I know it is hard to take serious anything you see or read on April 1, but those who have been patiently tracking this blog month to month know that corn has been building toward a bullish change in its long-term trend. Back on January 31 (Corn: Long-Term Trend Change) I talked about how the market could establish a bullish key reversal if only the nearby March contract could crawl above the December high of $4.36. It didn't quite make it, posting a high of $4.35 1/2, and putting clear signs of a bullish turn on hold.
My post from March 3 (Corn: Long-Term Change Under Way) talked about how corn, though not establishing a key bullish reversal in January, was in the process of building a more traditional rounded bottom (or saucer bottom) as it slowly changed course from its major downtrend that began with the high of $8.43 3/4 in August 2012. The only thing missing was the confirming bullish crossover by monthly stochastics (second study), a technical pattern that had not occurred since October 2009.
But now as March has come to an end and April, meaning spring and baseball, begins the corn market has confirmation of its rounded bottom (don’t laugh) and a bullish long-term change in trend. Monday's close saw the faster moving monthly stochastic (second study, blue line) calculated at 15.7% while the slower moving red line finished at 12.8%. The fact both were below the oversold level of 20% is key, indicating this change is to something more than just a sideways trend.
Other indicators have been in place for months now awaiting this confirmation. The rally off the January low of $4.06 1/4 was generated by consistent noncommercial buying as this group rebuilt its net-long futures position (bottom study, blue histogram) to 258,627 contracts in late March.
How far might the corn rally go? First, it is unlikely that the market will revisit the $8.00 to $8.50 range any time soon with memories of demand destruction still fresh in its head. However, given the neutral to bullish weak carry in the nearby futures spread (third study, green line) the move to a major (long-term) uptrend could ultimately result in a test of resistance between $6.25 and $6.98. These prices mark the 50% and 67% retracement levels from the previous major downtrend. Initial resistance is pegged near $5.52, the 33% retracement level.
Similar patterns are also seen in the DTN National Corn Index (NCI.X), an index that represents the national average cash price. As with the futures market, monthly stochastics for the NCI.X established a bullish crossover at the end of March. Again given the neutral to bullish carry in the nearby futures spread, cash corn could look to test $6.10. This price marks the 50% retracement level of its own previous major downtrend from $8.26 through the low of $3.94. Comparing retracement levels between cash and futures would imply a national average basis of about 15 cents under. If the cash market stalls at the 33% retracement level of $5.38, national average basis would be near 14 cents under. The difference between the NCI.X and May futures was 38 cents under.
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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.