Canada Markets

Spring Wheat Shows Bearish Technical Signs

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The March spring wheat contract has flashed some bearish technical signals, having fallen short of a run that would have seen a test of the most recent high in October. The lower study points to a bearish crossover of momentum indicators in overbought territory, while the contract's 200-day moving average has been breached (green line). (DTN ProphetX chart)

Thursday's MGEX spring wheat high reached $5.66 1/4 per bushel, only 5 cents below the most recent October high of $5.71 1/4 per bushel, while reaching a higher-high for the fifth consecutive day. The market turned on Thursday, with the March contract ending 2 3/4 cents lower, the contract's first loss in seven sessions, while ending near the lower end of the session's range.

Friday's session saw follow-through selling, with a further loss of 10 3/4 cents to $5.47 1/2 per bushel, while plunging below the support of the contract's 200-day moving average at $5.51 3/4 per bushel.

In two sessions, the March contract has retraced to the 33% retracement of the move from the November low to December high at $5.46 1/4 per bushel, although has found support at that level in Friday's trade. Should this level fail to hold, a further slide to the 38.2% retracement may follow, calculated at $5.43 1/4 per bushel.

The lower-study on the chart points to a bearish crossover of stochastic momentum indicators, after holding within overbought territory over the last half of December. These indicators are seen rolling over into what may become a downtrend.

While not shown, momentum indicators on the weekly chart have remained in neutral territory since mid-September, failing to reach overbought or oversold territory, while are currently near the mid-point of the neutral zone and show signs of turning sideways as the wheat market runs out of steam.

Also not shown, the weekly chart points to the first weekly loss in four weeks of 6 cents this week. This week's high on the weekly chart shows price stalling at the resistance of a downtrend line drawn from the August 2018 contract high, with resistance shown at $5.63 3/4 per bushel.

The first study shows the March/May futures spread (brown line) and May/July spread (purple line) diverging. A more accurate view is seen on the weekly chart, with both spreads weakening over the course of the week, a sign of growing commercial bearishness and despite recent media hype of increased U.S. movement of wheat to China given the expected signing of the phase-one trade deal by mid-January.

The blue bars of the histogram on the second sturdy shows noncommercial traders reducing their net-short position in spring wheat over the past three weeks ending Dec. 24, while it is likely that the Dec. 31 CFTC data will show a further decline in the net-short position held given early week strength. The move lower at the end of this week may act to alter this recent trend. This weeks CFTC Commitment of Traders report is delayed until Monday.

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

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