Wheat prices declined 15.5¢ last week, closing at $5.1625. Prices have been in a weekly range for most of 2009 due to weak export demand and ample world supplies. While the fundamental outlook is currently weak, the technical picture shows that opportunity is looming for buyers. The weekly chart shows that price has crossed the down trendline (dashed blue), something necessary for a trend reversal. There have been three penetrations (see 1, 2, 3) of old support at $5.70. The first two penetrations resulted in buyers sending wheat prices back above support. Since the first penetration, trend strength has progressively weakened (ADX < 25). In the coming weeks, price will reach a level that attracts buyers and causes the shorts to cover their positions, creating a third cross back above the $5.70 level (red arrow). This would put wheat back in the buy zone, and a trend reversal could follow.
Chart Courtesy of TradeStation
Dr. Charles B. Schaap is the author of ADXcellence—Power Trend Strategies and Invest with Success—Big Profits for Small Investors. Dr. Schaap is a commodity futures strategist and recognized authority in technical analysis of the financial markets. His website is www.adxcellence.com.