Technically Speaking

With the recent move to an uptrend in the old-crop corn market, attention naturally turns to signals in the new-crop December 2013 contract. And while not as bullish as what was discussed in Monday’s look at the March contract, the December is giving signs it is ready to rally.

Seasonally, the five-year index for the December corn contract (not shown) only shows a tendency for new-crop corn to rally 23% from the first weekly close in December the previous year (e.g. December 2012 for the December 2013 contract) through the seasonal high at the end of August. From the close the first week of January through the seasonal high weekly close the contract tends to gain about 14%. These numbers are important to remember as we look at the December 2013 weekly chart.

The first week of January saw the contract post what looks to be its low close at $5.72. This proved to be a test of long-term technical support near $5.77, a price that marks the 33% retracement level of the previous uptrend from the contract low of $3.98 1/4 (week of June 28, 2010) through the contract high of $6.65 (week of September 4, 2012). Since its low the contract has rallied to a high of $5.92.

The recent action is in the process of establishing a bullish crossover by weekly stochastics (third study), with the faster moving blue line moving above the slower moving red line and both below the oversold 20% level. Such a signal will not be finalized until the close this coming Friday, but if established, would indicate the market has moved into its seasonal uptrend.

If an uptrend is seen, support will likely come from increased noncommercial buying interest. Market volatility (bottom study) has been low of late, dipping to roughly 12.4% in early December, a factor that tend to attract increased noncommercial buying interest. As the weekly study shows, volatility has slowly crept back above 14% indicating a possible increase in noncommercial buying activity over recent weeks.

Fundamentally the new-crop corn market remains neutral. The carry in the March to May futures spread (second study, green line) is trending sideways to down after stabilizing near 10 cents.

Given the market structure of a newly established uptrend combined with a neutral commercial outlook (futures spreads) the December corn contract could see a 50% retracement of its previous downtrend from its contract high through January low. This puts the target price at $6.17 1/2.

Going back to the seasonal index discussed above, using the January low weekly close of $5.72 would create targets of $6.52 (14% rally) and $7.03 1/2 (23% rally). Given the relationship to resistance seen on the weekly chart, a combined study of the two would imply futures spreads turning more bullish leading to a larger retracement of the previous downtrend. As always, the key will be the futures spreads indicating how the market views fundamentals as we go through the different crop seasons (e.g. planting, growing, etc.).

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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.