The grain sector is trading higher today, with Corn, Soybeans, and Wheat all finding a bid. Many media outlets are reporting it as “bargain buying”  but from my view, the move higher has to due with technicals and intermarket tailwinds. Let’s take a look at both of these variables and walk through a current update on the Grain sector.
From an intermarket perspective, look no further than the US Dollar Index. When I wrote my last update on Corn prices, I wrote the following:
The current pullback in Corn prices has been orderly, and thus far appears to be constructive, especially when considering headwinds like a stronger US Dollar.
The US Dollar is currently trading well off its highs set over a week ago (95.86) and this is likely providing a boost to the grains. Should the US Dollar remain at bay for more than a matter of days, this would be constructive.
My specialty is analyzing the price action (technicals). Price takes all factors into consideration: fundamentals, intermarket, news etc… Let’s start by looking at a price chart that captures the price action of the Grain Sector from a macro technical perspective.
Grains Sector: Corn, Wheat, and Soybeans Prices
Now let’s break them down one by one.
Corn
As you can see in the chart above, Corn prices bounced off of a key lateral price support level. But this isn’t just any old support level… it may be the key to unlocking a larger rally.
The chart below is from my recent update on corn prices (I simply updated it with new price bars). And nothing has changed since my update. So rather than retype what I wrote on January 20th, I simply copy it below:
The primary support zone for Corn is between $3.67-$3.80. Note that this support area is in line with retracements of 38.2 and 50 percent. The line in the sand would be a 61.8 percent retracements (3.56). If these levels hold, then Corn could regroup for a rally back towards its summer breakdown levels ($4.45-$4.60). But if they fail to hold, then Corn may be looking at a more significant decline to retest the October lows.
March Corn futures hit a low of $3.66 on January 30th and have rallied strongly off that level. The recent lows hit almost to the penny of the 50 percent retracement of the October to December rally (as mentioned above). And it’s important that these lows continue to hold. Below that is critical support at $3.56.
Corn Chart – Spot Prices
Wheat and Soybeans
I lump these two together because they are in a similar situation. Both are facing overhead resistance and until that resistance is taken out, they remain neutral.
And since Corn appears to be in the best technical shape of the grains, it’s worth noting that a positive change in price behavior for both wheat and soybeans (i.e. a rally) would go a long ways in boosting the entire grain sector.
For Wheat, overhead price resistance lies in the $5.20 to $5.40 congestion area. A move above $5.40 would be constructive. However, a move below the lows would be a reason for caution (see longer-term chart below).
Wheat Chart – Spot Prices (Daily)
Looking at a longer-term log chart of Wheat, you can see why its important for Wheat to hold its 2014Â lows (at least on a monthly closing basis).
Wheat – Spot Prices (Monthly)
For Soybeans, overhead price resistance lies in the $10.50 to $10.65 level. A close above $10.65 would likely signal that there are more gains ahead. However, a move below $9.50 would signal a retest of the fall lows.
Soybeans Chart – Spot Prices
Thanks for reading.
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No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
