Wheat has been an IMPA buy for several weeks. Our warning flag has been present however, thus more confirmation was in order. We've had more confirmation however and that means its been good to go (for a buy). So, why did I mention the following recently in my report? Lets review.
Feb 15th Daily Report:
Chicago Wheat - I also like the price pattern here in wheat (bullish). We are coming off an IMPA buy, one that did have the warning, but a buy setup nonetheless. The market has chopped higher and recently pulled back to the 18dma (text book pull back). That's a decent area to buy as you know. We are now moving off this area. There is an entry right here I like as well, using the recent swing low (342.75) for the stop.
Lets review the data so you can see why I said what I said, and what I observed here. I have also observed similar activity in soybean meal (which I mentioned as well). In addition soybeans have been setup for a buy and again that corresponds with our spring options trade at this time as well. All of these markets have been moving higher (regardless of any perceived bearish fundamentals). The index funds (pension funds, endowments and other institutional plans) have been behind a good bit of the buying in my opinion. But lets review the wheat for now.
Here's the way it looks today (slightly different due to the new data over the last several weeks).
Below is our daily Trend/Swing Price for Wheat from November 30th 2005.
Here you can see the FP that had formed and the move above the 18dma for the first time since October!
The first FP did not fail, it did its job but did not result in a new trend however. Plungers typically result in 1 to 3 day moves, which is what the 1st plunger (via the Nov low) in wheat did. In fact, it moved higher for 3 days and then started back down again. However, what would happen is a right-sided "W" would form and complete (providing another entry point at the time the center is exceeded). This all occurred during the IMPA buy . In addition, since the warning had existed at this time (via the commercial consumer data) it was prudent to wait for the 10dma/18dma cross over as well, which did occur too.
Now also notice the RP that had formed too following the FP and following the buy signal (entry signal) at the time the center of the "W" was exceeded. The rule with plungers is this. We expect a 1 - 3 day response or reaction (follow through). When they fail to produce that follow through and take out the plunger high or low (high on a RP and low on a FP) this creates another signal which is in the opposite direction. In the case of the RP (in red) shown below, The high was exceeded on day 3 following the plunger formation. This created a technical buy signal (via the failed RP). The graph below this one shows what happened next.
(Note: the FP are in Blue always and RP in Red).
Here's what happened next! (Note: the FP are in Blue always and RP in Red).
Here's our Trend/Swing graph in Wheat today (Note: the FP are in Blue always and RP in Red).
Now lets look at our main daily price graph to see the recent follow up buy
on a pull back to the 18dma. This was a high probability buy because the
trend was already in place. The 18dma pull-back also included a FP
structure (although not official) which provided a decent logical stop location,
which was also aided by the rising price channel.
(note: The small colored carrots on the lower x-axis highlight outside days on these graphs. A red carrot ^ indicates an outside day down. Blue carrot ^ outside day up)
Here's what followed.
I hope this special brief review in wheat helps increase your knowledge and understanding of our strategies and the IMPA approach.
Good trading always,