From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
There’s always a bull market somewhere.
But the environment is tough right now.
Volatility is sweeping across markets. The dollar is catching a defensive bid. And the major averages continue their downward trajectory as investors desperately look for signs of a bottom.
Yet, despite the bearish action gripping markets, we’re still finding bases we want to buy.
And, to no surprise, many of those smiley faces are in the commodities market.
That’s where we want to focus our attention.
Today, we'll highlight the wheat complex, outlining some tactical setups that complement our bullish structural outlook for commodities and grains.
Let’s dive in!
First up, we have Chicago wheat:
Earlier in the spring, this contract skyrocketed to new all-time highs. It’s since corrected, forming a multi-month basing formation we want to buy.
As long as Chicago wheat futures are above the mid-March closing high around 1157’1, we like it long with an initial target near 1271.
Our tactical outlook is neutral on a daily close back below those former highs.
Kansas City wheat is another contract the bulls continue to bid higher.
It’s now on the cusp of breaking above key pivot highs from earlier this spring. Here’s a daily chart of KC wheat:
This chart is a great example of the Dow Theory tenet that trends persist. It illustrates an expanding and contracting market within a primary uptrend – one base breakout after another.
It’s also a cleaner setup than Chicago wheat, allowing us to define our risk at the former highs. We want to capture the next breakout and subsequent leg higher.
Since KC wheat did not experience a similar parabolic run-up as Chicago wheat, our best bet is to wait for this contract to take out its intraday highs from early March.
If and when KC wheat breaks above 1300, we want to buy strength, targeting 1488. If we never reclaim those former highs, we’re not involved. No harm, no foul.
A review of the wheat complex wouldn’t be complete without mentioning Minneapolis spring wheat.
Here’s a daily chart of the futures contract:
Minneapolis wheat has been on our radar since it resolved higher from a running wedge last July. And from a structural perspective, we’ve been bullish above the former 2012 highs around 1050.
This is another trend that keeps marching higher. We want to err on the side of continued strength until the market indicates otherwise.
The train has already left the station from a tactical perspective as spring wheat has moved markedly higher from our risk level. We can either wait to see how price reacts at the extension level near 1355 or buy weakness back toward 1210.
Regardless of how we approach the recent breakout, Minneapolis wheat will provide plenty of trading opportunities in the coming months and quarters.
Plus, its strength can only be viewed as constructive for the rest of the wheat complex.
There are plenty of frowny faces out there resolving lower.
That’s a fact.
Lucky for us, we don’t have to participate in those trends.
Instead, we can focus our time, energy, and capital on those areas of the market that are still providing buy signals – such as wheat.
We’ll be back with more next week!
COT Heatmap Highlights
- Platinum: Commercials hold one of their largest long positions in three years.
- Crude Oil: Commercial hedgers' net long position increased by more than 15,000 contracts last week, nearing a three-year extreme.
- Palladium: Commercials hold a net long position within 5% of a three-year extreme.
- RBOB Gasoline: Commercial hedgers extended their long position to less than 7% away from a three-year record.
Click here to download the All Star Charts COT Heatmap.
