US corn futures plunged a mind-numbing 4.2 percent on an intraday basis after China's retaliatory tariffs. However, it seems that investors have decided that the trade war rhetoric is not as bad initially thought. This is either because traders now believe the economy can withstand a potential trade retaliation from China, or due to the fact that both US and Chinese representative clarified that a negotiated outcome is preferable. Either way, the price of corn trimmed losses 1.75 percent, to 381.50 a bushel.
It's interesting to note, that unlike equity traders who carried stock prices to a gain, futures traders still priced in a loss for corn.
Technically, the price may be forming a Double Top pattern, below the resistance of its July 2017 high of $394.5 a bushel.
Yesterday's low penetrated the uptrend line since December where it found support. The decline in contrast to US equities may be an omen.
The RSI provided a negative divergence, showing that momentum failed to support the advance of the price between the March and April peaks. This may signal a lack of steam.
A close below the $370 neckline would suggest a downward reversal.
Trading Strategies
Conservative traders would wait either for a peak above the July high and go long, or for a decisive downside breakout, with at least a 3 percent penetration, to avoid a bear trap. Then, they would wait for a potential return move, in which the neckline resistance would hold, confirming the pattern's integrity, before they enter a short.
Moderate traders may go long with a high above the April 2, 392.50 high or short after just a 2 percent penetration of the neckline.
Aggressive traders may short now, with a stop loss above 3.94.