Technically Speaking
Darin Newsom DTN Senior Analyst

Wednesday 03/05/14

Chicago Wheat: Finally Turns Long-Term Bullish

The Chicago wheat market seems to have finally established a major (long-term) uptrend. The more active nearby contract posted a solid rally in February, creating a bullish crossover by monthly stochastics (second study) below the oversold level of 20%. However, it is wheat we are talking about so early optimism needs to be held in check. Given wheat's characteristic reluctance to rally, initial resistance could be pegged near $7.02, a price that marks the 38.2% retracement level of the sell-off from the July 2012 high of $9.47 1/4 through the January 2014 low of $5.50 1/4.

Source: DTN ProphetX

But if we dare to dream a little, putting reality aside and viewing wheat's monthly chart like we would any other market, then upside targets all of a sudden are much higher. For example, in almost any other market the initial upside target would be the 38.2% retracement level of the previous major downtrend. In the case of Chicago wheat, this previous trend was from the February 2008 high of $13.49 1/2 through the June 2010 low of $4.25 1/2. This puts the 38.2% retracement level near $7.78 1/2. Furthermore, if we look at the market's monthly chart, we see that previous rallies have taken the more active contract to a test of the 50% to 61.8% retracement levels between $8.87 1/2 and $9.96 1/2.

In order for the market to continue its push higher, noncommercial traders will need to stay the course of covering their net-short futures position. CFTC weekly Commitments of Traders numbers (bottom study) show that as of late February this group still held a net-short of 18,690 contracts. The last time this group was net-long was briefly at the end of October 2013. For the previous substantial net-long position we have to go back to November 2012.

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Posted at 8:11AM CST 03/05/14 by Darin Newsom
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