Chicago wheat has remained inside of its declining trend channel which dates back to September. The last two sessions have witnessed an acceleration to the downside, which has the March contract challenging the bottom end of that declining trend channel. This acceleration of bearish momentum is illustrated on the stochastic measure of momentum that has dropped to its lowest value since early January. Accompanying the drop in price has been a sharp rise in volume to the highest levels since early November. Finally, volatility bottomed in early February and has risen steadily the last several sessions. Taken in aggregate, rising volume, rising volatility and declining momentum are textbook accompanyments to a bearish breakdown like we've witnessed. The March contract still has price history below spot levels, but price is at the lowest levels since January 2018. Switching to an active-continuation chart, spot prices are at the lowest levels since October. With Friday's trade, we did see price slip below the 50% retracement of the $4.10 to $5.93 rally at $5.01. Those October lows around $4.85 to $4.90 could be the best support candidates for this market as the trends are down and a continuation, or even acceleration, should not surprise.
Jumping over to Kansas City wheat, the bearishness is even more exaggerated. New contract lows were set Friday at $4.72, forcing us to an active-continuation chart to find prior price action. From that chart, we can see spot prices are at their lowest levels since July 2018. Those July lows around $4.70 would be expected to offer support to the current downtrend, but momentum indicators, such as stochastics, illustrate just how strong the current downtrend is. There is no semblence of a bullish divergence in momentum that would give bears reason for caution. Just like Chicago wheat, total volume has risen dramatically over the last 45-days, driving on-balance-volume to the largest negative value since Septemer 20. Interestingly, open interest has been almost perfectly flat over the last month and a half, indicating ownership must be changing hands. Unfortunately, we do not have up-to-date commitments of traders data to cross reference fund positions against. Until early March, we will be flying somewhat blind on that front. Regardless, trends are down and would be expected to continue or even accelerate until a recovery back above a meaningful corrective high like $4.95 at the very least, but more preferably $5.13 1/2 from Feb. 6.
Lastly, checking in on Minneapolis wheat, we find the least bearish of the three wheat markets. However, Minneapolis could hardly be called bullish with a mostly sideways trading range. The most striking difference between Minneapolis and the other two wheat markets is the inversion (or backwardation) between March and May futures, whereas Kansas City and Chicago are still sporting carries or contango. Anytime a market finds itself in a backwardation, it is a supportive influence to flat price. Stochastics on March Minneapolis wheat are in neutral territory, starkly different than those in Kansas or Chicago. Minneapolis has enjoyed the same rise in volume since the beginning of 2019, but because of the more stable price action, has kept on-balance-volume in bullish territory. Minneapolis has some clear-cut risk parameters from which to gauge directional bias moving forward. To the upside, we would look at the recent $5.85 corrective high from Feb. 13, and to the downside the corrective low at $5.63 1/4 from Feb. 8. Given the more stable price action of late, and the lack of momentum behind the price action, we would expect Minneapolis to continue outperforming Kansas City and Chicago. A weakening of the Minneapolis March/May calendar spread back to a carry would be a strong signal that Minneapolis is breaking down like the other two markets.
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.
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