As the growing season gets underway in the Midwest, traders are becoming increasingly aware of the seasonal tendency for December corn futures to put highs in between April and July. In recent sessions, the chart action of December corn has become a bit concerning, barely making new contract highs on April 29 and doing so on diverging momentum. When prices near major tops or bottoms, momentum indicators can be our best friend in determining a turning point. As December corn futures made that new high on April 29, the stochastic measure of momentum had already peaked back on April 18 and made a lower high on the 29. This is a textbook bearish divergence with price and often accompanies a major high. It could be argued that divergence was confirmed with trade below the April 25 corrective lows at $7.14 1/2. The next large area of support we are eyeing after the $7.00 mark would be the $6.90-$6.94 area, which is where the 50% retracement of the $6.31-$7.57 rally falls as well as the 50-day moving average. We would be watchful for any short-term upturn in momentum around that area. Adding to the bearish sentiment of late has been volume with on-balance-volume declining since April 28, a sign more participation is occurring on down days than up. The overall trend in volume is down as well. These issues considered, a cautiously bearish policy is advised until December corn can recover above the $7.14 level, but preferably the $7.40-$7.43 level.NOVEMBER SOYBEANS:
Soybean prices have also taken on a slightly negative technical slant of late, although contract highs were already set back on Feb. 24. Since the secondary high on April 22 was made, November soybeans have produced corrective behavior with the rally to $15.40 on April 29 and subsequent selloff. With Friday and overnight price action, the contract has also taken out the 50-day moving average. The next major area of support for November soybeans would be the $14.12-$14.16 level which coincides with the 100-day moving average, the 38.2% retracement of the $11.92-$15.55 rally as well as the corrective lows from early April. This confluence of both former price action and indicators should prove solid support on a further setback. Momentum indicators are pointed solidly down with no sign of divergence from price. These issues considered, a bearish policy remains advised with the next level of solid support another 30 to 40 cents below spot prices. A recovery above $15.06 would be needed to arrest the correction and argue for at least consolidative price action.
Breaking with its row-crop brethren, spring wheat futures continue to march higher with new contract highs being set on a daily basis. For this examination we will actually be using a weekly active-continuation chart to pull in some prior price action. From this view, we can see spot prices at the highest level since April of 2008. In addition, current prices are engaging the 50% retracement of the entire $19.81-$4.77 selloff at $12.29. There are virtually no levels of serious technical merit between spot levels and the all-time highs up around $20.00. This is not to say prices will revisit those levels, but simply merely contrived technical levels from moving averages or Fib retracements are not enough to stop solid trends. Instead, only a slowdown and eventual divergence in momentum will clue us into when this run is over. From a daily perspective, momentum has recovered sharply, but has not yet made new highs above those from April 12. This will be required to put full faith in a continuation of the uptrend. These issues considered, a bullish policy remains advised with an eye toward momentum as these new highs are made. Holding the $12.00-$12.11 level on a setback would be viewed constructively.
Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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