Portfolio

Dissector: Corn futures reversing from long-term resistance level

Yoganand D. | Updated on March 28, 2011 Published on March 19, 2011

corn

In this week's dissector we decipher the two agricultural commodity corn and wheat. These commodities are traded in various international exchanges including the Chicago Mercantile Exchange. Corn contract traded on Chicago Mercantile Exchange (CME) is considered the benchmark for tracking this commodity.

Corn futures (closed at 6,83.5) has been very volatile since 1973. It recorded its multi-year low at 142 in 1987 and high at 765 in 2008. After taking long-term support between 185-200 range in late 2005, these futures started to trend upwards.

The contract witnessed selling interest as it approached its key long-term resistance zone between 725 and 750 in early March 2011 and it peaked at 735 .

As long as the contract trades above its significant longer-term support at 400, the long-term outlook stays positive.

The corn futures can trend higher once more to the key resistance band between 725 and 750. Emphatic breakthrough can take the contact higher to 800-815 range. On the other hand, conclusive tumble below this support can pull the contract down to 350 and then to 300.

Medium-term

In June 2010, corn futures found support at 325 and resumed its long-term uptrend. Nevertheless, the contract hit a resistance and is on a corrective decline since the beginning of this month.

A strong weekly close above 670 levels would indicate that the can once more rally higher and test its resistance at 750 in the medium-term. But the inability to move beyond 670 can pull the contract down to 610 and then to 585 levels.

The current uptrend remains in place as long as it hovers above the long-term base zone between 520 and 530. Strong close below this zone will mitigate the uptrend and pull the futures lower to 450 and 400 levels.

Wheat long-term

Wheat futures (closed at 723) traded on CME was in a sideways consolidation phase between 220 and 550 from 1973 till early 2007. Subsequently, wheat futures rallied higher to mark a multi-year peak of 1,349 in early 2008.

However, it changed direction and declined until it found support at its longer-term base at 425 levels in June 2010.

Wheat futures is very volatile in nature and it does not follow a clear long-term trend.

Strong break through of its immediate long-term key resistance at 750 can lift the contract higher to its next resistance at 900 in the long-term. On the downside, decisive tumble below the important support level of 650 will drag the contract down to 570, 500, 425 and then to 350 in the same timeframe,

Medium-term trend

The contract has been on a medium-term up trend since its June 2010 low of 425 levels. Wheat futures recently took support in the band between 650 and 660 and bounced up by 7 per cent on March 17.

The contract had rebounded from this level many times last year.

Current rally continuing beyond 750 will push the contract higher to 800 and then to 900 in the medium-term.

Nevertheless, strong weekly decline below 650 can accelerate the decline to 600. If this level fails to hold the contract, the medium-term uptrend will be in threat and it can slip to 570 and 550 levels.

Published on March 19, 2011

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