Bears Still Have Technical Muscle in Corn

July 24, 2008 07:00 PM
 

   December corn futures are in a strong three-week-old
downtrend from the contract high of $7.99 1/4, scored on June 27.
Prices have dropped more than $2.00 a bushel for the largest
four-week sell off in the history of corn futures trading.

    Price action Thursday did see some short covering amid ideas
the market has fallen too far, too fast. But the bears still have
the near-term technical advantage and their next downside price
objective is to produce a close below solid chart support at this
week's low of $5.62 3/4. A close below this week's low would
produce more serious near-term technical damage and open the door
to a challenge of strong technical support located at the March
low of $5.13 1/4.

    Importantly, recent price action from a Fibonacci perspective
has seen prices drop below key 38.2%, 50% and 61.8% retracement
levels of the price move from the January low of $4.73 1/2 to the
contract high of $7.99 1/4. That does suggest a major market top
is now in place in the corn futures market. If December corn does
push back above the 50% retracement level of the aforementioned
price move, located at $6.37, then Fibonacci technicals would
turn more friendly to the corn bulls.

    For the corn bulls to begin to regain some fresh upside
near-term technical strength, they will have to close December
futures prices above solid chart resistance at $6.25. Below that
level does lie major psychological resistance at $6.00 a bushel.

    From a longer-term technical perspective, chart damage has
also been inflicted. The weekly continuation chart for nearby
corn futures shows that an uptrend line drawn from the December,
March and May lows has recently been soundly penetrated on the
downside and negated.

    There is also strong trend-line and psychological support for
nearby corn futures located at the $5.00 level, basis nearby
futures.

    The Moving Average Convergence Divergence (MACD) indicator
overlaid on the weekly corn chart has produced a bearish line
crossover signal, whereby the MACD line has crossed below the
"trigger" line of the indicator. This is the first bearish MACD
line crossover signal produced on the weekly chart since March of
2007, after which time the corn futures market did trend lower
for the next five months.
 

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