Technically Speaking

Row Crops at Crossroads

September corn futures saw higher highs in price on the most recent leg higher, but momentum indicators did not, setting up a bearish divergence in momentum. (DTN ProphetX chart)

September Corn:

The technical picture for corn futures had been playing out in somewhat predictable fashion until Friday's dump lower, which has carried through to Monday's session. It looks increasingly likely corn futures have just witnessed an a-b-c corrective sequence that began with the April lows and concluded with July 9 highs. If this is indeed the case, additional upside would not be expected in this market and a revisit of June lows could be forthcoming. The fact September corn futures were not able to hold the June highs between $3.38 to $3.39 as support was a bad omen. In addition, momentum indicators such as stochastics were warning of a bearish divergence in momentum as prices made new highs, but momentum did not. With the trade below the June highs, this could likely be called a confirmed bearish divergence in momentum; another signal the upside rally is complete. These issues considered, bearish exposure is warranted until price can reclaim corrective highs from last week or minimally recover above the July 8 lows at $3.39.

November Soybeans:

In a similar technical setup to corn, November soybeans are near a crossroads as to whether the bout of strength stemming from the April lows has been corrective or impulsive. As with corn, the pattern that is unfolding has great long-term implications for price. The encouraging thing for soybeans over corn is the fact price hasn't yet challenged or failed below the mid-June highs, which should still offer good support on a corrective setback. It was interesting to note that November soybeans ran right into the 200-day moving average at $9.12 on July 6 and promptly retreated lower. The 200-day moving average is declining, although the rate of descent has slowed in recent sessions. One concerning thing about soybeans is the divergence in momentum from price as the contract made new highs in July while momentum failed. If the mid-June highs are challenged, it could be a signal of a confirmed bearish divergence in momentum, possibly rendering the entire move up from the April lows as corrective and complete. The coming week of trade will shed a great deal of light on the current technical setup in soybeans and should be a signal for market participants to watch closely.

September Chicago Wheat:

Chicago wheat continued its recent rally in rather impressive fashion on Friday, extending the winning streak to five sessions and breaking above the $5.32 3/4 corrective high from June 4. That move convincingly broke the downtrend that had been in place since late March and did so on rising momentum. In the process, the September contract burst through the 50- and 100-day moving averages and came in contact with the 200-day at $5.35. These major moving averages are important indicators for trend-following participants, and if all three end up below spot prices, it will undoubtedly change the tenor of this market. The last time the September contract was above all three major moving averages was late April and only briefly so. The most recent Commitments of Traders data shows managed funds net short 60,563 contracts, which should still provide ample upside fuel for a continuation of this rally. Even with overnight losses, September wheat futures are merely consolidating inside Friday's range, limiting outright technical damage.

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 tmcronin31@gmail.com

Follow Tregg Cronin on Twitter @5thWave_tcronin

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