Canada Markets

A month ago, the July hard red spring contract was breaking out above a six-week trading range above the March high of $7.63 per bushel. At that time, we looked at the potential for an upside target of $8.19 1/2/bu based on technical analysis theory that would suggest the possibility of an upside move, which is equivalent to the depth of the trading range traded from mid-March until the end of April.

The continued move higher did in fact follow the rule, with the high reached on May 6 at $8.13 1/2/bu, just 6 cents per bushel short of the target. Since that time, growing comfort with global crops, the possibility of ending stocks building both in the U.S. as well as globally and rains over the hardest hit drought areas in the Southern U.S. winter wheat growing area have weighed on markets. Friday's close of $7.06 1/2/bu is $1.07/bu or 13.2% below the intra-day high reached this month.

Two levels of support were barely broken Friday. First of all, Friday's low of $7.05 1/4/bu and close of $7.06 1/2 fell below the 50% retracement of the move from the January low to the May high, which is at $7.08 1/2/bu. Also, Friday's daily low fell below the April low of $7.06 1/2. It's impossible to tell if these levels have been breached permanently, but if so, a move to the next Fibonacci retracement at $6.83 3/4/bu may be in order.

Here are a couple of signs that this weakness may continue. First are the weekly stochastic indicators as seen on the middle study. The trend is clearly lower and these are a long way from reaching over-sold levels. The lower study indicates a gradual increase in the July/September carry, suggesting a slowly growing bearish sentiment among commercial traders, after trading at a bullish 2-cent inverse in early March. Last of all the monthly chart (not shown) would indicate a bearish outside month trading bar, with this month's trading range engulfing the trading range achieved in April with the monthly close seen near the lower end of the range. This is a scenario also seen in both the HRW and SRW markets, which adds further to the bearish potential across all three wheat markets.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

(AG)

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