July Chicago Wheat: Wheat futures have seen it all the last couple months with a sharp rally during the latter half of March followed by a choppy, but lower, trend since. It can now be argued the trend is down on all applicable time scales with little in the way of defined support for the July contract until the mid-March lows around $4.94 to $4.95. There is derived support from the 61.8% retracement of the $4.94 1/4 to $5.71 1/2 rally at $5.23 3/4, but we always caution against looking to support levels like that without a confirmed bullish divergence in momentum. Momentum indicators like stochastics are trending lower right alongside price, but have not yet bucked the downtrend of price to give hope for a divergence. Fund positioning is not really driving this market in either direction as the group currently carries an 8,395-contract net short. Over the last several years, funds have commonly held net-short positions in excess of 50,000 or even 100,000 contracts. The trend in Chicago wheat is down and should continue until or unless price can recover back above a corrective level of merit like the April 22 low at $5.37 1/4.
July Kansas City Wheat: A similar story is present in HRW wheat as it is in SRW wheat with a sharp rally in March followed by consolidating trade in April. Unlike Chicago wheat, however, Kansas City has maintained a more sideways trading pattern, which could be argued is consolidative as opposed to corrective. It cannot be argued the trends are down in Kansas City with upward flagging action present. One other technical feature we would point out is the quasi head-and-shoulders (H&S) pattern which has developed over the last several months. A standard H&S pattern is a reversal pattern as price comes into the pattern from one direction and exits in the same direction. In other words, if price is rallying into the pattern, it sells off after, or if price is selling off entering the pattern it rallies out. In the case of Kansas City wheat, the pattern looks inverted, which would be a continuation pattern and expect the rally to continue. Projections from H&S patterns are always dicey, but measuring the distance from the head to the neckline in this case produces an upside target of $5.91 vs. spot prices at $4.79. We do not feel this is a valid upside target at this time unless fund positioning begins to change drastically.
Minneapolis July Wheat: Minneapolis wheat has been the weak leg of the wheat complex for months and is maintaining that role today. When Kansas City and Chicago have shown glimpses of hope the last few weeks, it always seems like Minneapolis underperforms and trades lower when left to its own devices. Trends are down on all applicable time scales with fresh contract lows having been set last Friday. When looking at a continuous chart of Minneapolis wheat, spot prices are at their lowest level since last December. Minneapolis is showing no hints at a possible bullish divergence in momentum, which would be needed to stem the tide and work toward a base-and-reversal. Fortunately, with clean, trendy behavior, this market has made it rather clear what it is needed to stem bearish behavior and move toward a more supportive policy. July Minneapolis needs to recover above the $5.26 1/4 corrective high from April 23 to flip even the shortest-term trend upward. Until or unless that happens, downtrends remain in place and additional losses should not surprise.
Tregg Cronin can be reached at email@example.com
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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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