Technically Speaking

We're all familiar with the line from a Tennyson poem, "In the Spring a young man's fancy lightly turns to love." It's now springtime (by my calendar anyway), and while it may not be love, the young winter wheat market has turned its fancy toward weather.

Take a look at the weekly chart for the new-crop July Kansas City contract and what do you see? The trend is decidedly up as the contract flies through technical resistance points, first near $6.88 1/4 then then $7.33 this week. At the same time the July to September futures spread (second study, green line) has seen its carry whittled from 12 3/4 cents (early January 2014) to this week's 5 1/4 cents. This level marks the weakest the carry has been since mid-October 2013. Remember that a weakening carry reflects an increasingly bullish commercial outlook.

But why would this group be growing more bullish? As the HRW crop breaks dormancy across the U.S. Southern Plains, concerns are growing over its early conditions due to ongoing drought. A lack of precipitation in any form, combined with incessant winds (recently reported at a sustained 50 mph in some areas), has already created a dust storm (both literally and figuratively) in the wheat market.

Weekly stochastics (bottom study) show that there may still be room for the July Kansas City contract to run, coming in below the overbought 80% level as we near the weekend. It is possible that the contract could extend this rally to near $7.77 3/4 before an overbought situation emerges that could lead to a minor (short-term) sell-off.

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