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Bearish signals flash for the grains Thursday

04/04/2013 @ 8:02am

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.

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