Corn, Soybeans and Wheat At Key Technical Levels

April 19, 2012 01:54 AM

What Traders are Talking About:

* Grain/soy futures rebound sharply. Grain and soy traders are turning their attention away from building macro-economic concerns -- at least for now -- as corn, soybean and wheat futures staged a strong corrective recovery amid bargain buying overnight.. But given worries with China's cooling economy and debt concerns in Spain, it may be hard for grain and soy futures to generate sustained near-term buying interest. Following is a look at the technical picture for corn, soybeans and wheat.

* Corn: Front-month May corn futures closed below the March low at $6.03 Wednesday and dipped below $6.00 for the first time since Jan. 18, the day the January low at $5.99 1/2 was posted. Importantly, the January low held yesterday and the contract closed back above $6.00. That helped trigger a round of bargain buying overnight. A bounce from the bottom of the extended, choppy range would point futures back to the top of the range -- the $6.65 to $6.83 area. To the downside, critical support lies at the Dec. 2011 low at $5.84 1/2. If that level is violated, it would signal a downside breakout from the extended, choppy range. I haven't heard any talk of Chinese corn buying yet, but it wouldn't be surprising to see some surface as China has actively bought U.S. corn on price dips to the $6.00 mark in old-crop futures in the past.

December corn futures stopped shy of the March washout low at $5.23. That is key near-term support as a drop through it would open risk to at least the $5.05 to $5.00 area on the daily chart. To the upside, the downtrend from the November and January highs is key resistance. Traders have repeatedly sold tests of this trendline. It currently intersects around $5.50. A successful breakout above the trendline would point to a rally to at least the $5.75 area. If the downtrend holds, it would suggest another test of support at $5.23 is coming.

* Soybeans: Front-month May soybean futures have done virtually no technical damage as the contract hasn't even gotten close to a 25% retracement of the entire rally from the Dec. 2011 low and uptrending support is firmly intact. The 25% retracement is at $13.70; a 38% retracement would be at $13.25. Those are key near-term support levels. To the upside, the April 10 high at $14.52 1/4 is solid initial resistance, with contract-high resistance at $14.68 1/2.

November soybean futures stopped right at the uptrend from the December and January lows Wednesday. The 40-day Moving Average is right below that level ($13.28 1/2 on Wednesday). A drop through the 40-day Moving Average would likely trigger active fund-based selling and given the record length of funds in the soybean market, that could lead to a sharp selloff. The next downside targets would be the 200-day Moving Average (~ $12.65) and the 100-day Moving Average (~ $12.50). A 50% retracement of the entire rally splits those levels. A strong bounce from uptrending support would point to a near-term challenge of the April 3 high of $13.97 -- and likely the contract high at $14.00.

* Wheat: Contract-low support for May Chicago wheat futures stands at $5.97 1/2. Dips in the front-month contract below $6.20 have relatively quickly dried up selling interest and attracted fresh buying in the past. If the contract falls to a new low, it would open sharp downside risk as there are likely big pools of sell stops positioned below this level. Another bounce from the bottom of the extended, choppy range would point to a solid price recovery. But heavy resistance is layered from the $6.50 to $7.00 area, making it hard for wheat to attract sustained buying interest.

July Chicago wheat futures posted a contract low yesterday. But a strong and quick recovery back above the old low at $6.11 would suggest yesterday's price action was a bear trap. And that would point to an extended corrective recovery. Tough resistance is layered from $6.80 to $7.04. The bullish argument is the contract has a lot of room to rally. The bearish side of the argument is that bulls have a lot of work to do just to signal the move is more than a corrective rebound. To the downside, a close below the psychological $6.00 mark would be deflating for bulls and would open sharp downside price risk.


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