This soft commodity has suffered strongly last year when the crisis pulled metals, energy and agricultural prices back to low levels. After a rebound this year, wheat price action has plunged once again. And now it is about to reach a long-term support that is likely to generate another rebound.
Let’s see this in details. First, have a look at the weekly chart. It gives an immediate and clear snapshot of what the price action has been doing for the last few years. You probably remember that the boom of many commodities occurred in the second half of 2006. This is what happened with Wheat, as the price took off from $3.60 per bushel in August 2006 to a historical high price of $13.49 in February 2008, only 18 months later. That was a 274% rise (point D on the chart).
After a typical “head-and-shoulder” technical pattern (points E, D and F), the price action came back to the recent low of $4.50. The long-term support that we were mentioning above is set at $4.30. This is the horizontal blue line on the chart that corresponds to a previous high that became a new low almost one year later. And as wheat prices have been declining for one year and half, this is clearly a potential target for bear players and a great opportunity for a rebound.
Several indications, added to the presence of this long-term support line, make me think that there is a potential upside to come soon. First, the On Balance Volume (OBV) shows that money flew regularly out of this future contract during the last 12 months. This indicator reached extreme low level. A rebound opportunity would attract some decent money then would create some decent bullish volume.
The Relative Strength Index (RSI) does not show that Wheat is oversold however a bullish divergence has appeared as the RSI did not confirm the recent new low posted by the price action.
The risk is therefore clearly on the upside now. The bearish trend could exhaust around $4.30 and a bounce would be expected from there. In this scenario, the previous high of $5.50 posted in early August could be a first target. Oppositely, a significant break below $4.30 would confirm the bearish direction.
{ 0 comments… add one now }
Leave a Comment
Comment moderation policy: Port Phillip Publishing supports free speech and frank and open conversation. But we reserve the right to modify or delete your comments if we consider them to be offensive or in violation of any laws, including Australia's anti-discrimination laws