In fact, much of the sideways chop in commodities is taking place at logical levels of resistance. And aside from the dramatic sell-off in lumber, we see more upside resolutions than violations of critical support levels.
We recently pointed out that base metals managed to hang tough in the face of a significant correction in copper. And this week, tin is breaking out to new all-time highs.
OJ is also breaking loose this week after repeatedly testing the upper boundary of a multi-year base.
But this week, we’re going to focus on a breakout in a section of the commodity market that hasn’t received much attention lately: grains.
Since the explosive moves we witnessed in the spring, much of the grain market has quieted down. However, it’s impossible to ignore this big base breakout in Minneapolis Spring Wheat.
Here’s the weekly chart of Minneapolis Wheat: Whether we call it a rounding bottom or double bottom is unimportant. The fact is Spring Wheat has finally cleared the 825^0 level, breaking to new 8-year highs.
As the great Louise Yamada likes to say...the bigger the base, the higher in space.
And this is a great example of the type of base she’s talking about!
We want to be long the September contract of Minneapolis Wheat $MWEU1 as long as we’re above 825^0 with an initial upside objective near the 2011 highs of 1030^0.
But from a tactical standpoint, the volatility surrounding the breakout level stands out.
When we zoom in on the daily chart, that volatility formed a rising wedge that actually resolved higher yesterday. We love it when patterns fail like this. Price action can move quickly in the grain markets, especially when the weather is a contributing factor.
Most importantly, this is a market we don’t want to chase. To be clear, we never want to chase breakouts. But grain markets have a penchant for punishing the undisciplined investor.
Given the breakout level on the weekly chart is almost an entire dollar away from the current price, it simply doesn’t fit our risk/reward standards to use that level as a protective stop.
But If we want to give the trade a little more room, we can wait to buy weakness on a pullback if we get it. Or, we can play this one tight, moving our stop to just below yesterday’s low near 873^0, cutting our risk in half.
Whether we choose to get involved in Spring Wheat now or wait for a better entry later, there are plenty of developing opportunities and pockets of strength in commodities worthy of our attention.
As always, let us know what you think. We love hearing from you.
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