Technically Speaking

Corn, Ethanol Counts Strong While Crude Slowing

Spot ethanol prices have continued their impressive rally Monday morning with Fibonacci progression targets suggesting a rally to $1.441 is still in the cards. (DTN ProphetX Chart)

May corn futures turned in an impressive finish to the week that ended on March 15 with a four-session winning streak and a strong thrust in volume. On-Balance-Volume (OBV) is a cumulative total of volume that is calculated by adding volume on up days and subtracting it on down days. At Friday's close, the cumulative 20-day total was still negative at -275,132 contracts, but this was sharply above the value of -1,112,052 contracts on March 8. In addition, momentum indicators have turned higher and could be well on their way to confirming a bullish divergence in momentum. The five-day trailing percentage change indicator showed a divergence as price made new lows on March 1 and March 12, while the indicator made higher lows. Trade (and especially a close) above the highs at $3.77 3/4 would confirm a bullish divergence in momentum. From a longer-term perspecitive, the May contract will have a wall of resistance between $3.77 and $3.80, where the lows from Dec. 26 and Feb. 19 exist. That former bottom end of the previous trading range, which acted as support, should not be new resistance.

A few weeks back, we wrote about a developing bullish count in the ethanol market. At that time it was in its infancy. With the past week's price action, this market has taken another step toward reversing long-term bear trends. Looking at an active-contination chart, ethanol prices surged above prior highs from Feb. 27 at $1.369, and in the process confirmed long-term trends as up. Last week's trade also saw price shoot through the 200-day moving average after a brief hiatus below that indicator. OBV has turned higher and should push positive with this week's trade, indicating bulls have wrestled back control of this market from bears. From an Elliot Wave perspective, it remains unclear whether the current thrust is the C-wave of a larger degree corrective sequence or whether this is the third wave of a larger degree five-wave bull sequence. Regardless, a simple Fibonacci progression drawn from the $1.217 low on Dec. 10 to the $1.369 high on Feb. 27 measured from the $1.289 low on March 11, a 100% progression of the original move would stretch to $1.441. This leaves considerable upside available, even if the current move is just corrective. As far as previous price action offering resistance candidates, there really aren't many until the Aug. 6 highs at $1.490. Trends are considered up on all applicable scales and should not surprise by their continuation or acceleration. Crude oil has been another market we have been watching from afar, mainly to see how the inverted head-and-shoulders pattern has fared. With the lows and subsequent shoulder price action in December and January, the crude oil market had the makings of an the infamous chart pattern, but needed to break the neckline to confirm. Since late January and February, crude oil has continued higher and is keeping the pattern alive and well. By our measure, the pattern is projecting a price target around $64.85, give or take a few cents. Compared with current spot prices of $58.41, this would leave considerable upside open. We don't see anything from volume that would suggest this move is running out of gas, although momentum indicators, such as Stochastics, do have the early makings of a bearish divergence from price. Such a pattern would be confirmed with trade below a prior corrective low, such as the $54.52 low from March 8. Higher highs in price and lower highs in momentum are the tell-tale signs of a bearish divergence. OBV is still in bullish territory but is trending lower from the January highs. Micro risk exists at the $57.74 low from March 15 which could tip short-term scales in favor of bears.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.



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