Canada Markets

Spring Wheat Chart Points to Technical Weakness

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Thursday's 8 3/4-cent move lower in the March spring wheat contract saw this price reach its lowest level in almost five weeks, forming a bearish outside bar on the daily chart, while holding above the 50% retracement of the move from the December low to January high at $5.62 1/4/bu. The first study points to momentum indicators rolling over to trend lower. The lower sturdy shows weakness in the March/May spread, a sign of commercial selling. (DTN ProphetX chart)

Winter wheat futures led the move lower in the wheat complex on Thursday, with March SRW ending down 12 3/4 cents, March HRW down 13 cents and March spring wheat following with a 8 3/4-cent loss, it's largest one-day move lower seen since Dec. 26. Thursday's move resulted in a breach of support from the contract's 20-day and 50-day moving averages, the first time since Jan. 15 that the close has been recorded below these support levels.

Fibonacci retracement lines, based on the move from the December low of $5.44 1/2 to the January high of $5.80 per bushel (bu) would show Thursday's move breaching support of the 38.2% retracement line at $5.66 1/2 this session, while support remains at the 50-day moving average at $5.62 1/4/bu. A breach of this level and the Jan. 15 low of $5.61/bu could result in a further slide to the 61.8% retracement found at $5.58/bu.

Thursday's move formed a bearish outside-day trading bar on the daily chart, with Thursday's price trading both higher and lower than Wednesday's trading bar, while ending with a loss. This can be seen on the attached graphic, while the weekly chart (not shown) points to the potential for a bearish trading bar given this week's trade, although will require that this week's losses are maintained through Friday's session.

While not identified on the graphic, Thursday's move lower could also result in a broken neckline of a head-and-shoulders pattern, with the left shoulder reaching a high on Jan. 8-9, the head of the pattern reaching a high on Jan. 24 and the right shoulder reaching a high in Feb. 7 trade. The measuring ability of this pattern would suggest a target of $5.53 1/2/bu, close to a full retracement to the December low.

While not shown, we know that, as of Dec. 31, investors held the largest, most bearish futures position in spring wheat futures ever reported, shown at a net short of 12,717 contracts, while Friday's data will bring us data into the first week of January. At the same time, the lower study on the chart shows commercial traders selling futures, a bearish response to trade, given the weakening March/May spread, something even more pronounced on the winter wheat charts.

It was a bearish day for all three wheat markets, while supportive data remains out of reach. Friday's fundamental data release from the U.S. could may either support or contradict the bearish stance taken by traders on Thursday.

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

Follow him on Twitter @Cliff Jamieson

(AG)

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