Upper Corn Range Next Slippery Slope

January 5, 2017 10:01AM CST

In 22-Dec's Technical Blog we warned traders of the constraints that stemmed from the lower recesses of the 3.69 - 3.41-range that has dominated price action for the past three months.  27-Dec's bullish divergence in momentum stemmed that slide and exposed another intra-range recovery.  A week later the market is now encroaching on the UPPER recesses of this range that must be approached as cautiously and suspiciously as we approached the late-Dec run at the lower end.  Specifically, traders are urged to keep a keen eye on MOMENTUM, where even a short-term failure could result in another multi-week, if intra-range relapse.

The hourly chart below clearly shows the intermediate-term trend as up.  Today's latest spate of strength leaves Tue afternoon's 3.54 low in its wake as a very tight but no less objective corrective low that shorter-term traders can now use a MICRO risk parameter from which to rebase and manage the risk of a cautious bullish policy and exposure.

Corn 60 min

Corn Daily

There are a couple critical differences to the market's encroachment on the upper range resistance however.  First, the past quarter's mere lateral, rangey chop comes AFTER Aug-Oct's initial counter-trend rally that, in fact, broke Jun-Aug's downtrend.  From a longer-term perspective the major trend is arguably UP with the past quarter's lateral range a mere correction within this new uptrend that should not surprise by  its resumption to new highs above 20-Oct's 3.69 high.  Yes, that 3.69 high and resistance is the EXACT 38.2% retrace of Jun-Aug's 4.53 - 3.25 decline on a daily log scale basis above.  But Oct-Nov's relapse attempt stalled at the EXACT (3.41) 61.8% retrace of Aug-Oct's 3.25 - 3.69 rally, consistent with our preferred count calling for a broader base/reversal environment from 31-Aug's 3.25 low.  We have a required a failure below that key risk parameter defined by 01-Dec's 3.41 low and the market simply has not been able to do it.

Secondly, market sentiment remains historically tilted to the bear side.  Both the Bullish Consensus (marketvane.net) and our proprietary RJO Bullish Sentiment Index have recovered a bit from their Aug/Sep lows, but at 35% and 37%, respectively, it remains clear that the preponderance of corn market participants remains bearish.  From a contrary opinion perspective, if this market is "vulnerable" to a direction, it is UP.  A bust-out above 20-Oct's 3.69 high is NOT what the consensus expects. It IS what we expect until and unless the market fails below 3.41.

Corn Weekly

Corn Weekly

Traders are reminded that on a weekly basis shown in the log scale active-continuation chart above, the market has broken Jun-Aug's downtrend and has yet to provide the evidence necessary to break the recovery from 31-Aug's 3.15 low, so continued and possibly accelerated gains should not come as a surprise.  From an even longer-term perspective shown in the monthly log chart below, we maintain our assertion that the past TWO YEARS' price action from Oct'14's 3.18 low is equatable to the major base/reversal environment that STARTED with Dec'08's 3.05 low and didn't really "reverse" until Jul/Aug 2010, almost two years later.

These issues considered, a bullish policy remains advised with weakness below 3.54 required for shorter-term traders to move to the sidelines and commensurately larger-degree weakness below 3.41 for long-term players to do the same.  In lieu of such weakness and while allowing for more grudging/lateral-to-higher price action as the market engages the upper-quarter of the 3.69 - 3.41-range, we anticipate a continuation of this uptrend and an eventual breakout above 3.69 that could expose accelerated gains thereafter that would surely make the consensus bears uncomfortable.

Corn Monthly

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