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Is That It for the Minn Wheat Bear?

Posted 04/06/2018 12:16PM CT | RJO Market Insights

In 28-Feb’s Technical Blog following that day’s bullish divergence in admittedly short-term momentum, we introduced the prospect for a base/reversal in Minn wheat that could evolve into something significant given ancillary supportive evidence. This call was negated with 19-Mar’s break below 27-Feb’s 6.08 low and short-term risk parameter that reinstated the major bear trend from Jul’17’s 8.69 high. Nearly three weeks on and after continued losses the bullish divergence in short-term momentum resulting from yesterday’s recovery above Tue’s 5.84 corrective high and today’s impulsive continuation higher presents a similar base/reversal-threat condition.

23-Mar’s 6.04 larger-degree corrective high remains intact as our key longer-term risk parameter the market needs to recoup to break the downtrend from 01-Mar’s 6.36 high, but the extent of today’s gains confirms such for most intents and purposes. The key by-product of the past couple days’ recovery is the market’s definition of Wed’s 5.71 low as the end of what is a textbook 5-wave Elliott sequence down from that 6.36 high.
Minn Wheat May '18 60min Chart
Minn Wheat May '18 Daily Chart
From a broader perspective shown in the daily log chart above and weekly active-continuation chart below, the magnitude of the past nine months’ bear trend leaves it below a preponderance of price action in which this week’s relatively minor pop is easily considered part of a mere correction ahead of eventual resumed losses. Indeed, the 5.99-to-6.06-range that supported this market from early-Oct’17 until mid-Mar’s break below it stands now as a key resistance candidate. To arguably threaten or break the major downtrend, strength above at least the 6.10-area and certainly 01-Mar’s 6.36 major corrective high remains required. Nonetheless and given still-arguable major bullish counts across the rest of the grain complex including Matif wheat, traders are urged to consider the past couple days’ recover as an early warning of a base/reversal count that could present an outstanding risk/reward opportunity. The fact that this week’s low was just a penny removed from the (5.72) 76.4% retrace of 2016-17’s entire rally from 4.80 to 8.69 would also seem to highlight the importance of Wed’s 5.71 low as an important level from which to consider and base non-bearish decisions like short-covers and cautious bullish punts.

What we would look for next as reinforcing evidence of a broader base/reversal count is proof of a labored, 3-wave, corrective relapse attempt that holds above Wed’s 5.71 low. This would be the third of our three reversal requirements following a bullish divergence in momentum and proof of impulsive, 5-wave behavior on the initial counter-trend rally attempt. Indeed, after many months of getting its brains based in for all the technical and fundamental reasons, it would be quite atypical for this (or any) market to simply turn on a dime and sustain a counter-trend rally. What typically occurs is a corrective (2nd-wave or right-shoulder) relapse/retest-of-the-low within a broader base/reversal PROCESS that provides the TIME required for all of those bearish fundamental factors to erode and turn bullish.

These issues considered, shorter-term traders are advised to move to a neutral/sideline position and longer-term players are advised to pare bearish exposure to more conservative levels. Further strength above 6.04 is cause to jettison all remaining bearish exposure in order to circumvent the heights unknown of an initial counter-trend recovery. To more objectively position for a broader base/reversal count however, traders are advised to wait for a corrective rebuttal to this current rally that could easily retrace 50%-to-61.8% or more of the recovery from 5.71 and before a more protracted and sustained (3rd-wave) portion of the reversal kicks in. Needless to say, a relapse below our short-term risk parameter at 5.71 is required to negate this call, reinstate the major bear and expose potentially significant losses thereafter.

Minn Wheat Weekly Chart

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