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Wheat - Enormous Potential. Still Laboring Higher.

Saturday  29 January 2011

 We have liked wheat for some time, but results in buying have
not been favorable.  It keeps having false breakouts.  Unlike
beans or corn, wheat has yet to rally above the 50% of its
primary trading range. There are a few positives to be noted on
this chart.  Look at the high volume bar down, three bars ago.
The range was down, and the close was low end, yet, there was
zero downside follow-through.  Here is why volume is an art and
not to be mechanically applied.

 A red volume denotes the bar closed lower than the previous
one.  After one of the highest volume months on record, where
was the payoff to the sellers for all of that effort?  In point of fact,
the high volume was actually net buyers.  We cannot know that
until after the fact, but it is an important piece of information to
carry forward.

 December was a strong volume month, but the price range was
smaller, and price closed a little off the high.  That combination
tells us sellers are still present, and buyers are not in as much
control as is needed to rally price higher.

1WH M 29 Jan 11

  We get a closer look at how price has not yet reached the 50%
of range, telling us wheat is weaker, and activity reflects it.  Last
week is marked as a potential failed probe to the upside, only to
close back under the August 2010 high and the low end of the
range.  the low-end close lets us know that sellers were in control,
but appearances can sometimes be deceiving.

 The close was marginally higher.  Even with a "poor" close, the
range had a higher high, low and close over the previous week. 
Volume remained constant.  An interpretation could go either way,
so a look at the daily in greater detail may be helpful.

 WH W 29 Jan 11

 Or so it would seem.  The complexity of developing activity has
made this market hard to read and even harder to trade.  Since
the November low, the swings in wheat have had higher lows and
higher highs, but unlike beans and corn, there is no strong trend. 
This goes back to the importance of identifying the trend, and in
this instance, the lack of a clear trend is why price is all over the
swing ranges.

 There is great potential for the wheat market, but the daily chart
shows that ease of movement from the potential failed probe,
noted on the weekly, is telling us to expect lower prices next week,
or at least more work above the $8 level.  Not shown is a half-way
retracement from the early January low to the recent high, and that
comes in around 8.10.  HOW price reacts to it may provide some
clues as to the way in which wheat will trade.

 This one needs more time.

WH D 29 Jan 11