In DTN's recent monthly technical analysis for grain markets, DTN Senior Analyst Darin Newsom pointed towards positive signals seen on the monthly charts for both corn and Chicago wheat. Both have shown a bullish cross-over of stochastic momentum indicators along with upward trends seen in the same indicators, hinting at a potential move into long-term uptrends.
Both markets have seen a bullish cross-over of momentum indicators while below the oversold level of 20%, viewed as a bullish sign. At the same time, he states a confirmation of an uptrend is needed in the way of a fresh four-month high, the July futures high of $3.80 per bushel in the case of corn, and the July futures high of $4.51 3/4/bu. for SRW.
This required confirmation of a four-month high is an adaptation of the Four-Week Rule, which is based on the same notion with focus on the weekly chart. In his book Technical Analysis of the Futures Markets by John J. Murphy, this trading system is described as follows:
-- Cover short positions and buy long whenever the price exceeds the highs of the four preceding full calendar weeks and,
-- Liquidate long positions and sell short whenever the price falls below the lows of the four preceding full calendar weeks.
This system was introduced by Richard Donchian, who was recognized as a pioneer in commodity trend analysis and received recognition for this work as far back as the 1970s. Although initially designed as a trading system, the logic is also used to act as confirmation, perhaps combined with other indicators, of breakouts and trend reversals.
Using this logic, the MGEX hard red spring market may have come the closest of all from achieving a move into a long-term uptrend, although Tuesday's trade may have put a damper on this. On Oct. 14, the December HRS future reached a high of $5.38/bu., which was the highest level seen on the continuous monthly chart in the July-through-September period. During October, the high of the previous four months was $5.57/bu. reached in June, which was the bar the market needed to clear in October to signal a move into a long-term uptrend.
If we look at the month of November, however, the previous four-month high then becomes the $5.38 per metric ton high reached in October. A move above this level, which is the highest level seen in the previous four months from July through October, may have provided this signal.
The Nov. 1 daily high of $5.30/bu. came close, although signals on the daily chart on Tuesday do not appear favorable. Tuesday's high tested the contract's 200-day moving average at $5.30/bu., a level of resistance which has proved a challenge for the HRS market since Oct. 5. As well, further technical resistance lies at $5.30 1/4/bu., the 50% retracement of the move from the contract's June 8 high to the August 31 low.
In the end, Tuesday's noncommercial selling weighed heavily on many markets, including the HRS market. As seen on the attached chart, today's trading bar resulted in a bearish outside-day trading bar, trading both higher and lower than Monday's trading range, while closing near the lower-end of the range. The move also resulted in a plunge below the support of the contract's 20-day moving average. In comparison, the December HRW market closed just 1/4 cent below its 20-day while the Dec SRW market found support at its 20-day to close higher.
As seen on the middle-study, stochastic momentum indicators are trending lower, but have yet to reach the oversold level of the chart below 20%. As of Oct. 25 CFTC data, noncommercial traders held the largest net-long futures position held since Jan. 27, 2015, which could result in further liquidation.
Watch for potential support at the contract's 100-day moving average at $5.15/bu., while the 33% retracement of the move from the Aug. 31 low to the Oct. 14 high is found at $5.19/bu. (not shown) which was tested in Tuesday's trade. A move below this level could result in a further move to the 38.2% retracement of the same uptrend, found at $5.16/bu.
Seasonal factors may also be acting on the market, with HRS wheat tending to move lower in price through late February.
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Cliff Jamieson can be reached at email@example.com
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