Monday  8 February 2010

We have been noticing the smaller weekly ranges in the grain markets, of late.  We interpret the
smallness of the ranges as a possible sign that the downside is either limited or done.  Sellers appear to
be losing control, and we make that statement based on the fact that the ranges are not extending
downward.  They are not extendining downward because supply selling is/has dried up, and buyers are
beginning to enter the market.

Corn has been in a trading range for the past 16 months.  Price is on the far right hand side, RHS, of the
range, and the farther along price moves to the right, the closer it comes to a resolve, either a breakout
to the upside, or a breakdown to the downside.  What makes Corn interesting here, as we describe the
market structure, is that the current trading range, from October 2009 to present, is on top of the previous
trading range low of last summer.

It can be a bullish sign when one trading range stays above a recenttrading range from which it rallied. 
The post crop report week, five bars ago, began a huge sell-off on very large volume.  Note how wide the
bar is, going down, and the increased volume. 

Last week, volume surged close to the volume highs form that decline, but look at the bar results.  The
range of the bar is much smaller, price closed on near the low end, but as of this morning, there has been
no downside follow-through, as would be expected.  The small range bars from the two weeks prior, the
3rd and 4th bars from the end, provided a clue.  They did not extend down, indicating a lack of selling.  It
is at this level that sellers should be punishing longs and driving price lower.  It ain't happening!

Wheat is behaving similar to corn.  Note how last week's high volume exceeded the crop report volume
from 5 weeks ago.  With this increased volume activity sharply higher, the bar's range was small, and
more importantly, the close was almost unchanged from the week's opening, and unchanged from the
previous week's close.   Those are not bearish signs in what is supposed to be a bearish environment.

We see this as the market's way of sending a message.

Soybeans have been the weakest of the grains on the decline.  However, that may be changing, along
with a potential change in market direction.  We see the same market message: increased volume, a small
range bar, and an almost mid-range close, last week.  Sellers appear to be losing control, otherwise, the
ranges would be extending further down instead of holding.  Like Corn and Wheat, Soybeans are also at
the far RHS of the protracted trading range.  This is the area where price can, and most often does,
embark on a significant move.

Will that happen here?  We are of the opinion that a price move is close at hand.  All we need to see is the
market exhibit some strength in price activity, followed by a weak reaction.  The weak reaction would tell
us that selling is spent, and buyers are gaining control.

This analysis needs confirmation.  All we are doing, at this juncture, is sending out an alert to be mindful
of developing market activity that could lead to a significant upside move.  Until we see confirmation, we
will not choose to go long in an unproven market environment.  It is always possible that new lows can
occur.  The market will signal its intent.

It always does.