Technically Speaking

A quick look at the weekly chart for July corn and nothing glaring seems to have changed. However, upon closer study the contract may not be indicating that its secondary (intermediate-term) trend has turned from sideways to down. Activity early this next week could tell the tale.

First and foremost, let's go into what the contract did not do: July corn did not establish a bearish reversal on its weekly chart like the July soybean contract did. After trading above the previous week's high of $5.16 3/4, it did not fall below the low of $4.90 3/4 before closing lower. On the other hand, weekly stochastics did grow more bearish, building on the bearish crossover established above the overbought level of 80% the week of April 6.

The next key test in July corn could be the establishment of a four-week low. The Four-Week Rule states that a new trend can begin when a contract (market) goes to a new four-week high (uptrend) or four-week low (downtrend). Given corn's personality quirk of tending to trend sideways, this rule often comes into play. In this instance, the previous four-week low is now the same $4.90 3/4 mentioned earlier. Last Friday's close of $4.99 1/2 has the contract in position to possible test this market early this coming week.

It is also interesting to note that the four-week low in question ($4.90 3/4) is also a test of price support near $4.90 1/4. This price marks the 33% retracement level of the previous uptrend from the low of $4.21 3/4 through the high of $5.24 1/4. Given that the weak carry in old-crop futures spreads continues to show a neutral commercial outlook, the July contract would be expected to see a 33% to 50% retracement. This would put the lower end price target at $4.73.

However if we use the recent sideways pattern between the four-week high of $5.24 1/2 and low of $4.90 3/4, and subtract the range (33 1/2 cents) from the low, the downside target could be placed near $4.57. If so, this would be a test of the 67% retracement level near $4.56.

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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.