Technically Speaking

Waiting Game in Dec Corn

Source: DTN ProphetX

Cue the lead in "music" for the legendary news show "60 Minutes". You know, the familiar "tick-tick-tick-tick" of the stopwatch counting off time. Those looking for the next technical signal in corn will be hearing this same sound in their head as they wait for Friday's settlement.

A look December corn's weekly chart shows why. This week's activity has seen the contract trade well outside last week's range of $4.65 to $4.52. On Monday, the contract raced to a high of $4.69 1/4 following the release of USDA's August Supply and Demand and Crop Production reports. Noncommercial traders stepped in to defend their net-short futures position (bottom study, blue histogram) on Tuesday, driving the contract to a new low of $4.45 3/4. Now it comes down to Friday's close in relation to last week's settlement $4.53 1/4 as to whether the trend remains down or could possibly be on the verge of a secondary (intermediate-term) uptrend.

Here's why: a lower close would create a bearish outside week, a pattern that normally indicates the market (whatever it might be) should continue in its downtrend. On the other hand, a close above last week's settlement would indicate the establishment of a bullish key reversal, historically an important pattern marking the end of a downtrend and the beginning of an uptrend.

Other tools are mixed, giving little guidance as to what could happen come Friday (I know, Jimmy Buffet sang "Come Monday", a possible topic for this week's On the Market column). The December to March futures spread (second study, green line) remains in a downtrend reflecting an increasing carry, and indicating the commercial outlook continues to grow more bearish. Conversely, weekly stochastics (third study) show the market to be sharply oversold with both the faster moving blue line and slower moving red line not only below the oversold level of 20%, but well into single digits (2% and 4% respectively). Last but not least, the market volatility of the December contract (fourth study, thicker red line) continues to run high at over 28%.

The logical progression of a market that is so deeply oversold and highly volatile is to see noncommercial traders cover a portion of their net-short futures position, meaning a round of buying is normally seen. The lack of commercial support will limit a potential rally to its initial price target of about $5.18 3/4, a price that marks the 33% (Dow Theory) retracement of the downtrend still in place from the high of $6.65 (week of September 2, 2012). If noncommercial traders get excited, for whatever reason, the upside target would be the 50% retracement level near $5.55 1/2.

If the market does indeed close lower, then major (long-term) bearish objectives come into play. At this time the December contract is already testing major trendline support near $4.47 3/4 on the continuous monthly chart (not shown). Recall that this week's (and month of August) low is already $4.45 3/4. If further weakness is seen and trendline support doesn't hold, the futures market could then view something near $3.50 as a possible target. This price marks roughly the midpoint of a consolidation phase from December 2008 through June 2010 during the previous long-term uptrend.

And so the waiting game begins.

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DARIN NEWSOM
8/15/2013 | 1:18 PM CDT
Update: On its daily chart, Dec corn closed above its's 20-day moving average for the first time since June 21. This would indicate the minor (short-term) trend may have turned up, making the likelihood of establishing a bullish signal on the weekly chart this Friday that much stronger.