Canada Markets

Spring Wheat Struggles at Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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While March spring wheat closed higher on Wednesday, it has struggled with technical resistance in the $5.72 to $5.75 1/2 range as stochastic momentum indicators trend toward over-bought territory (first study). The red line in the second study shows modest strengthening in the March/May spread to minus 5 1/2 cents, although this spread has shown weakness over the first three days of this week. (DTN ProphetX chart)

Since the Dec. 27 low of $5.44 1/2 per bushel, the March contract has gained 26 cents or 4.8% to Wednesday's $5.70 1/2 per bu. close, while lacks the steam needed to push through chart resistance. Over the past four sessions, trade has revolved within a 8 3/4-cent range, with Wednesday's $5.74/bu. high equal to the high achieved in the previous session.

A number of technical resistance levels are seen on the daily chart:

1) Resistance is seen at $5.72/bushel, the 61.8% retracement of the short-term move seen from the contract's December high of $5.89/bu. and the December low of $5.44 1/2 per bu.

2) The 50-day moving average is shown by ProphetX at $5.74/bu.

3) The downward-sloping trend line, drawn from the contract's Aug. 6 high of $6.68 1/4, shows Wednesday's resistance at $5.75 1/2 per bu.

Despite the run-up in prices since late December, the March/May spread, a proxy for front-end commercial activity (red line, second study) has changed very little. While this spread has narrowed 1/4 cent on Wednesday, it has weakened 1/4 cent over the first three days of this week, a bearish response on the part of commercial traders.

CFTC Commitments of Traders reports have not been released since the Dec. 18 data was made available, due to the partial shutdown of the U.S. government. The noncommercial net-short position is shown by the blue bars of the histogram on the lower study. As of Dec. 18, this group had pared their bearish net-short futures position for four consecutive weeks, while this trend was likely tied to the move higher in prices over recent weeks.

Should we see a break above resistance at $5.75 1/2, further noncommercial buying interest could be behind a further move that could see the March price return to December highs at $5.89/bu., with the contract's 100-day moving average at $5.86 1/4 per bu. on potential barrier on the way.

Potential support, should this market move lower, is found at the contract's 20-day moving average at $5.67 1/4 per bu.

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

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