To say a lot has happened in the two weeks since we last updated the corn market would be a gross understatement. In that time, a set of high profile USDA reports rocked the corn market, injecting a huge dose of volatility, which will be present for the foreseeable future. The most interesting thing from a technical perspective is the developing prospect of a head-and-shoulders pattern, which would mean surprising weakness if confirmed. From our view, the left shoulder was put in around $4.53 to $4.54 in late May and early June, followed by the head at $4.73 on June 17. The neckline is present between $4.20 and $4.25 with the right shoulder being formed with current price action. If the pattern were to be confirmed, price action would round out the right shoulder near current price levels and be followed by weakness through the neckline at $4.20 to $4.25. A textbook head-and-shoulders pattern sees the length of the head to the neckline extended lower from the neckline as the target for the end of the move. If this were to be the case, it would project a downside target somewhere in the $3.68 to $3.73 area. We are not expecting a move like that, but this pattern is one worth watching, especially if prices cannot make new highs above $4.73 in the intermediate term.
November soybean price action is somewhat similar to December corn, although the head-and-shoulders pattern is not quite as far advanced. We also feel the charts have a different feel, considering November soybeans appear to have put in a complete five-wave Elliot sequence with their highs at $9.48 on June 18. The current downtrend from the June 18 highs should be seen as at least wave-A in at least a three-wave corrective sequence. From a weekly perspective, one could make the argument the entire rally from $8.15 to $9.48 was wave one with wave two currently the downtrend from the June 18 highs. This would mean we are still in the infancy of the soybean market's ultimate move, something that momentum indicators would partially agree with as they appear to be in the early stages of a bullish divergence with price. We will not receive an updated look at managed-money positioning until Monday afternoon, but funds have likely added to their net-short position, which would lend support to futher price strength moving forward.
September Kansas City wheat has the weakest technical appearance of the major ag contracts at the moment, even as it attempts to put forth three consecutive higher sessions in a row. Since peaking on June 4, the contract has made a classic series of higher lows as momentum has slowly faded from the market. It could also be argued Kansas City wheat broke out to the downside from the flagging action that existed from early June until late June. If projecting the downside move based off the "flag pole," new lows would be expected below the mid-May lows. One positive is the fact price found support around the 61.8% retracement of the $3.92 to $5.08 rally around $4.36. If additional consolidation can occur around this level, it will allow momentum a chance to base and point toward a divergence process. After the June price action, a fair amount of resistance now exists overhead, which any rally attempt will have to deal with on its way to higher prices.
Tregg Cronin can be reached at firstname.lastname@example.org
Follow Tregg Cronin on Twitter @5thWave_tcronin
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.