Canada Markets

March HRS from a Technical Perspective

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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MGEX hard red spring wheat futures have tested resistance in each of the past two sessions, with the sideways-trending 200-day moving average at $5.39, retracement resistance at $5.42 1/4/bu. and the November high of $5.45/bu. acting as hurdles to a continued move higher. Short-term momentum indicators (second study) are signaling the potential to roll-over, while the March/May spread (lower study) inverted on Wednesday with the inverse strengthening to 3 3/4 cents on Thursday. (DTN graphic by Nick Scalise)

MGEX spring wheat futures have performed well in the past two days, despite the expected Wednesday announcement by the United States Federal Reserve to increase interest rates by .25%, normally viewed as negative for commodity and equity markets. Wednesday's close saw the March hard red spring wheat contract end 3 1/2 cents higher and Thursday's close resulted in a move lower of 3 1/4 cents.

The past two days have seen trade fail at resistance as it has since Nov. 29. First is the sideways-trending green line at $5.39/bu. Trade has failed to hold above this level on Nov. 29, Dec. 1, 2,6, 13, 14 and 15, closing above this level only once on Dec. 14. The second level of resistance is the 50% retracement of the move from the June 8 high of $5.94 3/4/bu. and the Aug. 31 low of $4.90/bu., calculated at $5.42 1/4/bu. This level was tested on Nov. 29, Dec. 1, 2, 14 and 15, failing to hold above this level on each of these days. Lastly is the November high of $5.45/bu., with Wednesday's trade falling 1/2 cent short of testing this level and Thursday's trade reaching this level but failing to push through it.

The spring wheat contract is caught in the middle of a struggle between weak global wheat market fundamentals and the strong interest for higher protein wheat. The green line on the lower study shows the March/May spread moving into inverted territory on Wednesday (March closing above the May), a sign of strong commercial demand on the front-end, while the inverse strengthened by 3 1/4 cents on Thursday to 3 3/4 cents. Today's lower close points to the struggle between noncommercial selling and commercial buying, with late-session selling by investors forcing the close in negative territory.

Another sign of growing commercial interest is seen in strengthening basis. DTN's National Average Spring Wheat Basis was reported at 39 cents under the March on Wednesday (USD), while this basis has been strengthening since late September when it was reported as wide as 58 cents under the December on Sept. 22. This still remains weaker than the five-year average, calculated at 15 cents under the March.

During November, the continuous active monthly HRS chart (not shown) flashed a move into a long-term uptrend by closing higher for the month and reaching a high which was higher than that seen in the previous four months. In order to sustain this move, a move above the $5.45/bu. high reached in November will be key. A sustained move above retracement resistance at $5.42 1/4 could result in a further move to the 61.8% retracement found at $5.54 3/4/bu., while monthly highs on the continuous chart ranging from $5.57/bu. to $5.60 1/4/bu. will also challenge upside potential for HRS.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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(ES)

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