Monday, August 9, 2010
Friday morning my attention was caught by the headline you see above in the image of the front page of the New York Times: "Russia, crippled by drought, bans export of grain". On the surface this would seem to be bullish news for wheat prices. But notice how wheat traded on Friday on the Chicago Board of Trade - the market broke nearly 60 cents from its high of 815 the previous day. Someone took advantage of the buying this headline encouraged to sell a lot of wheat!
The real question from the contrarian trader's point of view is whether or not a big bullish crowd in wheat has developed. My answer to this question is no. Why? Take a look at the weekly wheat chart above this post. You can see that wheat is trading at roughly the midpoint of its historical range. Moreover, the recent wheat bull market has lasted only about 8 weeks, barely enough time to attract the public's attention.
So I think this headline marks only a temporary top in wheat. I see support in the 675-700 range and think the market is likely to move higher from there.