Technically Speaking

Weekly Analysis: Row Crops Rangebound, Wheat in a Downtrend

Kansas City wheat remains firmly inside its present downtrend with momentum indicators suggesting a new round of lows below $4.84 is possible. A recovery above $5.10 is needed to argue the downtrend is over. (DTN ProphetX chart)

December corn remains rangebound, consolidating inside the 20-cent span that has capped this market for over a month. The trading range on Nov. 8 was impressive, measuring 13 cents from high to low but closed well off of both, leaving traders puzzled. This is often why a daily close-only chart can help to sift through some of the noise.

The daily close-only chart of December corn shows a short-term downtrend, which is still inside the contracting triangle pattern, stemming from the Oct. 15 highs and the Oct. 25 lows. This triangle comes to a point around November 23rd, which would be right in front of first notice day.

On an active continuing basis, corn futures are caught between their 100-day moving average at $3.66 and the 200-day moving average at $3.74. Momentum indicators such as stochastics are in neutral territory as well. All told, it would appear December corn is in for more rangebound, choppy trade into delivery with last Thursday’s high and low providing directional risk parameters from which to gauge the next move.

Looking at the now top-step January soybean contract, prices are knocking on resistance at the $8.92 highs from Oct. 25, and well below the $9.22 highs from July. Fortunately, soybeans are above both their 50-day and 100-day moving averages, signaling intermediate-term momentum. However, on-balance volume (OBV) in the last 20 sessions has drifted back into bearish territory at 186,591 contracts. Managed funds did cover part of their net-short position in the latest reporting week, especially on the surge Nov. 1 and Nov. 2. At 38,866 contracts net-short, managed funds still have plenty of ammunition to throw at the fire on further rally attempts. The longer January soybeans remain below the Nov. 2 highs, the worse looking momentum will be and the more emboldened funds will be to reestablish short positions. For short-term direction, the corrective low at $8.65 and the corrective high at $9.00 would be our risk parameters around which to gauge the next leg.

Kansas City wheat prices closed last week in particularly poor fashion, ending on a three-day losing streak and right back down to four-month lows. OBV at 156,210 contracts is firmly in control of the bears, which should come as no surprise with price at the lowest level since July. Momentum indicators such as stochastics are not showing any signs of bottoming or diverging from price, suggesting a new round of lows below the $4.84 1/2 corrective low on Oct. 31. The December contract is below all major moving averages with the 50-day moving average crossing below both the 100-day and 200-day averages in what is known as a “death cross.” Managed funds continued to ditch their position in KC wheat, dropping their net-long to 6,966 contracts, which is the lowest level of 2018. To stem the tide, price needs to recover back above the $5.10 3/4 corrective high from Nov. 6, which would confirm a bullish divergence in short-term momentum and signal the current downtrend is over.

In our last Technically Speaking update on the feeder cattle market, we were concerned about the waning and diverging momentum as the November contract made another rally attempt at the $159.90 highs. That caution proved to be well-founded as prices sold off swiftly in the weeks following. Since then, price has found solid underlying support just above the 200-day moving average of $147.56 basis the January contract on a continuous basis. Momentum indicators have bottomed and are now rising, with the gap left from the contract roll being a natural target. Volume is on the side of bulls over the last 20 sessions, although only by the slimmest of margins as OBV closed at 1,215 on Friday. From a longer-term perspective, feeders are still locked inside their $130 to $160 range with prices just above the midpoint of that range. This makes a strong directional bias from here a bit difficult as aimless, whipsaw trade from the range center can and usually does occur. We also have our eye on a possible head-and-shoulder reversal pattern, which could produce severe losses back to the lower end of the range if confirmed. Shoulder one would be around the $154.925 area from July, the head at $159.90 from September and shoulder two forming at current prices. The neckline would be somewhere around $145 to $147 with a downside projection of $133 to $135 if confirmed. This pattern would still be weeks in the making if it occurs at all, so something to monitor from a distance.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg Cronin on Twitter @5thWave_tcronin

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