Corn Boiling Down to Two Bit Range
Posted on Jun 16, 2017, 06:40 by Dave Toth
Not unusual for this exact time of the year (i.e. a weather market a just before the critical late-Jun crop reports), price action can be extraordinarily volatile and choppy. Only a glance at the hourly chart of the Dec contract below is needed to see what an aimless, treacherous environment this market has been in for the past couple months. But while the longer-term directional jury may still be out, the market has produced some excellent and objective and specific levels around which to base directional decisions in what we believe may be THE MOST PIVOTAL AND OPPORTUNISTIC few weeks of the rest of 2017. And we believe these opportunities will pivot around a two-bit range defined by 08-Jun's 4.09 high and 30-May's 3.85 low.
By ending more than two months of lateral, aimless price action, early-Jun's explosive rally above the 3.95.3.96-area cap to that 2-month chop reaffirmed the longer-term trend as up and defined 30-May's 3.85 low as THE key corrective low and risk parameter the market needs to sustain gains above to maintain a longer-term bullish count. This is a technical fact.
This said, this week's relapse was not unsettling, leaving 08-Jun's 4.09 high in its wake as one of developing importance and an objective short-term risk parameter from which non-bullish decisions like long-covers can be objectively based and managed.
Talk about your wars of attrition. How did we survive nearly eight months of the most aimless, lateral chop between 3.75 and 4.05 shown ion the daily chart above? Yet, as a direct result of early-Jun's spike above 3.96 it's very easy to see that the developing longer-term trend is UP. And as we'll expound on below, as recently as a month ago market sentiment levels were sucking wind at HISTORIC LOWS. This combination of rising prices while the huddles masses are betting AGAINST the bull can be an extraordinarily powerful and opportunistic one to the bull side. And that big other shoe to drop to decide the issue could easily be the 30-Jun crop report.
The daily close-only chart below is helpful in that in eliminates the intra-day "noise" that can cloud days like yesterday when the market spasmed with a gap-lower open, drop to 3.88 and closed at 3.98. On a close-only basis the market has thus far held above key former resistance around 3.95 that now serves as a key new support area and condition. If our broader bullish count is correct, we believe the market should at least hold above 3.95 and really shouldn't come anywhere near 30-May's 3.86 low and key risk parameter.
The weekly close-only chart of the Dec contract above shows the past quarter's resumption of Aug'16 - Mar'17's initial counter-trend rally after an exact 61.8% corrective retrace. There is no question that the longer-term trend is up and that the onus remains on the bear to negate it. And we will judge such a negation by a failure specifically below that 30-May low at 3.85.
For bears trying to find some reason to "hope" for a resumed slide, perhaps the Fibonacci fact that last week's 3.92 high in the still-prompt Jul contract is the exact 61.8% retrace of 2016's 4.39 - 3.15 collapse will come into play. But as we all know by now such merely "derived" technical levels like trendlines, Bollinger Bands, the ever-useless moving averages and even the vaunted Fib relationships we cite often never have been a reliable reason to conclude resistance or support or fade a trend without an accompanying momentum failure needed to break that trend. And they never will.
The COMBINATION of proven weakness below 30-May's 3.66 low in the Jul contract and the rejection of that 61.8% Fib retrace could be a monumental one to the bear side. But this hinges totally on the bear's proof of weakness below that key 30-May low and risk parameter. Until such weakness is proven, the fact of the current matter is that the TREND IS UP. And against the backdrop of historically bearish levels in our RJO bullish Sentiment Index, this market should not only be considered vulnerable to higher prices, but potentially sharp, sustained gains as the market forces the capitulation of the massive short exposure by the Managed Money community.
Finally, on a massively long-term scale that we all too often forget about in favor of capturing that insignificant next 10- or 15-cent "move", we continue to believe that this market has been in a major, multi-year BASE/REVERSAL environment from Oct'14's 3.18 low similar to similar major base/reversal environments circled in blue in the monthly log chart above and quarterly log chart below. As in those previous cases, this does not mean we may not get another spasm down to 3.50 or 3.25 before a reversal higher, and we have that 30-May corrective low and risk parameter around which to navigate such a deferral. But until and unless this market relapses below that low, the technical factors (longer-term uptrend + historically bearish sentiment) are present that warn of not only further gains, but potentially explosive gains similar to those that followed the 2009-2010 base and 1998-2000 base.
These issues considered, a bullish policy and exposure remain advised with a failure below 3.85 required to negate this call and expose a potentially sharp decline. Former 3.96-area resistance is considered key new near-term support. 08-Jun's 4.09 high and resistance cannot be ignored as one of importance and can certainly be used as an objective risk parameter for any reason one might need one, like producers wanting/needing a bear hedge heading into 30-Jun's crop report. But if/when the market breaks above that 4.09 high, its upside potential should be considered indeterminable and potentially severe.
DAVE TOTH
Market Insights Senior Analyst
