Head and Shoulders in Wheat
Last November, there was a run in the wheat market primarily because of what happened on the other side of the world, far away from the floor of the Chicago Mercantile Exchange, where wheat is traded. An August drought in the Ukraine cut output dramatically, prompting Vladimir Putin to halt all grain exports from Russia and Ukraine. The shortage in supply drove wheat futures up astronomically, to over $9.50 per contract (each contract is 5,000 bushels). People came out of the woodwork predicting $11, $12 wheat. It was amazing.
Folks, wheat is like a weed. It doesn’t take much to grow it, and sure enough, now we’re seeing a bumper crop of new wheat in the Ukraine. Last week, Putin announced that exports would resume, driving the prices down dramatically. There’s a massive supply out there right now.
Take a look at this chart showing the wheat futures. It’s showing a very particular formation, called a head-and-shoulder formation. The left shoulder is in November, the head is in February and the right shoulder is in April. The support level—the price level it’s historically had a hard time falling below—which was back in November, right after the shoulder.
With supply up and exports up, I see great potential for an accelerated selloff if we reach yesterday’s low, possibly driving the price down as much as $2 more.
Tommy Hough from the Bull & Bear Institute stopped by the show today and discussed the increased demand in natural gas from Japan and the announcement here at home that the U.S. is closing more than 50 drilling rigs. He expects a breakout in both the futures and the ETFs that track natural gas. For the complete story, visit www.bullandbearinstitute.com and subscribe to their terrific newsletter. For a limited time, the first three months are FREE!