Wheat: Patience required

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We thought that this was an opportune time to look at the wheat market. This has been a market where price has been steadily eroding since its all time high made in February 2008 when it reached over $13.00 per bushel. It is currently trading at a price of $4.60 per bushel for the December CBT contract (Chicago).

Our interest in discussing it now is to attempt to get ahead of the game and to be prepared for a potential change in direction. We have seen so many times over the years that substantial moves can begin very subtly. If not prepared ahead of time they may be missed or not more fully taken advantage of.

Clearly as of right now it appears that the price of Wheat remains headed downward. But we have noticed what may be divergence in some of the momentum indicators. That being where the indicator has not made a new low even though the price has.

As we said above, sometimes price moves begin very subtly. They may also take time to develop and to develop in a series of stages. We note that on the weekly chart that one major downtrend line has been broken. Even though the price of Wheat did not immediately respond by rising rapidly the trend line has never been reviolated by the market retreating back below it. We also see that the price did make a new low after the initial trend line break but that it remains above that trend line.

Many may not consider this significant. We do however. It is significant for what may be coming and is significant to alert us to remain aware of what this price trend is doing. Wheat is known for relentless trends and particularly when they are down trends. But our experience has shown that it may only take the upward break above the next trend line to ignite a price move of some significance that could present a valuable reward to risk situation. Even if it turns out to simply be a price correction of consequence.

Two of the greatest keys to success, particularly in trading markets, are discipline and patience. We have seen other market situations develop over a period of time much like what could be happening with Wheat. We refer to the breakout above that first trend line as a stage 1 breakout. It does not require market action be taken at this time, in our opinion, but patience should allow for being ready to do so when that opportunity arises.

How can we help you to be more alert to situations like the one discussed here?

jmajer@mfglobal.com
dpilar@mfglobal.com

Jeff Majer
Diego Pilar

CB&S Division
MF Global Inc.

312 261-7380
800 321-5810

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