Monday 8 February 2010
We have been noticing the smaller weekly ranges in the grain markets, of late.
We interpret the smallness of the ranges as a possible sign that the downside
is either limited or done. Sellers appear to be losing control, and we make that
statement based on the fact that the ranges are not extending downward. They
are not extendining downward because supply selling is/has dried up, and
buyers are beginning to enter the market.
Corn has been in a trading range for the past 16 months. Price is on the far
right hand side, RHS, of the range, and the farther along price moves to the
right, the closer it comes to a resolve, either a breakout to the upside, or a
breakdown to the downside. What makes Corn interesting here, as we describe
the market structure, is that the current trading range, from October 2009 to
present, is on top of the previous trading range low of last summer.
It can be a bullish sign when one trading range stays above a recenttrading
range from which it rallied. The post crop report week, five bars ago, began a
huge sell-off on very large volume. Note how wide the bar is, going down, and
the increased volume.
Last week, volume surged close to the volume highs form that decline, but
look at the bar results. The range of the bar is much smaller, price closed on
near the low end, but as of this morning, there has been no downside follow-
through, as would be expected. The small range bars from the two weeks prior,
the 3rd and 4th bars from the end, provided a clue. They did not extend down,
indicating a lack of selling. It is at this level that sellers should be punishing
longs and driving price lower. It ain’t happening!
Wheat is behaving similar to corn. Note how last week’s high volume exceeded
the crop report volume from 5 weeks ago. With this increased volume activity
sharply higher, the bar’s range was small, and more importantly, the close was
almost unchanged from the week’s opening, and unchanged from the previous
week’s close. Those are not bearish signs in what is supposed to be a bearish
environment.
We see this as the market’s way of sending a message.
Soybeans have been the weakest of the grains on the decline. However, that
may be changing, along with a potential change in market direction. We see
the same market message: increased volume, a small range bar, and an
almost mid-range close, last week. Sellers appear to be losing control,
otherwise, the ranges would be extending further down instead of holding. Like
Corn and Wheat, Soybeans are also at the far RHS of the protracted trading
range. This is the area where price can, and most often does, embark on a
significant move.
Will that happen here? We are of the opinion that a price move is close at
hand. All we need to see is the market exhibit some strength in price activity,
followed by a weak reaction. The weak reaction would tell us that selling is
spent, and buyers are gaining control.
This analysis needs confirmation. All we are doing, at this juncture, is sending
out an alert to be mindful of developing market activity that could lead to a
significant upside move. Until we see confirmation, we will not choose to go
long in an unproven market environment. It is always possible that new lows
can occur. The market will signal its intent.
It always does.
