SEASONAL LOWS MAY BE SETTING UP IN CORN AND WHEAT -- LONG TERM VIEW OF CORN VOLATILITY FOR JUNE/JULY PERIOD -- CORN IS HIGHLY CORRELATED WITH WHEAT AND SOYABEANS -- INVESTING DIRECTLY IN CORN OR WHEAT THROUGH TRACKING FUNDS -- DEERE AND CO TEST RESISTANCE

SEASONAL LOWS SETTING UP IN CORN AND WHEAT... Corn ($CORN) has a six month cyclical pattern where it marks significant sudden reversals as shown in Chart 1. The July 1 period is extremely volatile. The June 30 release of the crop report is one of the main reasons for the sudden increase in volatility in July.
Notice the Moving Average Convergence Divergence Indicator (MACD) (Momentum indicator) has turned up. Martin Pring's Know Sure Thing (KST) which is a composite indicator showing different time cycles merging together is also starting to turn up here. The MACD and KST may or may not track each other. These two different calculations have produced a similar curve on $CORN today.

(click to view a live version of this chart)
Chart 1

LONG TERM VIEW OF CORN VOLATILITY FOR JUNE/JULY PERIOD... Corn prices are very influential in the Agriculture sector. You can see in the 10 year weekly - Chart 2 - below that Agrium (AGU) and Deere & Co. (DE) have a very positive correlation with Corn. If corn prices are high, then farm machinery and crop services are in demand. Occasionally they do lose their tight correlation (using a 20 week correlation period) but the vast majority of the time it is positive to extremely correlated. Notice how extreme the moves are around the July time frame marked with the blue vertical cycle lines. You can also notice some sharp turns in January which I have not highlighted on the chart.

(click to view a live version of this chart)
Chart 2

CORN IS HIGHLY CORRELATED WITH WHEAT AND SOYABEANS... Corn heavily influences other commodity prices like Wheat ($WHEAT) and Soyabeans($SOYB). We can see on the third chart that the three of them typically move together in direction and inflection points occur that are common across the soft commodities shown. So this is a very important time if you are interested in investing in the agriculture, specifically grain, industry.

(click to view a live version of this chart)
Chart 3

INVESTING DIRECTLY IN CORN OR WHEAT THROUGH TRACKING FUNDS... The Corn Tracking Fund (CORN) shown in Chart 4 is directly investable. You can compare this fund to the chart of $CORN shown above. We can see an amount of slippage where the fund is almost at the lows where the real price of $CORN is a little higher. Investors should be mindful and track both charts for support and resistance areas.

(click to view a live version of this chart)
Chart 4

Below in chart 5 is the Tracking Fund for Wheat (WEAT). When Russia moved into Crimea, the price of wheat pushed up. It has since fallen back. While we do not know the outcome of the crop report to come, both Wheat and Corn are near 3 year lows. Investors may want to have a strategy in place for next weeks release of the Crop report. You could expect strong moves either way. Testing these deep lows may also lead to sudden reversals even if the initial move is negative.

(click to view a live version of this chart)
Chart 5

DEERE AND CO TESTS RESISTANCE ... Deere & Co (DE) broke out to 5 year highs in the second quarter of 2014 as shown on Chart 6. They have since pulled back slightly. Investors may want to follow the price movements in the grains to help find a directional position for Deere.

(click to view a live version of this chart)
Chart 6

The Crop Report should make for a volatile period coming up. Either direction is possible, but being near three year lows, I would expect a move to the upside is more likely.

Good trading,
Greg Schnell, CMT