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Technically, wheat bulls are exhausted

08/11/2010 @ 10:07am

DJ Technical Special: Wheat Bulls Exhausted After Big Runup

Jim Wyckoff - DJ - 1 hr 2 mins ago

December soft red winter wheat futures at the Chicago Board of Trade late last week scored a fresh 22-month high of $8.68 a bushel. Prices have since backed off sharply to suggest the bulls have become exhausted and that a near-term market top is in place.

Last Friday's market action, in which wheat futures prices were sharply higher in the overnight trade and sharply lower in the day-trading session--to produce a whopping $1.13-a-bushel daily trading range in December wheat--did produce a technically bearish buying "exhaustion tail," whereby buying interest dried up at the higher price levels and prices then backed way off, to produce a tail on the daily chart.

Recent price action in December Chicago wheat futures may also be producing a bearish V-top reversal pattern on the daily chart, whereby prices spike higher and then quickly retreat.

The wheat market bulls can correctly argue they still possess the overall near-term technical advantage, as December futures are still in a two-month-old uptrend on the daily bar chart.

There is psychological support for December wheat futures at the $7 level. A close below $7 would produce more serious near-term chart damage to help confirm that a major market top is in place.

Overhead technical resistance for December Chicago wheat is at Wednesday's overnight high of $7.40 3/4 and then at $7.50. Above that lies chart resistance at this week's high of $7.68 1/2. Major psychological resistance is located at $8 a bushel.

Historical charts for the grain futures markets do show that major market tops many times are defined by a steep surge higher in prices followed by a sharp retreat, to form spike tops or V-top reversals. However, longer-term chart history also shows that soon after major market tops are scored in the grains, secondary price rallies can occur to provide the bulls a brief boost of confidence to think new highs are in the offing. Typically, however, those secondary rallies fall shy of the initial spike price tops. Such could be the case in the wheat futures market in the coming days or weeks.

-By Jim Wyckoff, contributing to Dow Jones Newswires

(END) Dow Jones Newswires

August 11, 2010 10:00 ET (14:00 GMT)

Copyright (c) 2010 Dow Jones Company, Inc.

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