Charts help signal spring wheat price direction

Algorithms? Fibonacci levels? retracements? | There’s more to predicting spring wheat price than supply and demand

New crop spring wheat futures are tickling the underside of an important resistance level, and higher highs are possible if they can make it wriggle out of the way, technical analysts say.


However, prices might remain choppy beneath resistance and above support for a while before a decisive market direction becomes apparent.


“Right now it’s resistance until it gets through it,” said David Drozd of Ag-Chieve, a technical analysis market advisory firm in Winnipeg.


“Because of the distance we’ve come (from the January lows) to get here, it would not be uncharacteristic of the market to sit back and have a bit of a breather before it pushes through that level.” 


Drozd said wheat futures still have a generally upward trend, so he thinks prices are more likely to move above $8.30 per bushel than break down much below $7.70.


Darin Newsom, senior analyst at DTN, said spring wheat futures are now sharply overbought. The December 2014 Minneapolis futures recently almost reached the previous high of $8.30, set a year ago in May. As a result, they are likely to bounce lower from these levels. The amount they fall is an open question.


“Given its technical structure, (the December futures contract) could see a sell-off back to support between $7.61 and $7.27,” said Newsom.


Those possible support levels are based on retracements of 33 percent and 50 percent, which are typical levels used by analysts using classical Dow chart analysis. 


Newsom also uses Fibonacci levels but relies on them more in markets that are more heavily influenced by math and computer-based traders, whose decisions are based on algorithms. The wheat market is still more influenced by chartists relying on Dow levels like 33, 50 and 67 percent.


An interesting element of technical analysis is that it has to grapple not only with the market’s unconscious pricing decisions but also with the fact that some significant players in the market trade specifically on certain key levels, which by itself can dictate when prices change direction. 


Technical analysis relies on the assumption that past price behaviour reveals patterns that can lead to successful predictions of likely future price moves. Tech analysts generally assume that all the fundamental supply and demand information presently known has already been factored into prices, so looking at the fundamentals is useless for predicting where prices are likely to go.


Tech analysts can use a vast array of technical signals and measures, and each analyst tends to develop his own set. 


Both Newsom and Drozd like using stochastics, which are price momentum measures, as well as general observations about support and resistance levels. 


Drozd is watching the $7.70 level closely because that was where spring wheat futures peaked in March and April before the recent surge toward $8.30. Prices lingered near there for weeks before reaching higher.


“Old highs do tend to be areas of resistance that a market may stall at before moving higher,” said Drozd.


“It leaves us vulnerable to a pullback before it decides to see if it wants to go higher or not.”


Newsom said a major selloff to lower support levels has not yet been signaled, but it’s worth watching closely because wheat makes up its mind quickly and decisively.


“No sell signal has been established yet, (but) wheat has a tendency to establish tops (and) bottoms quickly,” he said.

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  1. James on

    Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
    - seasonal top in place…lower we go

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