This week while looking at the markets, wheat caught my eye. I like the fact that it has had a pretty serious downward trend, but I like the consolidation on the daily chart even better.
The Daily chart is where I would like to start our evaluation today.
On the Daily chart, you can see the obvious downward trend as mentioned. What you will also notice is that the momentum at the beginning of the month tried to buck the trend. We saw an upward swing that wasn’t able to break the top line of this trend, but at the same point has not yet truly been forced back down into lower territory. This being said, you may now have a chance at a second bullish wave which could potentially become the impetus for a trend reversal.
When talking about trend reversal potential, it is always important to realize that if you decide to play a counter trend move you need to watch it very closely and realize that it needs to be evaluated incrementally. It would take a lot of strength to push this trend into an opposing direction, but it could be done. At this point, I want you simply to be aware of the potential for this to happen. As of this moment, we have not yet seen the break necessary to be truly bullish.
The key to your next play of course will now rely upon the actions illustrated via your Daily chart. Our bullish momentum at the beginning of the month hit resistance and stalled. Now, you have to watch the range that it has been observing in this state of consolidation. The numbers that you want to pay attention to are around 689 on the low end (potential to head fake into 684) and 716 on the high end. Right now wheat sits within this range. We want to see a nice break of one of these levels to confirm the best direction for the play.
Now, let’s take a look at the Weekly chart.
Here, I have highlighted the descending channel that we have been creating with our overall downward trend. Once more, there is no denying that the trend for wheat has been bearish. This chart gives you a better overall perspective of how much the descent has accomplished and it also lets you visualize the tops that we need to challenge in order to flip the trend. Realize that there is still room for this to break down should that be its desired direction. We have traded for months on end down in the 560-660 range so none of those levels would be new territory for Wheat.
Wheat can be played in either direction when the Daily chart starts to break. You will want to move with the market’s momentum at that point.
As we come to the Monthly chart, your perspective shifts a little once more as now you can see the last 6-7 years of Wheat’s history. I want you to focus on the support line that I have illustrated and realize that in this latest failure in Wheat pricing, we actually have seen a bit of an upward swing in the big picture perspective. If we are able to respect this support from the Monthly perspective and in addition build bullish momentum after an extensive drop which has lasted for many months, we may have an outstanding potential for a larger longer term push.
It is always important to consider the near term potential, the mid-term potential, and the long term potential together in order to get a better idea of what may be working for you in addition to what may be working against you. In this case, it will be up to that small channel on the Daily chart to show us what kind of power it can gain on the break in either direction. I, personally, would love to see it break to the high side as I think that there is potential there for a really nice move, but the lower levels have been familiar territory that cannot be discounted.
Pay close attention day by day to the tightened Daily range to see what happens next and to decide upon your next move.
For those of you, who may want to explore the Wheat market without “going all in” so to speak, consider utilizing Options to dip a toe in this market. We focus on utilizing Options on these Commodities in order to lessen capital outlay and we use fixed risk strategies that allow you to rest at night knowing exactly where you stand. You should be prepared for the appropriate actions should these markets start to shift. We are here to make your options clear!
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