After hitting historic levels of support dating back to the mid-2000's, grain markets caught a bid this past summer and went on a tear. This week many grain markets either ran into major areas of overhead supply, or retested former resistance levels turned possible support. It appears the recent rally is loosing steam at these key levels, and I want to put recent price action into context.
Below is a custom, equally-weighted index including the Bean Complex, Wheat Complex and Corn. Since the Bean Complex has led the way, especially Soybean Oil, I wanted to get a broader picture of some of the more actively traded grain markets.
What really stands out is the breakout accompanied by a well defined bearish divergence in momentum. Bearish divergences and deteriorating momentum were seen in some of the individual components, but this custom index brings it to the forefront.
I don't necessarily think we are seeing a false breakout or a failed move. Instead, we are most likely experiencing continued digestion of overhead supply.
The weekly chart of Soybeans looks very similar to the custom Grain Index. Notice how meaningful the confluence zone of Fibonacci levels have been since 2013. It makes total sense for price to stall around these levels.
Constance Brown points out in her book, Fibonacci Analysis, the added importance of our indicators at confluence zones. The bearish divergence in the 14 period RSI was more apparent on the daily chart.
It's hard not to believe that we are on the cusp of a major bull market in commodities. Gold led the rally cry in the Summer of 2019, and Copper recently broke above significant overhead supply in a most convincing fashion. Along with the current market environment of a weakening Dollar and the potential of rising interest rates, the conviction of higher prices in grains and commodities as a whole strengthens.
However, at the end of the day price pays! Markets that are turning away from key resistance levels are not areas we want to put our money. Even though grain markets hit pause this past week, they still have plenty of potential in the coming weeks and months.
I'll be keeping my eye on these markets.
Thanks for reading! If you have any questions or comments, please feel free to contact me at ianculley@culleycharts.com
DISCLAIMER: All information and opinions expressed by Culley Charts are strictly that, and should not be construed as investment advice. Market participation comes with inherent risk, and the responsibility of managing this risk lies solely with each individual investor.
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