Technically Speaking

March Corn's Turn Signals

Source: DTN ProphetX

Let's get one thing out of the way at the start, nothing you are about to read changes the fact that the corn market remains in the major (long-term) trend established at the close of trade this past October. I said it then, repeated it in my annual outlook presentation at the DTN/The Progressive Farmer Ag Summit in Chicago earlier this month, and am saying it again here: The long-term downtrend that began back in 2012 is over.

Those familiar with my analysis know I see trends in three timeframes. First is the minor (short-term) trend on daily charts. From a marketing point of view, I pay little attention to these due to their nature of quick changes. Next is the secondary (intermediate-term) trend on weekly charts on which much of my analysis is based. Signals established on weekly charts perform reasonably well, helping us to make adjustments in our risk management strategies. Lastly there is the major (long-term) trend on monthly charts. I use these to establish my long-term (naturally) view of what direction a market should be headed.

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In the case of corn the monthly chart remains bullish (for more information, see this weekend's monthly analysis blog post). That means that though there will be shorter term rallies and sell-offs, over the long haul the market should continue to work higher.

However, given what we see early Wednesday morning, March corn is indicating one of those sell-offs could be set to begin at the end of this week. If the contract posts a weekly close below last Friday's settlement of $4.14 3/4, a strong possibility given it traded down to $4.04 3/4 overnight (Tuesday into Wednesday morning), it will establish a bearish key reversal and likely a bearish crossover by weekly stochastics. Either would indicate the secondary trend has turned down. Both would confirm the idea.

A bearish key reversal is established when a contract moves to a new high for the uptrend, falls back below the previous timeframes low (in this case the previous week), before closing lower for the timeframe (again, weekly in this case). This past Monday saw March corn post a new high (for this uptrend) of $4.17 (last week's high was $4.15 3/4) before falling back to the aforementioned overnight low of $4.04 3/4 (last week's low was $4.05 3/4). Barring a miraculous rally around Thursday's holiday, the contract seems destined for a lower weekly close, thus establishing a clear bearish key reversal.

A bearish crossover by weekly stochastics occurs when the faster moving momentum line crosses below the slower moving momentum line, with both above the overbought level of 80%. Take a look at the weekly stochastics for March corn (bottom study), and you'll see that as of Wednesday morning the faster moving blue line is calculated at 91.6% while the slower moving red line is at 92.4%. Assuming that the contract closes nearer to its weekly low than weekly high, the blue line should stay below the red line with both above 80% creating a classic bearish crossover that would act as confirmation to the key bearish reversal seen on the contract's weekly bar chart.

If all this happens, then what? As I discussed at Ag Summit, the corn market should establish an early winter high before drifting lower in late winter or early spring. Given that the March to May futures spread (not shown) is still trading at a slightly bearish level of carry (Wednesday's 8 1/2 cent carry is roughly 67% of calculated full commercial carry), the downside target would be $3.73 3/4. This price marks the 50% retracement level of the just completed secondary uptrend. If the carry in this spread grows more bearish, a slide to the 67% retracement level is possible. However, the weekly chart shows there is a pocket of support formed by previous weekly lows near the 50% level making it a more reasonable target for the contract to find new buying interest.

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