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Is A Low Near for Corn Prices? Here's One Technical Trend to Watch

Next week's near-perfect weather outlook has farmers running hard to get a corn crop in the ground. Some analysts say the end of this week could see the crop completely sown. These circumstances are having their expected influence on the corn market; it's spending a lot of days lately moving lower.

Is there hope for a bounceback for the bulls soon? Fundamentals may not show it, but a look at some technical information lately -- namely charting as one influential trend -- may foreshadow a move higher in the near future, analysts say.

Remember this term: relative strength index (RSI). It's a way traders can track futures contract prices that usually foreshadows market peaks and valleys that typically lead to overbought or oversold conditions, circumstances that almost always lead to dramatic price shifts. However, it has to hit key price points in order for this to happen.

Take the chart at right. Kluis Commodities market analyst and grain broker Al Kluis says this chart shows textbook RSI movement that could be foreshadowing an end to the current downturn in corn prices. If prices follow this technical trend, it could mean a low is near.

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"When the blue line gets above 80, the market is overbought, and you are looking for a place to sell.  When the blue line drops below 20, the market is oversold, and you are looking for a place to buy. You can see the high up at $4.40 in late December of 14. You can see that the RSI index was above 80," Kluis says. "Now the blue line is below 20 and the corn market is oversold. Now watch for the first blue bar, which would indicate a reversal in the price of corn and a possible short-term low."

Though the trendline shows a clear pattern, that doesn't mean the time frame for the next RSI low will come in lockstep with past peaks and valleys, especially now with spring planting weather dominating the fundamentals in the futures trade. Add to that the ongoing bird flu story that some analysts say is not as big a story as the trade sees it right now, and there is "plenty of fuel to keep the flame burning" for the grain market bears, says market analyst Dan Hueber of the Hueber Report and Center for Agriculture. But that downward pressure on grain prices could also entice more fund buying, especially with so many short positions in that sector right now, adds Kluis Commodities market analyst Bob Linneman. Between a nearing low in the RSI, these fund positions, and current action in the U.S. dollar index, Linneman agrees that there could be some room to move higher soon.

"With the funds short a sizable amount of corn for this time of year, I think money managers will be carefully watching the weather and the U.S. dollar," he says. "A bearish move in the dollar should be positive for grains."

Can these factors overtake fundamentals like an all-of-a-sudden brisk corn planting pace in the bears-vs.-bulls battle? That's the major wildcard in RSI analysis for the corn market. Futures prices are sinking based on major fundamentals like the weather right now, and that could extend the sub-20 RSI position before prices do rebound, following the trend.

"Corn and wheat prices have sagged recently below the recent lows, indicating a potential for more weakness from the market. That is surprising in that we are running to new recent lows in corn while we are still behind normal in planting progress. However, this coming week an open week of planting progress is forecast, and the market seems to be looking ahead to that open week and building it into prices already. While the seven-day forecast looks good for planting progress, the eight- to 14-day forecast turns back to wet for most of the U.S., and could result in a slow week of planting as we get into May," says Progressive Ag Marketing, Inc. market analyst Ray Grabanski. 

"With wheat and corn dropping to new recent lows recently, it might be difficult to generate much strength in the market," he says. "Instead, the direction seems to be heading lower in grains rather than up. It could be a difficult week for grains if the lows hold. So far, soybeans are holding above their recent lows, and are the strong market so far. But with the recent weakness in corn and wheat, soybeans might find it tough sledding to push above recent prices."

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