Technically Speaking
Darin Newsom DTN Senior Analyst

Sunday 08/24/14

Grain Markets: Weekly Analysis

Source: DTN ProphetX

Corn: The DTN National Corn Index (NCI.X, national average cash price) closed at $3.48 1/2, up $0.015 for the week. National average basis strengthened by about 2 cents, coming in at 18 cents (rounded) under the September futures contract. The NCI.X remains priced near the lower-third of numerous price distribution ranges, including the 5-year and 10-year. This could spark increased buying interest in the cash market.

New-crop Corn: The December contract closed 5.50cts lower. Despite the lower weekly close the secondary (intermediate-term) trend remains up. A number of bullish technical signals have been established the last two weeks including a bullish key reversal, a bullish crossover below 20% by weekly stochastics, and consecutive weeks of posting new 4-week highs. From a technical perspective, the initial upside price target is near $4.18 3/4, the 38.2% retracement level of the downtrend from $5.17 through the recent low of $3.58. A test of this resistance would also close the bearish price gap between $4.14 1/2 and $4.10 1/2.

Soybeans: The DTN National Soybean Index (NSI.X, national average cash price) closed at $12.00, up $0.31 for the week. National average basis firmed to $1.58 over the November futures contract, 42 cents stronger than the previous Friday's calculation. Support for the cash market continues to come from solid demand as the old-crop marketing year nears its end this coming week. Seasonally the cash market sees its strongest sell-off through the month of September.

New-crop Soybeans: The November contract closed 10.00cts lower. Technically, the secondary (intermediate-term) trend remains down following the posting of a new low of $10.35. However, the November to January futures spread is poised for a move to an uptrend with a weekly close of a carry less than 6 3/4 cents (last week's settlement). Weekly stochastics are below 20%, indicating the market is oversold and in position for a possible bullish crossover. The major (long-term) trend remains down with support pegged between $9.91 1/2 and $9.28 1/4.

Wheat: The DTN National SRW Wheat Index (SR.X, national average cash price) closed at $5.18, down $0.01 for the week. National average basis was calculated Friday at 34 cents under the September Chicago contract, 2 cents weaker for the week. Major (long-term) support remains at the July low of $4.89.

SRW Wheat: The December contract closed 1.25cts lower. The secondary (intermediate-term) trend remains sideways. While weekly stochastics did establish a bullish crossover the previous week, the December futures contract hasn't established a bullish turn signal yet. Resistance this coming week is at the 4-week high of $5.91. Support is at the recent low of $4.42 1/4.

To track my thoughts on the markets throughout the day, follow me on Twitter: www.twitter.com\DarinNewsom

Posted at 1:37PM CDT 08/24/14 by Darin Newsom
 
Energy Markets: Weekly Analysis

Brent Crude Oil: The spot-month contract closed $1.24 lower. The secondary (intermediate-term) trend is down. However, after posting a new low (for this sell-off) of $101.07 the spot-month contract rallied to close at $102.29. Weekly stochastics remain below the oversold level of 20%, meaning a bullish turn could soon occur. The contango in the nearby futures spread continues to strengthen, indicating a more bearish view of supply and demand.

Source: DTN ProphetX

Crude Oil: The spot-month contract closed $3.70 lower. The secondary (intermediate-term) trend remains down. The spot-month contract extended its sell-off to a low of $92.50, putting the market in position to possibly test its previous low of $91.24. Weekly stochastics moved below the 20% level indicating the market is oversold.

Distillates: The spot-month contract closed 2.01cts lower. The secondary (intermediate-term) trend is down after the spot-month contract posted a new low for this move of $2.8017. Weekly stochastics moved below the oversold level of 20%, setting the stage for a possible bullish crossover in the near future.

Gasoline: The spot-month contract closed 3.98cts higher. The higher weekly close by the spot-month contract following the establishment of a new-low for the downtrend of $2.6374, hints at a possible move to at least a secondary sideways trend. If so, initial resistance is pegged between $2.8340 and $2.8947. These prices mark the 38.2% and 50% retracement levels of the previous downtrend from $3.1520 through last week's low. Weekly stochastics saw a bullish crossover below 20%, opening the door for a possible uptrend.

Natural Gas: The spot-month contract closed 6.4cts higher. The secondary (intermediate-term) trend is sideways, with support at the recent low of $3.723 and resistance at the 4-week high of $4.020. Last week's low of $3.737 may have established a double-bottom formation, putting the market in position to establish a secondary uptrend this coming week. Weekly stochastics are below the oversold level of 20% and nearing a bullish crossover.

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Posted at 12:29PM CDT 08/24/14 by Darin Newsom
 

Friday 08/22/14

Soybean Fundamentals

With all the talk of record yield this, and record production that in soybeans, it may come as a surprise to some just how bullish the commercial side of the market has become. New-crop futures spreads are all showing strong uptrends, led by the front running November to January as it trimmed its carry to less than 7 cents on Friday's close, and its percent of total cost of carry (full cost of holding grain in commercial storage) to less than 44%.

Source: DTN ProphetX

Despite those changes in the market, the real story remains the last vestige of interest in old-crop supply and demand. The lightly traded September contract, used for little more than an indicator of the spot-market, has seen its inverse against the new-crop rocket higher this week, posting a close of $1.24. This was a gain of 73 1/2 from last Friday's settlement.

National average basis (bottom chart) has followed suit, with the DTN National Soybeans Index (NSI.X, national average cash price) calculated at $11.83 Thursday evening, $1.45 over the November contract. Given Friday's action it would not be surprising to see basis jump another 10 cents or so, putting it within striking distance of the recent high of $2.10 over (blue line, bottom chart).

So what does all of this mean? My interpretation should come as no surprise: U.S. supplies, approaching the end of the marketing year next Friday, are nowhere near the 140 mb estimated by USDA in its August report. Remember that this figure was only made possible by USDA "finding" another 25 mb to push residual use to (-94) mb. It has also been forgotten that the 140 mb, regardless of how fictitious it might be, still results in a record low ending stocks to use figure of 4.2%.

Given the action in spreads and basis, one's mind wanders to how tight the supply situation may actually be.

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom

Posted at 3:20PM CDT 08/22/14 by Darin Newsom
 

Wednesday 08/20/14

Feeder Cattle Fading

The feeder cattle market has seen its fortunes change over the course of the last few weeks. As its weekly chart shows, the more active October contract has fallen back from its high of $224.35 (posted the week of July 28) to a low this week of $211.00. And while no price chart damage has been done -- yet -- the contract is in position to establish a secondary (intermediate-term) topping pattern.

Source: DTN ProphetX

Note the relationship of this week's low to that of the four-week low of $210.70 (top chart, dashed red line). A move below this level yet this week could mean two things: first that the contract has established a new four-week low, usually a bearish sign; and second, the contract would have traded outside of last week's range with a lower weekly close highly likely. In other words, the contract would establish a bearish outside week to go along with its fresh four-week low.

Individually, these two factors should be enough to start a secondary downtrend. Add in the bearish crossover by weekly stochastics established the week of July 7, that was in conjunction with a key bearish reversal (at the time), and this week's possible signals would confirm the idea the secondary trend is down.

If October feeders start to fall, initial support is pegged near $201.20, a price that marks the 38.2% retracement of the uptrend from $163.725 through the high of $224.35. Given the continued strength of both the September to October and October to November futures spreads (bottom study, thin green line and thick green line respectively), a worst case scenario would be a pullback to the 50% retracement level near $109.05.

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Posted at 8:01AM CDT 08/20/14 by Darin Newsom
Comments (1)
Kind of looks as if a shoulda is in place. Shoulda sold Spring calves a couple weeks back. Kinda like beans and corn for this year shoulda been sold last year. Goes to show ya, what goes up, must come down.
Posted by Bonnie Dukowitz at 5:08AM CDT 08/21/14
 

Tuesday 08/19/14

Cash Corn's Long-term Price Patterns

Source: DTN ProphetX

There are times when tracking long-term patterns in the futures market can get confusing. Take for example corn, where September remains the nearby contract while the new-crop December is far and away the more heavily traded. Ask a group of technical analysts which should be plotted on continuous charts, and your likely to get an even split between the two.

To avoid this confusion, I often go back to the intrinsic value of a market to look for chart patterns. In the case of grains, the intrinsic value is the cash value, so I use charts of the various DTN National Indexes (national average cash price).

Take a look at the monthly chart for the DTN National Corn Index (NCI.X). Notice the clear patterns it has developed, starting with a series of price gaps dating back to July 2012 when an exhaustion gap formed between $6.57 and $6.73. The cash corn market moved to a new high of $8.26 in August 2012, though its monthly stochastics (second study) were clearly showing bullish momentum had evaporated.

April 2013 saw a bearish breakaway gap form between that month's high of $6.84 and the March 2013 low of $6.99. However, this gap would be filled in June 2013 when the NCI.X posted a high of $7.17, possibly nullifying it as a breakaway gap.

That title could then be bestowed on the next bearish gap that occurred between the August 2013 low of $5.56 and the September 2013 high of $5.55. If you look back to the left on the chart, you'll see this gap was a bearish breakout below a series of lows near $5.60 that occurred from May 2011 through May 2012.

Also note, if you look closely enough, that the NCI.X posted a bearish key reversal in June 2011, in conjunction with a bearish crossover by monthly stochastics above the overbought level of 80%. Chart technicians would argue that this was the true beginning of the major downtrend, despite the fact that the NCI.X would later rally to its high in August 2012.

So what is all this history telling us about the possible future of the cash corn market?

First, if we use the 2013 gap as the bearish breakout point, and assume that the downtrend from that point forward would take the form of a three-wave move (Elliott Wave), Wave A would be from the September 2013 high of $5.55 through the January 2014 low of $3.94 (length of $1.61). The subsequent rally through the April high of $4.86 can be viewed as a Wave B, a move that tested resistance between $4.75 and $4.94. These prices mark the 50% and 61.8% (Fibonacci) retracement levels of Wave A.

That means the market is now in Wave C, the final wave, of the major downtrend. Notice that this move has extended from the April 2014 high to a low this month of $3.33, a test of support between $3.44 and $3.19. These prices are the 50% and 67% retracement levels of the major sideways trend between the December 2008 low of $2.69 and the June 2009 high of $4.18, a sideways pattern that continued until the bullish breakout in September 2010. Also note that Wave C includes another gap -- an exhaustion gap perhaps? -- between the June 2014 low of $4.02 and the July high of $3.98.

So will this support hold, or is the NCI.X destined to test its December 2008 low? While it is hard to make a bullish argument for the cash corn market ahead of what is expected to be a record harvest, monthly stochastics might make the case for me. After the NCI.X posted its Wave A low in January 2014, monthly stochastics established a bullish crossover below the oversold level of 20% at the end of February. This momentum indicator then climbed back to near the 20% mark through May before turning down again as Wave C gained strength.

What I'm looking for in monthly stochastics is a secondary, or confirming, bearish crossover below the 20% level. At that time, and with the NCI.X presumably still testing price support, the major (long-term) trend of the cash market should be in the beginning stages of turning up. What is the final signal I'm waiting for? That would be the establishment of a bullish key reversal by the NCI.X. And if not that, then possibly a simple bullish breakaway gap creating the possibility of a bullish island reversal in combination with the 2014 gap mentioned above.

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom


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.

Posted at 9:31AM CDT 08/19/14 by Darin Newsom
 

Monday 08/18/14

ARC 180

Source: DTN

Let me begin by saying this: DTN has some great customers. After last week's Newsom on the Market column, "ARC of Destruction," I received numerous responses regarding my conclusion that the new government program could ultimately blow up corn's demand market. The general theme from respondents (many posted in DTN's Letters to the Editor segment) was that I had overlooked two key factors: 1) The county ARC program pays on base acres; 2) Payment caps will limit the possible impact on planting decisions.

Given that my columns are opinion based on my analysis, the responses could have turned nasty and personal. We see it all too often in other venues. But it certainly wasn't the case here. Without exception the responses were polite, complimentary, and well thought out discussions of the topic at hand. To all of you who joined the conversation, either through email or the social media site Twitter, I thank you. You have again confirmed my belief that there can be disagreement without all the ugliness. I tip my cap to you.

Those of you who are familiar with my analysis know that I'm willing to change my mind when signals start to point the other direction. As an analyst, you have to be able to do that. So to simply sum up my thoughts on last week's column: I agree with you. The two factors listed above will likely keep the ARC program from destroying corn's demand market.

Does this constitute a complete 180 on my part? It could be considered that way, which is fine. But let me add this, the bottom line of my piece was the danger that increased corn acreage holds for the corn market, a familiar theme dating back to at least 2011's column "Adequate." I still believe it is possible that by the end of the new government program, 2018 I believe, corn acres could be larger than what we saw in 2014. However, if this does indeed occur, it will likely come from market forces rather than the new government programs.

If you're interested in what should be an informative discussion of ARC and PLC, be sure to join DTN's webinar on August 21. Here is a link that that will take you to the signup page: http://bit.ly/…

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom


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.

Posted at 11:24AM CDT 08/18/14 by Darin Newsom
 

Sunday 08/17/14

Grain Markets: Weekly Analysis

Corn: The DTN National Corn Index (NCI.X, national average cash price) closed at $3.46, up $0.13 for the week. National average basis weakened slightly, coming in at 20 cents (rounded) under the September futures contract. Seasonally the cash corn market tends to rally into the end of August before posting a new low in early October (10-year) and early December (5-year). The NCI.X has tested major (long-term) support between $3.44 and $3.18. Cash corn found renewed buying interest after two consecutive weekly closes in the lower third of the 10-year price distribution range ($3.33).

New-crop Corn: The December contract closed 13.50cts higher. Dec corn posted a bullish key reversal on its weekly chart, in conjunction with a bullish crossover by weekly stochastics. This combination indicates the secondary (intermediate-term) trend has turned up. The initial upside target is $4.18 3/4, a price that marks the 38.2% retracement level of the previous downtrend from $5.17 through last week's low of $3.58. Note that this retracement would also close the bearish gap between $4.14 1/2 (low the week of June 30) and $4.10 1/2 (high the week of July 7). The initial rally could be limited to the 38.2% level by the downtrend (strengthening carry) in the Dec to March futures spread.

Soybeans: The DTN National Soybean Index (NSI.X, national average cash price) closed at $11.69, down $0.26 for the week. This price puts the NSI.X in the lower 31% of the 5-year distribution range while national average basis at $1.17 over the November contract continues to run well above the 5-year high. Seasonally (both 5-year and 10-year) the NSI.X tends to rally through the end of August before posting a low in early October (both 5-year and 10-year). Major (long-term) support is pegged near $11.16, then $9.67.

New-crop Soybeans: The November contract closed 32.75cts lower last week, establishing a bearish outside weekly pattern in the process. This would indicate the secondary (intermediate-term) trend remains down, though weekly stochastics are now in single-digits indicating a sharply oversold market. Fundamentally, the November to January futures spread is testing support at the 9-cent carry level, equaling the strongest this carry has been (weekly close chart, week of July 7). If this spread continues to see a stronger carry the November contract could fall to a test of major (long-term) support between $9.91 1/2 and $9.82 1/4.

Wheat: The DTN National SRW Wheat Index (SR.X, national average cash price) closed at $5.19, up $0.01 for the week. National average basis was calculated Friday at 32 cents under the September Chicago contract, unchanged for the week. Major (long-term) support remains near $5.14.

SRW Wheat: The September contract closed 2.00cts higher. Weekly stochastics continue to indicate the secondary (intermediate-term) trend is up. Initial resistance is pegged near $5.97 1/4, a price that marks the 33% retracement level of the previous downtrend from $7.51 3/4 through the recent low of $5.20 1/4. While the long-term commercial outlook remains bearish, a factor that could limit the retracement to only 33%, support continues to come from noncommercial short-covering. Friday's weekly CFTC Commitments of Traders report showed this crop reducing their short futures position by 9,189 contracts.

Last Friday's CFTC Commitments of Traders were report showed positions as of Tuesday, August 12.

To track my thoughts on the markets throughout the day, follow me on Twitter: www.twitter.com\DarinNewsom

Posted at 7:59AM CDT 08/17/14 by Darin Newsom
 

Saturday 08/16/14

Energy Markets: Weekly Analysis

Brent Crude Oil: The spot-month contract closed $1.49 lower. The secondary (intermediate-term) trend is down. However, after falling to a new low of $101.92 the spot-month contract rallied to close at $103.53, near technical price support of $103.61. This price marks the 67% retracement level of the previous uptrend from $96.75 through the high of $117.34. Weekly stochastics are below the oversold level of 20%, meaning a bullish crossover could be seen in the near future.

Crude Oil: The spot-month contract closed $0.30 lower. The secondary (intermediate-term) trend remains down. Similar to Brent crude though, the spot-month contract rallied off its new low of $95.26 to close above technical support at $96.73. This price marks the 67% retracement level of the previous uptrend from $91.24 through the high of $107.73. Weekly stochastics are near the oversold level of 20%, indicating the market could continue to drift sideways to down over the coming weeks.

Distillates: The spot-month contract closed 2.89cts lower. The secondary (intermediate-term) trend remains sideways to down, shrugging off the previous bullish outside week. The spot-month contract posted a new low of $2.8141 before its lower weekly close. Stochastics are holding near the oversold level of 20%, though the last major signal was a bullish crossover established the week of November 11, 2013.

Gasoline: The spot-month contract closed 5.51cts lower. The secondary (intermediate-term) trend is down. The spot-month contract closed the week below technical support at $2.7134, a price that marks the 67% retracement level of the previous uptrend from $2.4945 through the high of $3.1520. Weekly stochastics are below the oversold level of 20% and nearing a bullish crossover.

Natural Gas: The spot-month contract closed 18.6cts lower. The spot-month contract almost posted a bearish outside week last week, coming just short of taking out the previous week's low of $3.761. Weekly stochastics continue to hold below the oversold level of 20%, keeping the market in a sideways secondary (intermediate-term) trend. A move below the 4-week low of $3.723 could trigger a test of major (long-term) support between $3.656 and $3.431.

To track my thoughts on the markets throughout the day, follow me on Twitter: www.twitter.com\DarinNewsom

Posted at 9:45AM CDT 08/16/14 by Darin Newsom
 

Friday 08/15/14

Dec Corn: Setting the Stage

For weeks, DTN analysis has been looking at a possible turn in the corn market. And with the activity seen in the more active December contract, it looks like the stage is set for a move into a secondary uptrend.

Source:DTN ProphetX

Notice that this week has seen December corn trade outside of last week's high, in the process posting a new low of $3.58. If the contract closes above last Friday's settlement of $3.63 1/2 (it finished the CME Globex overnight session at $3.78), it will have established a key bullish reversal on its weekly chart.

For those wondering about the significance of this pattern, the last time one appeared was the week of January 6, 2014 (top chart, green arrow). From its then low of $4.35 December corn was able to rally to a high of $5.17 the week of April 7. This 82-cent rally resulted in a close test of resistance at $5.24 1/2, a price that marked the 50% retracement level of the downtrend from $6.14 (high from the week of September 17, 2012) through the $3.58 low.

So is the contract poised for another strong rally? Possibly, just not as strong as what was seen earlier this year. An important difference is in the December to March 2015 futures spread (second study, green line), and what this says regarding the commercial outlook of the new-crop market. Back then the spread was in an uptrend, meaning the carry between the two contracts was weakening. However, as we see now the spread is trending down (strengthening carry), moving to a new low of a 13 1/4 cent carry. Granted this is a weekly close chart, so we will need to see if this holds through Friday's close (the previous low close was last week's 13-cent carry).

The more bearish view of market fundamentals could limit corn's potential uptrend. Technically, the initial target is near $4.18 3/4, the 33% retracement of the previous sell-off from the $5.17 high through this week's low. Notice that if the contract can do this, it would close the bearish gap left the week of July 7 between $4.14 1/2 and $4.10 1/2.

Speaking of gaps, it is also possible that Dec corn could establish an island reversal next week. If it closes near its session high this week, then the U.S. Midwest is disappointed on the rain front again over the weekend, and the contract gaps higher on the open of Sunday night's trade, it would create a bullish island reversal to go along with this week's key reversal.

And there's weekly stochastics (bottom study). Note that the faster moving slow line has finally crossed above the slower moving red line, with both below the oversold level of 20%. This is a classic example of a bullish crossover coinciding with reversal patterns by the futures contract. This would confirm the idea that December corn has moved into a secondary uptrend.

The most interesting thing about new-crop corn at this time is that almost all of the news is bearish, while the charts are set to turn bullish. If price trends reflect traders' opinion on all the factors that affect the market, both known and unknown, then what does a move to a secondary uptrend say about the unknown factors in corn? And how will the commercial side of the market react to this possible uptrend.

Stay tuned.

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom

Posted at 8:23AM CDT 08/15/14 by Darin Newsom
 

Sunday 08/10/14

Grain Markets: Weekly Analysis

Corn: The DTN National Corn Index (NCI.X, national average cash price) closed at $3.33, unchanged for the week. This remains the lowest weekly close for the NCI.X since the week of July 19, 2010. National average basis (NCI.X - September futures) strengthened 1-cent for the week, calculated at 19-cents under Friday evening. This continues to run below the 5-year average, reflecting the bearish view of cash grain merchandisers. Technically the NCI.X is testing major (long-term) support between $3.44 and $3.19.

New-crop Corn: The December contract closed 1.25cts lower. The secondary (intermediate-term) trend remains down Dec corn posted a new low of $3.61 last week before closing at $3.63 1/2. Some factors remain bullish, most notably the market being sharply oversold with the Dec priced in the lower 10% of corn's 5-year distribution range. Technically, weekly stochastics remain in the low single digits indicating, at least theoretically, little room for the market to continue to go down. Both the September and December contracts are testing major (long-term) support on the monthly chart between $3.70 and $3.43 1/4.

Soybeans: The DTN National Soybean Index (NSI.X, national average cash price) closed at $11.95, up $0.15 for the week. The NSI.X remains near the lower 33% of its 5-year distribution range, a level that could spark renewed buying attention. National average basis continues to weaken, with the NSI.X losing another 11 cents to the November futures last week but still resulting in a firm reading of $1.10 over.

New-crop Soybeans: The November contract closed 26.25cts higher. Similar to December corn, it is a difficult call on trend in November soybeans. Technically, the contract established a new low of $10.54 last week, confirming that the secondary (intermediate-term) trend remains down, but weekly stochastics indicate the contract is sharply oversold and poised for a bullish turn. The difference between the two contracts is that Nov beans closed near its weekly high, leaving open the possibility of a bullish island reversal with a gap higher open to Sunday night's CME Globex session. This would be in conjunction with the gap down left the week of July 7.

Wheat: The DTN National SRW Wheat Index (SR.X, national average cash price) closed at $5.19, up $0.15 for the week. National average basis was calculated Friday at 31 cents under the September Chicago contract, 1 cent weaker than the previous week.

SRW Wheat: The September contract closed 15.00cts higher. Weekly stochastics continue to indicate the secondary (intermediate-term) trend is up. Initial resistance is pegged near $5.97 1/4, a price that marks the 33% retracement level of the previous downtrend from $7.51 3/4 through the recent low of $5.20 1/4. Friday's weekly CFTC Commitments of Traders report showed noncommercial traders reducing their net-short futures position by 7,000 contracts (week ending Tuesday, July 5).

Posted at 8:59AM CDT 08/10/14 by Darin Newsom
Comments (1)
Darin, with this "cheap" grain prices the USDA has succeeded with their "estimates", what determines the price of grain for exports? Does the USDA "report" the price of grain when exported? Does the almighty USDA report profits from grain exported? Also do they report who is exporting the grain or other commodities and how much money is made with exports? Thank you if you have the time to answer these questions.
Posted by DAVID/KEVIN GRUENHAGEN at 10:12PM CDT 08/13/14
 

Saturday 08/09/14

Energy Markets: Weekly Analysis

Brent Crude Oil: The spot-month contract closed $0.18 higher. The secondary (intermediate-term) trend remains down. However, the spot-month contract is holding above support between $104.62 and $013.61, prices that mark the 61.8% and 67% retracement levels of the previous uptrend from $96.75 through the high of $117.34. Weekly stochastics are nearing the oversold level of 20%, while the nearby futures spread has stabilized at a contango of about $0.60.

Crude Oil: The spot-month contract closed $0.23 lower. The secondary (intermediate-term) trend remains down. However, the spot-month contract held support near $96.73, a price that marks the 675 retracement level of the previous uptrend from $91.24 through the high of $107.73. Weekly stochastics are nearing the oversold level of 20%, but indicating more pressure in the market is likely.

Distillates: The spot-month contract closed 1.08cts higher. The spot-month contract posted a bullish outside week with Friday's close, indicating the secondary (intermediate-term) trend may have turned up. If so, this would confirm a bullish crossover by weekly stochastics all the way back to the week of November 11, 2013. Since then the trend has been sideways. Weekly stochastics at Friday's close were holding just above the oversold level of 20%.

Gasoline: The spot-month contract closed 0.94ct higher. The spot-month contract held its test of support at $2.7134, a price that marks the 67% retracement level of the uptrend from $2.4945 through the high of $3.1520. Weekly stochastics have dipped below the oversold level of 20%, setting the stage for a possible bullish crossover if the spot-month contract consolidates above its technical support. This could soon establish a move to a secondary (intermediate-term) uptrend.

Natural Gas: The spot-month contract closed 16.4cts higher. The spot-month contract is in position to establish a bullish island-reversal, needing only a bullish breakaway gap when the market opens this coming week. Weekly stochastics are below 20%, but not comfortably so for the establishment of a bullish crossover. If the spot-month contract were to post a strong rally next week, stochastics would likely see a crossover above the 20% line, technically keeping the sideways trend intact.

Posted at 9:05AM CDT 08/09/14 by Darin Newsom
 

Sunday 08/03/14

Grain Markets: Weekly Analysis

Source: DTN ProphetX

Corn: The DTN National Corn Index (NCI.X, national average cash price) closed at $3.33, down 10cts for the week. This is the lowest weekly close for the NCI.X since the week of July 19, 2010. National average basis (NCI.X - September futures) was calculated at 20cts under Friday evening, continuing to run below the 5-year average and unchanged weaker for the week. The combination of weak national average basis while the futures market trades in the lower 10% of the 5-year price distribution range reflects a continued bearish old-crop supply and demand situation. Technically the NCI.X is testing major (long-term) support between $3.44 and $3.19.

New-crop Corn: The December contract closed 9.50cts lower. The secondary (intermediate-term) trend remains down. Weekly stochastics are deep in single digits indicating a sharply oversold situation. The close of $3.62 1/4 has the December contract priced in the lower 10% of the market's 5-year distribution range. Friday's weekly CFTC Commitments of Traders report showed noncommercial traders reducing their net-long futures position by 20,604 contracts. The December to July forward curve shows a bearish level of carry (68% of total cost of carry). Major (long-term) support in the futures market is $3.43 1/4.

Soybeans: The DTN National Soybean Index (NSI.X, national average cash price) closed at $11.80, down $0.44 for the week. The NSI.X is now priced in the lower 33% of its 5-year distribution range, a level that could spark renewed buying attention. Despite losing 20 cents last week, national average basis (NSI.X minus the November futures contract) remains strong at $1.21 over, reflecting the continued tight old-crop supply and demand situation.

New-crop Soybeans: The November contract closed 25.00cts lower. The secondary (intermediate-term) trend remains down as noncommercial traders added another 3,755 contracts to their net-short futures position. Despite weekly stochastics below the oversold level of 20%, the November contract is in position to move below its recent low of $10.55 with last week's close of $10.58 1/2. This puts the contract in the lower 21% of the market's 5-year price distribution range. Major (long-term) support is between $9.91 1/2 and $9.28 1/4, the 61.7% and 67% retracement levels of the uptrend from $4.98 1/2 through the high of $17.89.

Wheat: The DTN National SRW Wheat Index (SR.X, national average cash price) closed at $5.04, down 3.00cts for the week. National average basis was calculated Friday at 30 cents under, still holding near the strongest level for the last five years of 24cts under. The carry in the futures market 2014-2015 has also been weakening, indicating renewed support from the commercial side of the market.

SRW Wheat: The September contract closed 3.75cts lower. Weekly stochastics (second chart) established a bullish crossover well below the oversold level of 20%, indicating a possible change in the secondary (intermediate-term) trend. While the September contract just missed establishing a key bullish reversal (the contract closed lower for the week) the market could begin to stabilize on renewed commercial buying interest, as indicated by the weakening carry in the September to December futures spread (third chart, green line). However, Friday's CFTC report showed noncommercial traders adding another 14,297 contract to their net-short futures position (bottom chart, blue histogram).

The most recent CFTC Commitments of Traders report was for positions held as of Tuesday, July 29.

Posted at 7:12AM CDT 08/03/14 by Darin Newsom
 

Saturday 08/02/14

Energy Markets: Weekly Analysis

Brent Crude Oil: The spot-month contract closed $3.55 lower. The secondary (intermediate-term) trend remains down. The spot-month contract closed near support at $104.62, a price that marks the 61.8% retracement level of the previous uptrend from $96.75 through the high of $117.34. Weekly stochastics are bearish, and approaching the oversold level of 20%. Also, the contango in the nearby futures spread continues to strengthen indicating a more bearish view of market fundamentals.

Source: DTN ProphetX

Crude Oil: The spot-month contract closed $4.21 lower. The secondary (intermediate-term) trend is down. The spot-month contract closed near support at $97.54, a price that marks the 61.8% retracement level of the rally from $91.24 through the high of $112.24. Weekly stochastics remain bearish and are moving toward the oversold level of 20%. The nearby futures spread has seen its backwardation weaken indicating a less bullish view of market fundamentals.

Distillates: The spot-month contract closed 4.96cts lower. The secondary (intermediate-term) trend remains sideways. The spot-month contract is in position to test longer-term support at the low of $2.8285 from the week of November 4, 2013. Weekly stochastics remain neutral to bearish, holding just above the oversold 20% level. The nearby futures spread has seen its contango weaken of late, reflecting a less bearish view of market fundamentals.

Gasoline: The spot-month contract closed 12.10cts lower. The secondary (intermediate-term) trend is down. The spot-month contract is testing support at $2.7457, a price that marks the 61.8% retracement level of the rally from $2.4945 through the high of $3.1520. Weekly stochastics are below the oversold level of 20% indicating selling interest could begin to slow. Friday's weekly CFTC Commitments of Traders report (positions as of Tuesday, July 29) showed noncommercial traders reducing their net-long futures position by 1,741 contracts.

Natural Gas: The spot-month contract closed 1.7cts higher. At first glance, the weekly chart looks to have established a bullish key reversal last week. However, the spot-month contract did not trade above the previous week's high of $3.893, peaking at $3.89. This leaves the secondary (intermediate-term) trend down, though it could start to move sideways given weekly stochastics are below the oversold level of 20%. Also, the market is in position to establish an island-bottom formation, needing a breakaway gap to the upside to go along with the possible exhaustion gap left the week of July 21.

Posted at 6:58AM CDT 08/02/14 by Darin Newsom
 

Thursday 07/31/14

Soybeans: The Different Views of Futures and Cash

As its monthly chart shows, when June came to an end the most active futures contract was trading near major (long-term) support at $11.43 3/4. This price marked the 50% retracement level of the previous uptrend from the low of $4.98 1/2 (February 2005) through the high of $17.89 (September 2012). However, the November contract wasted little time in blowing through that support in early July, nearly leaving a bearish gap down in the process (the June 2014 low was $11.51 1/2, the early July high was $11.58 3/4.

Source: DTN ProphetX

July saw the November contract also move below the low of $10.94 1/4 from December 2011, setting the stage for a test of support between $9.91 1/2 and $9.28 1/4. These prices mark the 61.8% and 67% retracement levels respectively, a price are that didn't look possible given the robust inverse in the market's forward curve for much of the last few years.

Even as the market comes to a close for July, and looks ahead to the key crop production month of August, new-crop spreads are far from bearish. The November to January is showing a carry of 8 1/4 cents, or roughly 52% of the total cost of carry (total cost of holding beans in commercial storage for that time period). The January to March spread closed at a 7 1/4 cent carry (48% total cost of carry), the March to May at 6 1/2 cents (40%), and finally the May to July at 6 1/4 cents (39%). The November to July forward curve, a carry of 28 1/4 cents, covers only 45% of the total cost of carry.

Keeping in mind that neutral runs from roughly 34% to 65%, the commercial outlook for soybeans would indicate it is comfortably neutral. That being the case, a market tends to find support at its major 50% retracement level, dipping down the 61.8% and 67% levels if the commercial outlook grew more bearish.

The problem facing new-crop soybeans is that the old-crop supply and demand situation was TOO bullish. The strong inverse still evident in the August to September futures spread ($1.24 3/4) and the August to November ($1.42 1/2) created the sharp downtrend when the chart reflecting the most active contract rolled from the July to the November.

A look at the monthly chart for the DTN National Soybean Index (NSI.X, national average cash price, not shown) paints a picture that is not quite as bearish. While the intrinsic value of the market, its cash value, has been trending down it has not yet taken out its 50% retracement level of $11.16 (low of $4.85, high of $17.48). Again given the long-term neutral view of supply and demand, and acknowledging that this view could change, I would anticipate this price support holding the sell-off in the NSI.X over the coming months.

Posted at 2:27PM CDT 07/31/14 by Darin Newsom
 

Wednesday 07/30/14

USDX: That Statue Moved

"That Statue Moved" was a small-time band from Kansas from the late 1980's and 1990's, with one of its members the younger brother of a good friend of mine from college. What could this possibly have to do with markets you ask? When I looked at the long-term monthly chart for the U.S. dollar index, the phrase "that statue moved" was the first thing to pop into my head.

Source: DTN ProphetX

I last discussed the U.S. dollar index (USDX) back on June 2, 2014, in the blog "The Glacial Advance of the U.S. Dollar Index." Are you seeing a pattern with the terms "glacial" and "statue?" To summarize, activity in the USDX has been less than scintillating since October 2013 with the index seemingly locked in a trading range between support at 78.725 and resistance near 81.140. The former marks the 50% retracement level of the rally from the low of 72.696 (May 2011) through the high of 84.753 (July 2013). The latter is the 38.2% retracement level of the sell-off from the July 2013 higher through the May 2014 low of 78.906.

A closer inspection of the chart shows that the USDX actually did move this month. The index traded below the June 2014 low of 79.759 early in the month before rallying above the June high of 81.020 here at the end. And unless the index sees a colossal collapse the last two days of July, it appears destined to not only close higher for the month but possibly above the June high.

Those familiar with this blog will recognize this pattern as a bullish outside month, meaning the index could soon look at extending this rally in its existing sideways trend. Initial resistance is pegged at 81.829, the 50% retracement level of the previously mentioned sell-off. Longer-term resistance is pegged at 83.424, the 67% retracement level of the downtrend from 88.708 (June 2010 high) through the May 2011 low. If somehow the USDX gest through resistance at the 83.424 level and possibly takes out the July 2013 high of 84.753, it could then set its sights on the long-term high of 88.708.

That isn't likely to happen without some sort of change in interest rates by the Federal Reserve -- another statue everyone is waiting to see move.

(CZ)

Posted at 8:36AM CDT 07/30/14 by Darin Newsom
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