Technicals | Mar 16 2022
Bottom Line 15/03/22
Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 953 / 735 (May 2022)
Resistance Levels: 1364 (all-time highs)
[Note: All prices US$/bushel, Chicago Board of Trade futures]
Technical Discussion
Reasons to remain optimistic (above 953):
→ the multi-year downtrend has now reversed
→ the larger breakout above 953 pushed price into new all-time highs
→ watching old resistance now to see if it can revert to strong support
→ inflationary pressures on food could well see Wheat prices robust for some time to come from here
Wheat over the past few weeks has been on a powerful move north. The move in fact tagged an intraday high last week circa 1363 on the May 2022 contract. A level we believe to be all-time highs after having tracked prices back to 1978. The recent move exceeded the highs attained back in 2008 circa 1334. So pretty much a double top has been tagged, with price action now having a well-deserved breather.
So why the sudden rise in Wheat prices. Firstly there has been intensifying concerns about global food inflation. And secondly, more recently there have been concerns of supply issues due to the war in Ukraine. What many people are not aware of is that Ukraine and Russia account for about 30% of the world’s traded wheat. And since the war started, the futures contract has jumped a solid 50%.
From a technical perspective though, we now need to observe how this breather unfolds. If we label the recent move north as a Wave-1 or A high, then what we are witnessing now is a Wave-2 or B pullback. And these often head into the 50.0% – 61.8% retracement zone circa 1050 – 978. We are working in bushels here so $10.50 – $9.78 USD per bushel (the price chart is shown in cents). This zone also has confluence to old resistance now potentially acting as support circa 953. So if price can hold above this zone and consolidate for a period of time, it could set the scene for a larger cup and handle pattern to form. Which would be a very bullish development looking well ahead. The wheat futures contract is back on our radar.
Trading Strategy
We missed the brief opportunity recently to trade the contract higher. Yet if the aforementioned larger pattern continues to evolve from here with old resistance proving it can revert to strong support, then a trading opportunity on the long side may well present to us at some stage in the near future. Especially for those more diversified traders who enjoy trading futures markets. Something worth considering, especially when traditional markets are on edge and not offering up many opportunities to trade. We will keep you posted.
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