Chicago Wheat Continuous Chart:
Despite massive volatility in outside markets, Chicago wheat has managed to push its way back to the upper range cap of five to six years with the spot-month contract near $6.00. When looking at a long-term chart of Chicago wheat, it becomes clear rather quickly the $5.75 to $6.00 has been nearly impenetrable, having challenged that level three to four times since 2014. This makes the technical position of Chicago wheat a tricky one after rallying to $5.87 on Friday. Momentum indicators can be an invaluable tool in times like these as a market which is about to make a meaningful high or low often slows its rate of descent or ascent before doing so. Chicago wheat should be no different in this case. The stochastic measure of momentum made a high on March 25 as price made new highs and has since trended slightly lower. The real key will be whether Chicago wheat futures can make a fresh high while momentum indicators diverge and put in lower highs. This would be a textbook bearish divergence in momentum and signal the highs in price are weak. If, however, price can make new highs with uptrend momentum, especially if those fresh highs are through the $5.90 to $6.00 level, it could signal another leg higher in this rally. As of March 24, large spec traders were still net short 5,745 contracts, providing a bit of upside ammunition.
Kansas City Wheat Continuous Chart:
In similar fashion to Chicago, Kansas City wheat currently finds itself up against a resistance cap, although not on a multi-year timescale. Spot-month Kansas City wheat futures have found resistance at the $5.00 level twice in the last 15-months, having rejected that level both times. The third opportunity at that level has so far been rejected as well with three consecutive days trading through the $5.00 level but only one closing above it. The momentum indicators for Kansas City wheat look similar to Chicago, having made highs on March 25 with the short-term trend down. This, in and of itself, is not bearish, but will be if price makes fresh highs and momentum indicators do not follow. When looking at the volume profile for Kansas City wheat going back to 2018, it is no surprise the volume point of control (VPOC) is $4.98. This tells us a great deal of volume has been conducted at that level, making it a strong resistance candidate. To push through the $5.00 level, it will take fresh buying by the large spec community, which was still holding a 19,145 contract net short as of March 24.
Paris Milling Wheat:
Traders have been paying close attention to the Paris wheat contract and its recovery has been even more robust than Chicago. From a continuous perspective, Paris traded up to a high of $198.00 euro per metric ton (mt) on March 23 and has been sporting pennant consolidation action ever since. Fortunately, the direction of trade coming into the pennant was up, which raises odds the direction of the breakout from the point of the pennant will be up. Paris will have its sights set on the $199.75 euro mt level from Jan. 22, which if broken, would open upside to the $205 to $206.00 euro mt level. Paris milling wheat had the benefit of a very weak euro until March 23 as the currency traded down to 1.0671 cents against the U.S. dollar, the weakest trade since April of 2017. The euro has recovered back above its 50-, 100- and 200-day moving averages in the last three sessions, however, adding a bit of resistance to the wheat contract. Watching both Chicago and Paris can give traders clues in case one contract begins to diverge amid either bullish or bearish sentiment. Paris trading at its range cap will be bearish until broken.
Tregg Cronin can be reached at firstname.lastname@example.org
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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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