A quick look at the weekly chart for the new-crop December corn contract and one can easily that the market seems to be growing more bullish. This past week saw Dec corn take the previous week's low of $4.78 1/2 (Monday, before the release of USDA's Prospective Plantings report) before spending the latter part of the week establishing a new recent high.
This activity created a bullish outside week, indicating that the recent consolidation phase near resistance at $5.03 1/2, a price that marks the 38.2% retracement level of the previous downtrend from $6.14 through the low of $4.35, has come to an end.
However, the contract is already sharply overbought, as indicated by weekly stochastics (bottom study) well above the 80% level. Usually this would indicate that noncommercial buying could begin to slow. Friday's CFTC Commitments of Traders report (not shown) had noncommercial traders adding about 50,000 contracts to their net-long futures position for activity the week ending Tuesday, April 1.
The commercial side of the market is also providing support, with the December to March futures spread (second study, green line) closing at a 6 1/4 cent carry. Based on cost of carry calculations, this puts the spread at a bullish 33% of total commercial carry.
The combination of a new recent high, an increasingly bullish commercial outlook, and relatively low market volatility (third study, red line) could pull the contract to a test of the 50% retracement level of $5.24 1/2. At that point, it seems likely weekly stochastics could be well above 90%, setting the stage for a short-term sell-off.
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