The dominant trend in the corn market has been up since making contract lows at $3.20 in early August. Since then, a near textbook 5-wave sequence has unfolded with the current leg of the rally likely the fifth and final wave. December corn has blown through all retracement levels of the entire July 2019-August 2020 decline, raising odds for a retest of the range-cap highs around $4.10 to $4.20. As always, we will look to momentum indicators for clues the rally is slowing or beginning to change direction. Our preferred momentum indicator, stochastics, still has momentum pointed upward and is not yet showing a divergence with price. If price continues to move higher on declining and diverging momentum, it would be a major warning signal for highs being close at hand. A full bullish policy and exposure remains advised with weakness below the $3.88 corrective low from Oct. 14 to threaten or defer the current call.
The soybean market has turned much more consolidative the last couple of weeks, even if the consolidative trade has featured dramatic swings in price in both directions. The $10.79 3/4 contract high from Oct. 9 looms large, especially as momentum indicators have diverged from price, a warning signal a larger correction could be forthcoming. When those contract highs were made, momentum failed to make new highs, a major cautionary signal in our opinion. We will be very watchful in the days and weeks ahead to see if the November contract can maintain strength above the September 18 corrective highs at 10.46 3/4. If those highs cannot be held as support, bulls should begin stress testing outright long exposure. As of the most recent CFTC data, large spec traders are carrying a net long of 175,333 contracts which could be vulnerable if losses begin to accelerate.
December Kansas City Wheat:
Kansas City wheat has enjoyed its own rally since making lows on Aug. 7, hitting the highest price for the contract since June 2019. The rally in HRW has been aided by the managed fund community, which has bought a net 52,277 contracts over the last eight weeks. Funds are now holding the largest net-long exposure since October 2018. Momentum indicators have made new highs as price has resumed its uptrend, suggesting the trend is strong. On-balance volume has also reversed course, highlighting the growing participation in up days vs. down. Like the trend in corn, the rally in wheat markets is not one we want to fade at the current time, preferring to keep downside risk parameters highlighted to gauge when the move is slowing. The 5.52 3/4 corrective high from Oct. 8 is one of growing importance that we will be keeping an eye on.
Tregg Cronin can be reached at firstname.lastname@example.org
Follow Tregg Cronin on Twitter @5thWave_tcronin
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
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