Dan Faretta, of Capital Commodity Investments, takes a technical look at wheat and the recent price action that shows the strong buying occurring while the rest of the grain complex is struggling. Dan also suggests there will be multiple entry points to this trade, if it takes off the way that he thinks it can.
I have been eyeing the wheat market for the past couple of weeks. There have been a few attempts to put in a bottom, but each time, the market has made a new low. This past week, wheat rallied just about every day and had some strong closes as well. The Kansas City wheat market looks to be the stronger of the two wheats but either one can be traded. Monday's price action is showing some very strong buying going on while the rest of the grain complex is struggling. To me, this is showing that there is a good bit of strength behind this move. If this market can close near the high of the day, I am looking to start getting long. The downtrend has had a very large move and has made it past the previous low of 550 for the KC Wheat. KC Wheat has tried to rally twice, once back in February, and once right now. The difference between the two rallies is the current rally has been made up of all rally days closing very strong. If Monday closes here then, Monday will be an outside reversal day and that is a sign for me to get long.
If you look out to a longer time frame, wheat is at some long-term support, which is another factor that is supporting this market putting in a bottom. In June of 2010, KC Wheat had a huge move higher and it all started from 500. 500 is the same support level that is holding now, and to me, it is worth taking a shot to get long with a stop below the low. The other way to look at this is with options. Options give you the staying power that futures lack. This could be a very nice long-term move or it could be a 50 cent bounce, either way there is some opportunity here. I am looking for a move of a dollar to a dollar and a half from where the market is now.
If you would like to see this market show some more strength before getting long, that is fine. Your risk will be a bit higher, but the probability of success will be greater. I am sure there will be multiple entry points to this trade, if it takes off the way that I think it can.
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By Dan Faretta of Capital Commodity Investments
