Technically Speaking

I recently received a question regarding the possibility of renewed reliability in daily charts, given the latest round of changes in trading hours. A look at the daily July corn chart shows that this may be the case.

Daily stochastics (momentum, bottom study), are showing a consistent pattern of signaling trend changes. This past week daily stochastics for July corn established a bullish crossover, the faster moving blue crossing above the slower moving red line with both below the oversold level of 20%, on Tuesday, April 9. This offset the bearish crossover dating back to March 22, the day after the contract posted a high of $7.18 3/4 and only a few trading days before the release of USDA's Quarterly Stocks report that sent the market reeling to its low of $6.15 (Friday, April 5).

Take another look at July corn's activity from this past Wednesday, report day. Notice that the contract easily traded outside the previous day's range, testing the recent low, before close higher for the day. This created a bullish outside day confirming the stochastics signal that the contract had moved into an uptrend the day before.

I'm sure you also see the large price gap (area where no trade occurred) left by the reaction to the March Quarterly Stocks report. After closing limit down at $6.76 on Thursday, March 28 the July contract opened at $6.57 1/4 on Monday, April 1. Note how this gap closely resembles the possible retracement range from $6.54 1/2 (38.2%) to $6.79 (61.8%). If the old trading saying that "gaps are 'always' filled" holds true, then this uptrend in the July corn could result in a 61.8% retracement of the previous downtrend. The strong inverse in the July to September corn spread (not shown, but closed at 71 1/4 cents this past Friday) continues to indicate a bullish supply and demand situation, confirming the idea the July contract should see at least a 61.8% retracement.

It is also interesting to note that corn's five-year seasonal index shows the market tends to rally 6% from the weekly close the second week of April through the weekly close the second week of June. Multiplying Friday's close in the July contract of $5.41 1/4 times 6% results in a possible high weekly close in mid-July of approximately $6.79 3/4, again in line with the 61.8% retracement target.

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