Grain markets have long been susceptible to a seasonal decline commonly referred to as the February Break, where prices are seen weakening from the end of January through the beginning of March. This tendency is a result of farmers selling off old crop to raise capital for the spring planting season. Some years carry a more pronounced effect than others, and it is best to keep an eye on the longer term chart analysis to determine where the markets might be in the price cycle. Autochartist has been tracking the fluctuations of Wheat futures as a potential breaking pattern forms on the 240-minute time frame, which may be forecasting the weakness ahead.
After a sustained rally from the major low at $5.65 per bushel set in December, nearby wheat futures stalled and sold off for much of January. The subsequent low found buying interest well above the December lows, however, setting a higher support zone in place to create the lower trend line of a large Channel Up chart pattern. A healthy recovery then pushed the market to a new high near $6.80 per bushel to confirm the overhead resistance and strengthen the pattern, Now measuring 213 4-hour candles across, this will likely prove to be the dominant trading range as we enter the February Break period.
If the technical indicators maintain their current progression, wheat is likely to slide back towards the key support provided near $6.10 per bushel to form the next leg of the Channel Up chart pattern. This allows for a potential short entry at the current level with a stop-loss order placed above the channel resistance around $6.90 per bushel.
There is always the potential for a counter-seasonal move to develop during this time frame as well. Because the channel is now very well-defined, renewed buying to push above the top of the channel would negate the sell signal and set up a breakout towards higher prices. The close proximity of the current price to the top of the channel suggests this move would likely occur during next week's trading. Autochartist will continue tracking this pattern and will generate a buy signal if such a breakout does occur. For further information on this and other Autochartist products, visit our website at www.autochartist.com
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