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December wheat futures marched higher along with corn and beans in Friday’s session but still have a lot of work to do on the chart for bulls to start feeling comfortable; keep in mind that we will be rolling out of December futures and into March over the next week and a half. Wheat rallies have been short lived in the back half of the year and we believe that trend will continue until we see a shift in fundamentals. Ample global supply and lack luster demand have been the lead catalysts in putting a lid on the market. We have seen some good export sales here and there, but the market needs to see a clear shift in fundamentals in order to stabilize. Key technical resistance comes in from 434 ¼-436 ½, if the market sees a close above this pocket we could see some short covering from funds press this market higher. Until we see resistance give way, the bears remain in control.
January soybean futures saw prices surge higher in Fridays session on little fundamental news. In corn we had talked about option expiration being a potential catalyst for the near-term price pop, the same argument cannot be made with such conviction for soybeans. Although a close between $9.90-$10 on expiration would do the most damage to long put holders, the open interest totals were much lower and less significant. 968 has been a big technical level for us over the last three weeks and is the last line in the sand that the bulls had to defend on a closing basis, a break and close below could have sparked long liquidation from the funds. Previous support now becomes resistance, the bulls will want to achieve a close above 997-1001 ¼. On the fundamental side of things, the market will continue to keep an eye on weather and crop developments in South America.
December corn futures staged a surprise rally on Friday on no significant new news on the wire. We wrote in Fridays pre-open report that we were changing our bearish bias to bullish for the first time in several months, here is the link to the article: Opportunity in corn. The reason for our sentiment shift has nothing to do with fundamentals and everything to do with December option expiration next week, something we also discussed on RFD-TV and Market Rally Radio on Thursday (see video above). Midweek there were roughly 90,000 puts in the money from 350-340 with a good amount of open interest in the 350 calls. Knowing that 75-80% of options expire worthless make strikes with a large open interest a magnet into expiration, this is a very simplified explanation but gets the point across. With Thanksgiving next week, it will likely be a little quieter trade which also means it will lake less volume to move the market. We would not be surprised to see the market continue Fridays rally into next week. For clients who re-owned some bushels or got long this week, we will be looking to square up before the end of next week. That’s not to say the market couldn’t extend higher, it’s taking what the market gives you, which hasn’t been much over the past few months. Sure, the funds have a record net short position and there could be a short covering rally higher, we would want to wait for confirmation before stretching too far for a silver lining. I will be in the office this morning and will have more out on soybeans, wheat and livestock so be sure to check out the research section of our site for updates this weekend: BlueLineFutures.com
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