Technically Speaking

September Wheat Contracts Worth a Look

Minneapolis spring wheat has failed to revisit the July highs which keeps the contract looking corrective until taken out. (DTN ProphetX chart)

SEPTEMBER KANSAS CITY WHEAT:

The most recent three days of trade in Kansas City wheat witnessed a continuation of the uptrend, which began in early July, as well as the first series of higher highs in over a month. With overnight price action, the September contract has pushed to the highest level since May 14 and has also breached the 61.8% retracement of the entire $7.45 to $5.78 decline. The breakout has also done so on rising momentum, which has basically negated any fear of a bearish divergence in momentum. A rally to new highs on waning momentum is commonly referred to as a "bull trap." Encouragingly, there is little in the way of resistance between spot levels and May highs at $7.45. The most recent Commitments of Traders data showed funds holding a net-long position of 13,707 contracts, the largest since May 4. However, the current net long cannot be considered frothy, allowing plenty of room for funds to add to their currently winning positions. A generally bullish policy is advised in the Kansas City wheat market until or unless weakness is seen below a corrective low of merit like that from July 30 at $6.64.

SEPTEMBER MINNEAPOLIS WHEAT:

While things are looking up for Kansas City wheat, cracks in the technical picture are surfacing for Minneapolis wheat. After peaking on July 19 at $9.44 1/2, Minneapolis wheat quickly shed almost 75 cents per bushel before recovering to put in a high last week at $9.28. So far, and we should stress the so far part, the rally from July 26-29 looks corrective in nature ahead of new lows below $8.70. The spring wheat market now lacks upside momentum and putting in a series of lower highs as it did on July 29 appears to be textbook in nature for a market that has already topped. Fund activity has been tepid at best of late with the group having sold spring wheat futures in five out of the last seven weeks. Getting that group to buy spring wheat futures in a meaningful way at this point in the growing season appears to be a losing effort. We are not calling for an absolute meltdown in Minneapolis but the price action the last month is certainly characteristic of a market that has topped and is determining whether consolidation or correction of the rally is more appropriate moving forward.

SEPTEMBER CHICAGO WHEAT:

With overnight price action, Chicago wheat has joined the ranks of Kansas City wheat in breaking above its mid-July highs at $7.18. The Chicago contract can now be approached with a full bullish policy as it has little in the way of true resistance candidates until the May highs around $7.50 to $7.70. We would be watchful for any short-term divergence in momentum from price as this would possibly signal the breakout does not have as much backing as originally thought. Still, we would be looking to a corrective low like that from July 30 at $6.95, or at the very least, former resistance turned new support at $7.10 to $7.11, before being concerned with this current count.

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 him on Twitter @5thWave_tcronin

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