The threat was real heading into Friday's session. December 2014 corn had already established a new low of $4.35, and was poised for a continued slide below $4.00. However, the contract had a surprise left in it heading into the weekend.
Following the release of USDA's January reports, traders seemed to decide that this was the last possible piece of bearish news for a while and started buying. This allowed the December corn contract to race higher, easily taking out its previous week's high of $4.54. When the dust had settled and the contract was higher for the week, a bullish key reversal had been established.
Weekly stochastics (second study) have been choppy for weeks, with the bottom line being the contract, like the rest of the market, was sharply oversold. All it needed, theoretically at least, was a catalyst to establish a bullish crossover confirming the move by the futures contract. What happened could be a point of debate between bullish and bearish analysts for weeks to come. A number of potential bullish crossovers have occurred recently, though last week saw stochastics in a bearish situation. At this Friday's settlement, the faster moving blue line is indeed above the slower moving red line, though above the oversold level of 20%.
At face value this would suggest the coming change in trend could be nothing more than an extended sideways pattern. Bullish traders would counter that the bullish crossover in stochastics actually occurred the week of August 11, 2013, but it has just taken the futures market a long time to figure it out.
I think there is some validity to the argument of an extended sideways trend. Given that the new-crop December to March futures spread (bottom chart, green line) is showing a weakening carry and therefore a less bearish commercial outlook, the December contract would be expected to extend its rally to near technical resistance at $5.03. Keep in mind corn's proclivity to gravitate toward round numbers.
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