Wheat Moves Lower From Resistance

As I had suggested a few days ago, the Upper Bollinger Band has provided dynamic resistance against higher prices for wheat, and it is moving lower for the second day. Since Bollinger Bands are based upon the concept of statistical deviation from a mean, it stands to reason that market forces were feeling that wheat was reaching prices that were too high, especially after reaching lock limit levels two days in a row. Bollinger Bands also represent one form of dynamic support and resistance, as do Exponential Moving Averages, Parabolic SAR, and others. At these dynamic levels, prices meet support and resistance, and therefore have a tendency to reverse. I avoid taking new positions as prices approach these markers.

Bloomberg this morning said that wheat traders thought prices were somewhat overbought from a rapid rise late last week, and have been liquidating, taking profits, and/or selling short as a result. Note here the daily chart (top chart, above), showing the resistance at the upper Bollinger Band, and the short-term charts (lower chart) showing today's sell-off in wheat.

In contrast, it is also noteworthy that in this daily chart (the upper one in this post), a series of higher lows and higher highs is evident (the light blue trend lines), so the beginnings of a new bull market in wheat may be emerging. It is still weak, but certainly worth watching.

A weaker US Dollar resulting from continued Fed rate cuts could perhaps be enough to increase international demand, create a break-out, and push wheat prices into a new, stronger uptrend. This could happen as soon as tomorrow, if the Fed continues its recent policy of aggressive interest rate cuts at the FOMC meeting this afternoon. However, since the grain markets close at the same hour as the Fed announcement, the impact on wheat prices won't impact the market until evening trading tonight. If it does affect wheat prices, no doubt that other grains and agricultural commodities prices will also experience renewed vigor.