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Wheat - Enormous Potential


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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



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About the author


Michael Noonan is the driving force behind Edge Trader Plus.  He has been in the futures business for 30 years, functioning primarily in an individual capacity.  He was the research analyst for the largest investment banker in the South, at one time, and he managed money
in the cash bond market for a $5 billion pension fund using Peter Steidlmeyer’s Market Profile.

Proficient in Gann, Elliott Wave, Market Profile, etc, Mr Noonan no longer uses any of those technical procedures.  Instead, his primary focus is on developing market activity, relying solely on the information generated by the market itself, such as the interaction between  price and volume, and how they relate to important price levels in the market structure.  He incorporates proven market principles, such as knowledge of the trend, supply and demand, along with disciplined rules for to find developing high probability trade opportunities.

He can be reached by e-mail at his website: mn@edgetraderplus.com

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