The drawing of the channels is more art than science. Additionally, you see some contracts also include a black downsloping trendline. That line was added to highlight an acceleration in the decrease of price. The thought being, that when price violates that line then the market's view on price has changed so the commodity warrants consideration.

With this in mind, one has to ask "Why did price turn where it did?" Every trader will come up with a different idea. The commodity producers may have an idea as well as the commodity consumers. The truth is, no one knows. But, we can all guess.

My guess is Fibonacci!! While there are numerous Fibonacci ratios that traders use, there is one that is unquestionably in every Fibonacci trader's toolbox. That ratio is 61.8%. Could it be that BO hit a magic 61.8% Fibonacci ratio where BO traders, investors, and hedgers all changed their outlook on price and decided to buy? The following is the weekly continuous chart for BO:

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As you can see the recent low was an exact 61.8% retracement of the 2001 low to 208 high weekly range (I'm not going to quarrel over $0.08 on the March 2014 contract). Is this a mechanical bounce at an expected area? Or, is this the end of the bull market? I'm not calling for you. Price action when/if it reaches the upper line of the downsloping channel will clarify the outlook for those who did not participate in the initial Fibonacci bounce. Some traders may attempt to sell/short, others may wait for an obvious trend break for a breakout long. Who will win? The shorts or the breakout long traders and for how long? Only the market knows. Time will tell.