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Bearish signals flash for the grains Thursday

04/04/2013 @ 8:01am

May CBOT corn futures ended a penny higher Wednesday, as the market consolidated a recent big decline with inside day action. A rally in the wheat market supported modest gains in corn, along with bargain-hunting-type action after the selloff seen in recent days. Corn prices had fallen in recent sessions after a U.S. Department of Agriculture report revealed that domestic corn supplies were higher than previously expected. But for now the market has found some stability and a minor low.

Last week's USDA news jolted the corn market out its multimonth sideways range down to levels not seen since June 2012. The steep price decline has taken daily momentum indicators to deeply oversold levels. That in and of itself doesn't suggest a rally is imminent, but it does reveal that corn is vulnerable to either sideways consolidation or modest upside correction at any time. The nine-day relative strength index was at 21% on Wednesday--any reading under 30% is considered to be oversold.

On the charts, the trend outlook is bearish. The market is below all major moving averages, which keeps trend-followers negative on the corn outlook. In the very short term, May corn has carved out a support zone at $6.34, which coincides with a minor congestion support zone around $6.32-$6.36 from late June 2012. If that zone breaks, the next minor support zone is seen at an old weekly gap of $6.18-$6.16 from late June 2012. But these are just minor support zones. It is possible that the $6.34 low could be the bottom of a new lower trading range for corn in the days and weeks ahead.

On the upside, a series of minor resistances are seen at $6.53 3/4 and then stronger resistance at $6.68 1/2. The March 28-April 1 bearish gap from $6.95 1/4-$6.79 offers major resistance.

  • $8.38 -- the contract high
  • $7.01 -- the 10-day moving average
  • $7.05 1/2 -- the 20-day moving average
  • $7.03 -- the 40-day moving average
  • $5.07 3/4 -- the contract low
  • MAY CBOT WHEAT, combined pit and electronic trading

May CBOT wheat futures rose Wednesday, ending the day with substantial price gains. Wheat began to move higher in overnight action as traders bid up wheat prices amid disappointing rainfall levels in wheat-growing areas from southwestern Kansas to the Texas Panhandle. Dry soil and drought from last summer into the fall months have been detrimental to overall winter-wheat crop conditions.

Also, bargain-hunting emerged as wheat prices had fallen to their lowest levels since May 2012.

On the charts, Wednesday's big rally pushed May wheat above the March 6 swing low at $6.80. That is a mildly bullish indication for the short term and suggests a minor bottom has formed at the April 1 low at $6.59 3/4. The contract had hit deeply oversold levels on various momentum readings in recent days, and those indicators now have turned higher as the market unwinds some of the oversold condition.

A rising daily nine-day relative strength index will help support additional upside probing over the next several sessions. However, overbought hourly momentum could pave the way for a minor corrective pullback early on Thursday.

On the upside, the first target and resistance for the bulls lies at the 20-day moving average at $7.09. It would take gains and a close above that level to open the door to more significant gains back toward the $7.41-3/4 high from March 28.

On the downside, support lies at $6.76 3/4 and then $6.64 1/2.

  • $9.72 -- the contract high
  • $7.10 3/4 -- the 10-day moving average
  • $7.09 -- the 20-day moving average
  • $7.2 1/2 -- the 40-day moving average
  • $6.59 3/4 -- the contract low
  • MAY KC WHEAT, combined pit and electronic trading

May Kansas wheat also punched higher Wednesday, ending with strong gains. The contract rallied and closed above resistance at $7.23, the March 6 swing low. That level now will act as support. Resistance and a target for the bulls lies at the 20-day moving average at $7.44.

  • $9.80 1/2 -- the contract high
  • $7.47 3/4 -- the 10-day moving average
  • $7.44 -- the 20-day moving average
  • $7.60 1/4 -- the 40-day moving average
  • $6.74 -- the contract low

Write to Kira Brecht at copydesk@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
April 04, 2013 08:00 ET (12:00 GMT)
DJ Technical Analysis: U.S. Corn, Wheat Futures - April 4->copyright


May CBOT soybeans extended lower Wednesday, closing with solid losses after the contract touched its lowest price level since mid-January. Soybean traders remain concerned about last week's U.S. Department of Agriculture report, which showed soybean stockpiles at higher-than-expected levels and renewed selling pressure unfolded Wednesday.

Additionally, the Brazilian harvest is well under way, with that country expected to surpass the U.S. and become the world's largest soybean producer this year.

Also adding pressure to soy-complex futures Wednesday were concerns about the impact a bird-flu breakout in China could have on the demand for soybeans and soybean meal. The concern is that lower poultry production could decrease demand for animal feed, including soybean meal.

On the charts, the May soybean contract sank to close under the Feb. 13 swing low at $13.93 1/2. The renewed declines under that zone are a bearish signal and ultimately open the door for the May soybean contract to fall back down toward the $13.44-$13.37 area in the days and weeks ahead. Those lower levels represent the bottom of the soybean contract's trading range since November 2012.

Price action is bearish; rallies are being used as selling spots.

On the upside, resistance lies at $13.92 3/4 and then a stronger ceiling at $14.05 3/4.

  • $16.39 1/2 -- the contract high
  • $14.22 -- the 10-day moving average
  • $14.35 -- the 20-day moving average
  • $14.40 1/4 -- the 40-day moving average
  • $10.65 1/2 -- the contract low

MAY SOYBEAN MEAL -- combined pit and electronic trading

May soymeal futures tumbled Wednesday, amid concerns that a bird-flu outbreak in China ultimately could decrease Chinese demand for soybean meal, which is used in animal feed.

On the charts, the May soymeal contract failed to reclaim an old important swing low at $402.10, the Feb. 14 low. That zone remains resistance. The renewed selling pressures keep the overall downtrend intact and open the door to an eventual retest of major long-term support at the January low at $387.80.

Resistance lies at $402.10 and then $406.30.

  • $480.00 -- the contract high
  • $412.00 -- the 10-day moving average
  • $419.90 -- the 20-day moving average
  • $422.60 -- the 40-day moving average
  • $293.30 -- the contract low

MAY SOYBEAN OIL -- combined pit and electronic trading

May soybean-oil futures also fell Wednesday, breaking below important initial support at the April 1 low at 49.32 cents. That selloff broke the rising recent higher daily low pattern and is a negative signal. Soy complex traders remain bearish on soy futures amid a recent government report showing higher-than-expected domestic supplies. Additionally, South American soybean harvests are under way, with big crops expected from both Brazil and Argentina, which will offer foreign buyers an alternative to U.S. beans.

Technically, Wednesday's selloff shows the bears are in charge in the short term. The bears are targeting the recent minor swing lows at 49.03 cents and then 48.67 cents, the March 1 low. If the latter level were to give way, it would leave soybean oil vulnerable to even deeper declines with targets and support from the Dec. 20, 2012, low at 48.40 cents and the November 2012 low at 47.85 cents.

  • 59.89 -- the contract high
  • 50.17 -- the 10-day moving average
  • 50.06 -- the 20-day moving average
  • 50.69 -- the 40-day moving average
  • 47.85 -- the contract low

Write to Kira Brecht at copydesk@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
April 04, 2013 08:00 ET (12:00 GMT)
DJ Technical Analysis: U.S. Soy Complex Futures - April 4->copyright