May corn futures plunged to new contract lows Friday, taking out all previous levels of support and forcing us to look at continuous charts and past price history. On an active-continuation chart, corn prices hit their lowest levels since Nov. 27 with the lows at $3.55 1/4 expected to offer the next level of support. Momentum indicators are in a sharp downtrend with no suggestion that the current downtrend is over, or even slowing down. If anything, the incredibly weak levels of momentum suggest the current downtrend in price could just be getting started. Managed funds bought 57,912 contracts of their net-short position back in the week ended March 26 to leave them net-short 203,414 contracts. However, funds are likely to restablish short positions given the break to new lows and trend-following programs calling for short exposure to be added. Additional support exists lower at $3.38 to $3.42, which were the lows from June and September 2019. We expect the downtrend in corn to continue and possibly accelerate in the days and weeks ahead until (or unless) a prior corrective high can be reclaimed.
Bearish trends in soybeans persist with the current downtrend dating back to February 1 still alive and well. Spot prices Friday dropped to the lowest level since November as the declining trend channel continues to point lower. Like corn, momentum indicators in soybeans are very week, although stochastics have at least turned sideways versus the steep downtrend in corn. Momentum is not suggesting in any way that the current downtrend in soybeans is close to over or even slowing down, but the worst might be behind this market. Managed funds also covered 12,598 contracts of their net-short in soybeans, leaving them with a net position of 51,394 contracts. This is still a supportive position but far from the record short of 118,683 contracts. To turn even short-term trends higher, we would need to see May futures recover above a corrective high like the $8.92 3/4 high from Friday. Ideally, price would be able to recover above the $9.12 corrective high from March 21, which would signal the intermediate term trend as up, possibly forcing more of the managed fund short position to be covered.
Chicago wheat has a bit different technical picture than that of corn and soybeans, as its contract lows came back in mid-March. Since then, wheat recovered close to 12.0% before giving back 4.3% in the last several sessions. To our eye, wheat appears to be in the B-wave of an A-B-C corrective sequence, which would suggest new highs above the $4.78 corrective highs from March 26. It is too early to know whether this is simply the B-wave of a corrective sequence or the second wave of a five-wave bull sequence, which would point to much higher gains than the $4.78 corrective high. Regardless of which wave sequence we are currently in, we should be on the lookout for a bullish divergence in even short-term momentum, which would signal the next rally attempt is forthcoming. From a daily perspective, momentum is in a steep downtrend and not at all suggesting a rally attempt is close at hand. Stochastics from an hourly perspective look much more constructive and could make the argument for a bullish divergence developing. Price would need to recover back above the $4.66 corrective highs from March 28 to confirm the short-term bullish diveregence and will be the level to watch in coming days.
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.
Tregg Cronin can be reached at email@example.com
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