Technically Speaking

KC (Wheat) At the Bat

Source: DTN ProphetX

Maybe it’s the fact high temperatures for much of the U.S. grain growing area is forecast to be well above freezing this week, melting some of the blanket of snow left by Winter Storm Linus, that has me thinking about baseball already. The U.S. Southern Plains, home of the bulk of the HRW wheat crop, is expected to see high temps 13 degrees to 15 degrees above normal, with parts of Oklahoma and Texas running consistently in the 70's. In February. The 70's. To heck with Punxsutawney Phil.

Is it any wonder the new-crop July Kansas City (HRW) wheat contract (KWN5) looks like it is about to get interesting?

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Last week saw the KWN5 post a bullish key reversal, one of the more important technical signals I look for when it comes to changes in trend. A bullish key reversal means the contract moved to a new low, in this case $5.37, before rallying back above the previous week's high ($5.74 1/2) and closing higher for the week. Take a look at the attached chart: KWN5 posted a high of $5.76 and closed at $5.67 1/4, up 21 cents from the previous Friday's settlement. The bottomline is that KWN5 is showing that it is set to embark on a secondary (intermediate-term) uptrend, possibly leading the rest of the wheat complex higher as well.

Getting a read on the bullishness or bearishness of wheat futures spreads remains difficult due to the variable storage component, though the July to September Kansas City (bottom study, green line) continues to trend sideways at a strong carry near 11 cents. If this is indeed a reflection of bearish fundamentals, then the upside potential of this new secondary uptrend would be limited to a test of $6.31, the 33% retracement level of the downtrend from $8.20 through last week's low, with a chance of an extension to the 50% retracement level of $6.78 1/2.

For what it's worth, a similar pattern (bullish key reversal) was seen in the March Kansas City contract. With the bullish fundamentals indicated by the uptrend (weakening carry) of the March to May futures spread the upside target area would be between $6.97 1/2 and $7.52 1/2, the 50% and 67% retracement levels of that contract's previous downtrend from $8.62 through its low last week of $5.33.

Weekly stochastics for the July Kansas City contract are nearing a bullish crossover below the oversold level of 20%; another signal that if/when established over the coming weeks would confirm the secondary uptrend indicated by the key bullish reversal.

Maybe KC (wheat) strikes out again, as the feared baseball player did in the legendary poem. But for now it looks like HRW wheat, both new-crop and old-crop, are ready to round the bases.

Man I'm looking forward to baseball season.

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom

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