Technically Speaking
Darin Newsom DTN Senior Analyst

Wednesday 06/04/14

Dec Corn's Downtrend

The move into summer - also known as the start of June - turns the focus to new-crop spring markets, most notably December corn. And as most of us know, the Dec corn contract has been in a solid downtrend since posting a double-top on its weekly chart near $5.17 the weeks of April 7 ($5.17) and May 5 ($5.14 3/4). It is interesting to note that both weeks saw the contract close lower than the week before.

Source: DTN ProphetX

Weekly stochastics (bottom study) also turned bearish, establishing a crossover above the overbought level of 80% the same week of April 7. Since then the indicator has steadily moved toward the oversold level of 20%, with the faster moving blue line at 14.5% and the slower moving red line at 26.8% early Wednesday morning.

Given that there is still room for the stochastics to go down, the futures contract would be expected to continue to slide lower. Excluding the spike to the low of $4.35 (week of January 6) there seems to be a pocket of support at a series of lows between $4.45 and $4.48.

Fundamentally the market remains neutral, as indicated by the sideways trend of the December to March futures spread (second study, green line). The 9 1/4 cent carry remains at a neutral 50% of calculated full commercial carry (less than 33% is considered bullish, more than 67% bearish). This could continue to provide support and keep the market from an extended sell-off back to its spike low.

If the commercial side provides support, that would indicate noncommercial traders could keep the market under pressure. Market volatility (third study, red line) has been creeping up slowly, possibly sparking increased noncommercial long-liquidation in the futures market in general. Without a bullish fundamental reason to stay in the game, this activity could continue.

However, the December contract priced between $4.55 and $4.45 puts it near the lower-third of the five-year price distribution range (not shown). This could be enough to eventually spark renewed buying interest from both sides of the market. As for timing, the nearby futures contract tends to post a seasonal low with the weekly close the first week of July.

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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 8:01AM CDT 06/04/14 by Darin Newsom
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