Wheat futures have been the leader in the commodity, especially grain complex for the past months. Russia and other FSU wheat producing areas are having a substantial drought this year, forcing Russia to suspend wheat exports through the end of the year. As Russia was the low cost supplier of wheat for much of Europe and the Middle East, world wheat consumers had been aggressive buyers. This pushed September Chicago wheat to a new contract high on August 5th, only to see a big bearish reversal on the following day.
Last week wheat fell to a low of 680-4 on Wednesday, bounced on Thursday, then had a breakout setup on Friday-it was an inside day, a doji, and had the narrowest trading range of the previous seven sessions. Additionally, as I commented this morning, the daily chart was forming a small flat bottom triangle. The daily chart for September wheat futures and the Trade or Fade report for today is below.
flat bottom triangle then a breakout setup
S-1 to short, S-2 to cover
On a day with a breakout setup (a Trade day in Trade or Fade parlance) we anticipate that the market will make a directional move. We look to take advantage of this by buying as the market breaks above close in resistance or breaks under close in support.
Today we were watching three prices for a breakout sale-Friday’s low at 700-2, the first Trade or Fade support at 684-0, and the 8/11 low at 680-4. Trade or Fade had second support at 668-2; this was a profit target. The intraday chart below shows today’s action. There was an overnight break under Friday’s low. It recovered to close back over that level; this gave a second opportunity to sell in the day session.
Second chance to sell this morning
For short term breakout traders I would look to take profits today on today’s short sales, as breakout trades often take away your profits if you carry them until the following session. Longer term, I think a close under the August 11 low would likely lead to more downside. The bearish MACD crossover corroborates this view. I have downside targets at 663-4 (the 20 day EMA) and 641-6 (a 50% retracement of the rally off the June low).
For more information on trading breakouts in futures, you can get more information on my Trade or Fade advisory here. For an in depth discussion of breakout trading, get a copy of my Breakout Futures Trading Method book here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
