Will December HRS find Support at $10 per bushel?
Looking at the attached December hard red spring wheat chart, it took eight sessions from the time the $10/bushel (bu) chart resistance was breached until the $10.86 1/2/bu high was reached, while only four sessions to almost take back the gains above $10 realized.
The December chart shows the Nov.8 trade finding support at the contract's 20-day moving average at $10.07 1/2/bu, while also holding above the 38.2% retracement of the move from the contract's Sept. 10 low to the Nov. 2 high, calculated at $10.00 1/2/bu. Note the $10/bu level is also a level of psychological support, after briefly acting as resistance in recent weeks.
The move from the November high of $10.86 1/2 to the $10.05 low reached on Nov. 8 shows a 7.5% decline in price, which is not at all uncommon since this market began to rally on April 1. Early on in this rally, there were two corrections that included a 15.6% decline in May and an 11.5% correction that took place in June. Following these dips in price, there were two drops in July and one in August that signaled a drop of less than 10% and does not fit the definition of a correction, or a move in excess of 10%.
The first study signals weakening spreads, with the brown line the Dec/March and the red line the March/May contract spread, although continue to signal a bullish view of market fundamentals. While the December/March spread weakened 2 1/4 cents this session and the March/May weakened 3/4 cents, the May/July contract spread (not shown) strengthened 3/4 cents to a 35-cent inverse, signaling growing concern over the longer time horizon.
The middle study shows the noncommercial net-long position in spring wheat futures reaching an all-time high of 29,470 contracts as of Nov. 2, the highest level ever reached, while rising for a fourth consecutive week.
Traders showed discipline in Monday's session due to the uncertainty surrounding the Nov. 9 USDA report. As is seen in the lower study, trade volume in the December contract at 3,711 contracts was down 49% from the previous session while the lowest in 14 sessions.
Cliff Jamieson can be reached at email@example.com
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