Trading Corn & Wheat

December 20, 2002
The Selling Just Keeps Coming

Wheat markets continued in the bearish trend with another wave of selling late last week. This time, it was the commercials who took the lead in the selling melee, with the funds closely behind.

It’s one thing when the funds are the major players, and we try to convince ourselves that when the dust settles, the “real” value of wheat will be realized, and the buyers will step. Only problem is, it’s the commercials that are usually the buyers. And when they are the ones selling in force, it makes one wonder just where the value is in the market.

We know the Black Sea region has wreaked havoc on this market, and that the EU has plenty of feed wheat, but it was beginning to look like the Black Sea was running into quality problems, and maybe we’d get another shot at the milling market. But, Friday’s action makes one think twice about jumping back onto the bullish side. Particularly with the impending Jan. 1 tariff imposition by the EU on imported wheat, aimed mainly at keeping Black Sea wheat out. This only forces the Black Sea to look for other markets, and increases their competition for us.


The seasonal tendency isn’t in our favor, either as there is a strong tendency for wheat to decline in the last few days of the year and the first few days of the new year, mostly due to farmer selling for tax reasons. Unfortunately, this comes at a time when buyers are all but absent from the market as they take time off for the holidays.

Technically, the Chicago March futures did come down to where the December futures expired (3.445), and also filled the gap at 3.425, and for a while, looked like it may even find support there. Unfortunately, the market continued on through the gap, getting down to 3.405 before the day was over. This type of action, where we get swift and aggressive selling, hitting stops on the way, is often the sign of a washout, which often leads to at least temporary bottoms (or highs). Typically, when lots of stops get hit on the downside, the sell orders get filled (sell-stops), and “cleans” up the market.

So from here, we either get a nice rebound - now that the sell stops have been cleaned up and we’re reached the downside objectives, or the market finds another round of selling. If we get more selling, then this move takes on the look of a three or four day major selling debacle and would likely establish a long term low. (I guess there’s something good in everything.) My thinking is that we find a temporary low here and get a reactionary bounce, one that would be worth trading if we get the right signal.



That signal would be to buy Chicago March wheat at the old low of 3.465 on a buy stop; in other words, we’re not getting long unless the market trades up to that point. Then put a stop below the swing low. This has to happen on Monday or don’t take that particular trade. We have to be cognizant of the time frame, as we’re just entering into the seasonally weak period, and there could be more selling to come, so manage any trades carefully, keeping risk to a minimum.

SUPPORT
If the market continues to sell down, the next support is the 3.30 area on Chicago March, and then 3.13, the weekly breakout. Upside resistance sits at the gap left from today at 3.49-3.50, then the swing high of 3.635. In Kansas City March, downside support is a gap from 3.695-3.64. Upside resistance is the gap left from Friday at 3.87-3.885, and then the swing high at 3.98.