Technically Speaking
Darin Newsom DTN Senior Analyst

Wednesday 05/28/14

Corn: Stochastically Speaking

The corn market has done an abrupt about-face this month, leaving the nearby July contract poised to establish a bearish key reversal on the long-term continuous monthly chart. After posting a new high of $5.19 1/2, a mere 1/2-cent above the April high, the contract has fallen well below the April low of $4.85 1/2 and is all but guaranteed a monthly close below the April settlement of $5.14.

Source: DTN ProphetX

If this occurs, and it seems it will, the corn market would establish a downtrend. As the monthly chart shows, the July contract is already testing technical support near $4.62 1/2, a price that marks the 50% retracement level of the uptrend from $4.06 1/4 (January 2014) through the April high. A move below this support would indicate a possible test of the previous low in the coming months.

Monthly stochastics (second study) would seem to be in agreement. While holding near the oversold level of 20% approaching the end of the month, it would not be out of character to move back below this level before establishing another bullish crossover. As John J. Murphy wrote in his book "Technical Analysis of the Futures Market" (1986 edition, pg. 305), " A bullish divergence is present when the D line (red line) is under 30 (%, though I use 20% in my analysis) and forms two rising bottoms while prices continue to move lower."

In the case of corn, monthly stochastics saw an initial crossover below 20% back in March 2014. At the end of the month, the faster moving blue line (K line) was at 15.7% while the slower moving red line (D line) was at 12.8%. If monthly stochastics move back below the 20% level as the futures market trends down, as expected, then establishes another bullish crossover, it would be a stronger signal that the major (long-term) trend has turned up. Given that this is a monthly chart, it could take a while to develop.

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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.

Posted at 8:09AM CDT 05/28/14 by Darin Newsom
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