Technically Speaking

Watching the Chicago wheat market lately has been akin to the proverbial watching paint dry as the more active March contract continued to slowly grind lower. However, a look at its weekly chart shows the contract has found a base of support dating back to mid-March near the $8.50 level. This price marks the 33% retracement level of the previous uptrend from the low of $6.52 posted in mid-May through the high of $9.48 1/2 hit in early August. In regards to the low, notice that this occurred as the market established a bullish key reversal (moved to a new low, traded back above the previous week’s high, the closed higher for the week).

While the March Chicago contract is testing support, weekly stochastics (second study) show both the faster moving blue line (15.52%) and slower moving red line (18.05%) both below the oversold level of 20%. This is usually an indication that the momentum of the market could soon turn more bullish, with weekly closes nearer the high side of weekly ranges rather than the low side. Along with weekly stochastics, market volatility (third study) has been steadily declining to the lowest point (14.77%) since the contract began trading.

These three factors combined (testing technical price support, oversold stochastics, low market volatility) is usually an invitation for more noncommercial buying to occur. However, weekly CFTC Commitments of Traders numbers for the noncommercial long futures position (bottom histogram) shows that this has not been the case yet. Last Friday’s report showed this position continuing to decrease (as of Tuesday, November 4) by another 8,700 contracts putting it at about 121,500 contracts.

Part of the reason for a lack of new noncommercial buying interest remains the increasingly bearish commercial outlook, as indicated by the downtrend in the March to May futures spread (not shown) that has moved to a 9 cent carry recently. Despite this fundamental factor though, the coming weeks could see a short-term rally sparked by possible noncommercial short-covering (different from adding to their long futures position) and call option buying. The latter may be the more attractive play to these traders given the continued bearish commercial outlook and low market volatility.

To track my thoughts on the markets throughout the day, follow me on Twitter: www.twitter.com\DarinNewsom