This past weekend I posted a blog discussing the coming breakout of the corn market, direction unknown but leaning more toward the down side. Monday saw the December contract fall hard, moving below short-term price support at a series of lows near $7.32 to test technical price support near $7.15 1/4 (the low so far this week has been $7.10 1/2). This price marks the 38.2% (Fibonacci) retracement level of the previous uptrend from $4.99 through the high of $8.49.
What is the market indicating it might do from here? To begin with, keep in mind that open interest has been declining in December corn, with the March now showing more held contracts and taking the role of most active. Also, at the end of this month the December contract moves into delivery meaning all bets are off as daily price limits are removed.
Still the chart does hold some clues. As DTN Contributing Analyst Elaine Kub wrote about in this week’s Kub’s Den column (“When You Just Want to Strangle the Markets”), the corn market could look to continue its consolidation phase. The parameters of this range though seem to be narrowing.
As discussed in my previous blog, the 50-day moving average (variable red line) continues to prove to be solid resistance. As of this writing it is calculated at roughly $7.50, just below technical resistance near $7.52 1/2, a price that marks the 33% retracement level of the initial selloff from the previously mentioned high of $8.49 through the recent low of $7.05. Notice that the previous minor rally uncovered solid selling interest between the 33% and 50% retracement levels (the latter calculated at $7.77) and just below the 50-day moving average line.
While a strong argument can be made for the market continuing in this sideways trend, there is a bearish cause for concern. If you look far off to the left hand side of the chart, a price gap was left with the high from July 3 at $6.76 and the low for July 5 at $6.85 1/2. Also notice that if the December contract looks to fill that gap, it would equate to a 50% retracement ($6.74) of the previously discussed uptrend.
Those looking ahead to the March contract see the same pattern, with the July 3 to July 5 gap between $6.83 1/2 and $6.93 (though on July 11 the contract did slide back to $6.90 1/2) and the 50% retracement support level pegged near $6.78 1/2. Keep in mind that a market with a bullish forward curve (series of futures spreads) situation tends, but is not limited to, to see retracements of no more than 50%. In the case of corn, the forward curve from December 2012 through July 2013 continues to show a solid inverse meaning those traders actually involved in the underlying cash market remain fundamentally bullish.
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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.