Chart Of The Day: Wheat Headed Lower On Supply, Demand Woes

In another example of market unpredictability, wheat futures are being hammered. The Russian invasion of Ukraine exasperated a supply shortage caused by coronavirus lockdowns. Russia and Ukraine are among the world's largest wheat suppliers. Therefore, market narrative dictated wheat prices will surge.

Wheat Daily

When you look at the chart, you realize just how much the price has been falling since its Mar. 7, $1,350 all-time high. At $832.50, the price is 38% lower, and the supply-demand momentum is pointing down despite the global shortage.

The US will export the least amount of wheat in 50 years. The US Department of Agriculture announced that weather conditions hurt harvest and the Mississippi River's low water levels rendered shipping expensive and slow.

Technically, today's price successfully tested a pennant, bearish, after the 8% drop within the preceding four sessions. This drop itself completed a small double-top. So, the back-to-back bearish patterns reinforce the bearish sentiment among market forces right now.

Both the MACD and the RSI provided sell signals. Ironically, the lagging MACD beat the leading RSI to the punch. The 100 daily moving average (DMA) crossed below the 200 DMA, precisely at the same time when both pushed down the price on Sept. 22. The price closed below the 50 DMA yesterday before completing the pennant yesterday.

Targets

Double-Top

Subtract the $73.25 move from the Sept. 30, $945.75 top to the $872.50, Oct 7 low from the $872.50 low giving a target of $799.25.

Pennant

Deduct the $73.50 slide from the Oct. 13, $906.25 high to the Oct. 18, $832.75 low from the Oct. 24, $840 breakout implying a target of $766.50. This target is lower than the double-top target. We still include the earlier pattern to reinforce the bearish expectation. Also, targets are not set in stone. So, cautious traders may rely on the surer, more conservative double-top target.

Trading Strategies

Conservative traders should wait for the price to close below $815 and not climb back above $840 for at least three days, preferably including Friday. Then, they'd wait for the price to retest the pennant's integrity.

Moderate traders would be content with a close below $820 for it to remain under $840 for two days. Then they'd wait for a throwback for a better entry, if not for confirmation.

Aggressive traders could risk a short according to their strategy, but if you don't have one custom-made to your timing, budget, and temperament, here is a generic one:

Trade Samples - Short Setups

Aggressive:

• Entry: $832
• Stop-Loss: $842
• Risk: $10
• Target: $802
• Reward: $30
• Risk-Reward Ratio: 1:3

Moderate:

• Entry: $840 (After closing below $820 and not climbing above $840 for two days)
• Stop-Loss: $845
• Risk: $5
• Target: $820
• Reward: $20
• Risk-Reward Ratio: 1:4

Conservative:

• Entry: $840 (After closing below $815 and not climbing above $840 for three days, closing below $830, then retesting $840)
• Stop-Loss: $850
• Risk: $10
• Target: $810
• Reward: $30
• Risk-Reward Ratio: 1:3

Disclaimer: The author has no position in the instruments mentioned in this article.