(W) Giving Up on Wheat

Technicals, March 21, 2012; 7:25am

The combination of a bullish divergence in weekly momentum amidst historically bearish sentiment back in late-Dec'11 as well as the prospect that 2011's entire decline was a 3-wave and thus corrective sequence provided the backdrop for a broader basing/reversal environment that we heartily advocated for the ensuing two months. But on the heels of continued and mere flagging price action this month and given the market's failure from a pair of Fibonacci retracement relationships in the 6.80 neighborhood listed in the weekly log close-only chart below, we are pulling the plug on a technically bullish bias towards wheat and forecasting a resumption of 2011's broader decline on the premise that the past quarter's recovery attempt is about as labored, corrective and merely consolidative as it gets.

Yesterday's failure below 14-Mar's 6.41 minor corrective low is just another in a series of shorter-term momentum failures that negates the impulsive integrity of a developing rally. And the basic tenet of Elliott Wave Theory is that a market will move in the direction of the dominant trend in a trendy, impulsive manner.

Such impulsiveness higher was evident with late-Dec's initial counter-trend rally that gave us great hope for continued gains. And the daily log chart below shows that such continued gains were realized with late-Jan's breakout to new highs that gave this market every opportunity in the world to perform to the upside. But almost immediately thereafter, this market has done nothing but die on the proverbial vine with the past three months' price action much, much more indicative of a labored, consolidative structure than that of a reversal with strength above recent 6.75-area resistance the minimum now required to tilt the directional scales the other way.

On a daily close-only basis below, the market has yet to break the 6.34-area that has supported it over the past month or so, and area that apparently is gleaning some support from the fact that it's also the 61.8% retrace of Dec-Feb's 5.99 - 6.87 rally basis the May12 contract. But a break below this 6.34-area would certainly provide the next reinforcing evidence of a broader bearish count that, if correct, warns of potentially significant losses below Dec's 5.99 low for the May contract and below 5.84 on an active-continuation chart basis.

In sum, traders are advised to move to a new bearish policy, approaching recovery attempts as corrective selling/hedging opportunities and requiring strength above 6.75 to negate this call enough to warrant moving back to a neutral/sideline position. In lieu of such 6.75+ strength and especially following a break below the 6.34-to-6.28-range that has supported it over the past month, a resumption of 2011's major slide to new and potentially significant lows below Dec's 5.84 low is expected.

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