Don’t Jump Into This Commodity Just Yet
As many other commodities, wheat prices have peaked in June. A bit earlier actually: at 677 US cents a bushel on June 1st, while stock indices and the CRB index posted a high on June11 or 12.
Over the long term, we can identify several technical patterns on the weekly chart. The current one is an uncertainty triangle built by the green ascending support line and by the red descending resistance line. Those two lines are the lower and upper limits of the trading range since last October. This trading range has been narrowing for the last 9 months. The price action found some support around 475 cents in last December (point A), but some new support higher, around 500 cents, a few months later (point B).
The recent resistance level has been around 675 cents (point C). It is set on a line that comes from August 2007. This line was actually the neckline of a “head-and-shoulders” pattern built by points D (head), E and F (right and left shoulders).
Once cleared, this neckline which was a support level has become a new resistance level. On a weekly basis, the current price action looks bearish. The Commodity Channel Index has just crossed its zero line, showing that there is no medium-term momentum. The 20-week Williams %R is also oriented downward: this oscillator had detected an overbought configuration in early June.
On a daily chart, the Relative Strength Index confirmed this overbought configuration and the following bearish signal. The Money Flow Index indicates that the peak posted at 677 cents triggered some profit-taking as money has gone out of the Wheat futures during the whole month of June.
Because those indicators reach low values, a bottom on the price action may be possible. That’s why we expect a further correction of the price action towards the support line (the lower band of the triangle). The current target could be then the area around 530 cents. Then it would become an opportunity for a new bounce.
