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Corn, wheat seen as overbought

02/20/2014 @ 7:51am

March CBOT corn futures posted a rally move Wednesday, marking the third consecutive day of gains, supported by signs of strong export demand. The contract touched its highest level since Oct. 24, 2013, on Wednesday, and the market is in the midst of carving out a multimonth base on the daily chart, after a prolonged bear market.

The near- and intermediate-term trends are bullish, but support at the $4.50 area needs to hold at Friday's close to keep the new medium-term uptrend intact. The short- and medium-term moving-average picture has turned bullish, as March corn now is trading above the 20-day, 40-day and 100-day moving averages. Upside targets and resistance points include $4.60 and then $4.74 1/4.

Daily momentum readings have hit overbought levels, which show that March corn is vulnerable to a corrective pullback at any time. The nine-day relative strength index (RSI) climbed to 80% on Wednesday. Any reading over 70% is considered overbought.

On the downside, the $4.49-$4.50 area, which represents the Nov. 12, 2013, swing high at $4.49 1/2, the Feb. 10 high at $4.49 and psychological resistance at $4.50, now has turned into important support. Declines under that floor would weaken the medium-term outlook.

$6.70     -- the contract high 
   $4.44 1/4 -- the 10-day moving average 
   $4.38 1/4 -- the 20-day moving average 
   $4.32 1/4 -- the 40-day moving average 
   $4.06 1/4 -- the contract low 
 
MARCH CBOT WHEAT, combined pit and electronic trading

March CBOT wheat continues to surge higher, supported by signs of strong demand for U.S. wheat. The market has climbed sharply higher in recent days and pierced resistance at $6.12 3/4, the Jan. 6 swing high, which now becomes support.

The near- and medium-term trends are now bullish. A type of "V" bottom pattern is seen on the daily chart. The longer-term trend remains bearish for now.

Bullish momentum has been strong. The nine-day relative strength index has climbed from 27% on Jan. 29 to 78% on Wednesday. However, the market is overbought and vulnerable to a correction at any time. But during strong trends, markets can stay overbought for days or even weeks. On the upside, the 100-day moving average is acting as longer-term resistance and a bullish target at $6.36 3/4.

On the downside, initial support lies at $6.12 3/4, with additional support at $5.85 1/4, the Feb. 13 low.

$9.12 1/4 -- the contract high 
   $5.93 1/4 -- the 10-day moving average 
   $5.78 1/4 -- the 20-day moving average 
   $5.84 3/4 -- the 40-day moving average 
   $5.50     -- the contract low 
 
MARCH KC WHEAT, combined pit and electronic trading

The strong rally move continued in March Kansas wheat on Wednesday. The near- and medium-term trends are bullish. The market is in a runway-type of mode, but daily momentum is overbought. The market is within striking distance of resistance and a bullish target at $6.94, the Nov. 21, 2013, daily low. Support well below the market remains at $6.59 1/4, the Feb. 12 low.

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