Technically Speaking

"High Noon" starring Gary Cooper is not only one of the greatest western movies of all time, but in my books one of the best movies period. The tension that builds as the camera keeps cutting back to the ticking clock, the hands drawing ever closer to high noon when the bad guys are scheduled to hit town. With the townspeople cowering, Marshal Will Kane must face Frank Marshall and his gang of outlaws alone. The clock strikes twelve and the rest is movie-making history.

On Thursday, July 11 the grain markets face another high noon situation, the third in a span of roughly four weeks. At noon (ET), USDA will unleash its latest round of numbers. And if history is any indicator, USDA is looking to gun down market bulls (figuratively) like Frank Miller was willing to knock off a few innocent bystanders.

Heading into the fight, grains have been showing a number of bullish signals. Let's take a look at a few in the hours left before all hades breaks loose.

Corn - The old-crop September contract continues to show a solid inverse over the new-crop December contract. Add in a historically strong national average basis of $1.25 over (DTN National corn index minus the Sep futures) and old-crop corn supply and demand could be viewed as bullish. Also, the Sep contract has recently established a minor (short-term) uptrend on its daily chart. Not to be outdone, the new-crop Dec contract has recently established bullish technical signals on both its daily (minor) and weekly (secondary) charts indicating trends have turned up. Enthusiasm could be tempered somewhat by the neutral 12-cent carry in the December to March futures spread. Nevertheless, technical indications show the contract should be able to post a summer rally back to the $5.56 to $5.77 1/2 range.

Soybeans - If Frank Miller/USDA was not a threat, and the soybean market was left to its own devices, a strong summer rally would be expected. The incredible inverse in the old-crop futures spreads combined with again historically strong basis implies supply and demand to be far tighter than anything USDA will ever show in its reports. Using USDA's own smoking gun (the June 28 quarterly stocks report) against it, Q3 stocks of 435 mb less average Q4 demand of 13.4% of total supplies puts 2012-2013 ending stocks at only 5 mb. Compare that to what we see from USDA on Thursday. As for trends, the new-crop November contract remains in a secondary (intermediate-term) uptrend on its weekly chart and has recently established a minor (short-term) uptrend on its daily chart. Not to mention that its commercial outlook remains bullish, as indicated by the small carry in the November to January futures spread. Where could the market go if not for USDA? The November contract is working toward a test of technical resistance at $12.97, and a move beyond that price opens the door to a possible run at its high of $13.33.

Wheat - The Chicago market (the most heavily traded wheat market) has also seen its September contract established minor and secondary uptrends recently. This would indicate that winter wheat is set to see its seasonal move higher that tends to last through late August. Fundamentally the market remains neutral, with the carry in the September to December futures spread at a healthy 13 cents. This combination should spark a rally to at least the technical resistance area between $7.36 1/2 and $7.49 over the next month and a half.

However, all of these technical signals showing both sides (commercial and noncommercial) of the trade in grains could quickly be gunned down like an overmatched Marshal of a small western town. How will it end? We'll know soon after the noon chimes begin.

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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.