Corn futures continue to trend lower inside the declining trend channel, which dates back to December. Using an active-continuation chart, we see corn bounced off the lower boundary of the declining trend channel, leaving behind an impressive exhaustion-selling tail candlestick. In the process of the decline, corn dropped below its 200-day moving average, leaving the commodity below its 50-, 100- and 200-day moving averages for one of the few times since November. Momentum has clearly been on the side of the bears as evidenced by on balance volume (OBV), reading a negative 504,918 contracts in the last 20 sessions. All of this said, the stochastic measure of momentum has been trending upward since early February as price has declined. This has the appearance of a textbook bullish divergence in momentum, but this will only be confirmed after a recovery above a prior corrective high. At a minumum, this would be $3.68 1/4 from Feb. 27, but more preferably, the $3.78 1/2 from Feb. 24. Funds have been adding to their net-short position in corn through the latest available data on Feb. 19. This should provide upside ammunition should corn be able to continue its Friday recovery.
After trending higher since last September inside of its rising trend channel, soybeans have turned sideways, creating a new trading range. In opposite fashion to corn, soybean OBV is positive 582,689 contracts while momentum is actually trending down into neutral territory. Uptrending or downtrending environments are much easier to navigate than a rangebound environment, forcing us to look to objective risk parameters from which to gauge directional sentiment. On the active-continuation chart, the downside parameter would be $8.93 1/4 while the upside parameter would be $9.23 3/4. Given this 30-cent range, it would be reasonable to assume aimless, whipsaw trade can and will persist in the near term. Fortunately, soybeans remain above the 50-, 100- and 200-day moving averages, keeping scales tilted upward for trend-following funds. As of the most recent Commitment of Traders report on Feb. 19, funds have rebuilt the largest net-short position since November, which should further support prices.
Soymeal futures continue to trade just above two-year lows, failing to generate any upside momentum in the last several months. Several technical indicators are trending upward, indicating the potential for basing trade. The stochastic measure of momentum bottomed back on Feb. 11 and has been moving higher since, but price remains sideways. OBV is also trending higher, although the outright value is still negative at 199,403 contracts. This isn't surprising as managed funds as of Feb. 19 had built the largest net-short position at 39,959 contracts since July of 2017. The 50-, 100- and 200-day moving averages are all overhead, offering obvious resistance candidates. Trade above $312.60 from Feb. 21 would confirm a bullish divergence in momentum, opening trade for a run at the January highs of $324.60.
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.
Tregg Cronin can be reached at email@example.com
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