Technically Speaking

Dec Corn: Wave on Wave

Source: DTN ProphetX

Do you all have your special technical analysis goggles you received with your DTN subscription? Good, you'll need them today as we take a look at the daily chart for Dec corn.

The first thing you'll notice is that there are a lot of lines on this chart. A lot of lines. But as we break it down you'll see that all of these different price levels mark an important turning point for the contract, and in combination confirm an active Elliott Wave 8-wave cycle.

Wave A: The first wave of a 3-wave downtrend starts at the end of the previous uptrend (naturally). In this case that is the high of $4.54 1/4 on July 14. Wave A was steep, bottoming out at $3.74 1/2 on August 3 (dashed green line).

Wave B: The second wave of a 3-wave downtrend is usually nothing more than a retracement move, its length depending on the strength and/or weakness of the underlying futures spread (commercial outlook). Here we see Dec corn rallied off its $3.74 1/2 low to test resistance near $4.01 (red dashed line). This price marked the 33% retracement level of Wave A, and given the downtrend in the Dec to March futures spread (bottom study) reflecting a more bearish commercial outlook, Dec corn's inability to move past the 33% mark wasn't surprising.

Wave C: The third wave came by way of, ahem, "bearish" yield and production numbers in USDA's August reports on Wednesday the 12th. Dec corn hit a low of $3.57 1/2 before rallying to close at $3.68. Meanwhile, unheralded by most, daily stochastics (second study) were growing more bullish indicating market momentum had changed.

Wave 1: The first wave of a 5-wave uptrend cycle starts the count over using numbers. As Dec corn rallied off its post-report low it climbed to a high of $3.84 1/4 on Friday, August 21. Note that the Wave 1 peak was a test of resistance at $3.85, a price that marked the 61.8% retracement level of Wave C.

Wave 2: Another retracement wave in the 5-wave cycle that usually sees most of Wave 1 erased. Take a close look at the activity from August 21 and you'll see a bearish reversal as Dec corn hit its new high before moving below Thursday's low of $3.78 1/4 before closing lower. Wave 2 was fast and volatile, hitting a low of $3.65 1/2 this past Monday as global markets melted down. However a funny thing happened after Dec corn tested support near $3.66 1/2 (dotted green line), the contract closed higher for the day indicating Monday's low was also the end of Wave 2.

Wave 3: Generally the longest and most volatile wave of the 5-wave cycle that tends to see solid buying from both noncommercial and commercial traders. If you drop your eyes to the third study, volume (green bars) and open interest (blue line), you'll see that Monday's rally occurred on higher volume. Meanwhile, daily stochastics continue to grow more bullish. As for commercial traders, notice the Dec/Mar spread is trending up as well. A move to Wave 3 is confirmed by taking out the Wave 1 high. Dec corn accomplished this during the overnight session, posting a high of $3.86 3/4 early Tuesday.

So where to now? Initial resistance is at $3.89 3/4, the 33% retracement level of the entire 3-wave downtrend from $4.54 1/4 through the $3.57 1/2 low. Beyond that is the 50% retracement level near $4.06. Note that this would be a test of the August 6 high (Wave B peak) of $4.02. Given that the Dec/Mar spread is still in a bearish carry situation (based on its percent of total cost of carry) a 50% retracement might be the most that can be hoped for and may not be seen until the end of Wave 5.

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8/28/2015 | 9:09 PM CDT
I've been drinking all night.
8/25/2015 | 4:40 PM CDT
Hi Darin, how do you estimate the total cost of carry at any given time? Thanks Abbey