FUTURES FOCUS: Wheat at All-Time Highs
August 17, 2007
The Chicago Wheat futures market has been a great place to be for bullish traders. In the past few months we’ve seen the October 2006 top overtaken as this bull market forges ahead towards the 1996 all-time high in Chicago Wheat futures of $7.50 a bushel.
The high for Chicago Wheat for September delivery (W-2007.U) was $6.96 a bushel on 9 August 2007. On the same day, the high for Chicago Wheat for December delivery (W-2007.Z) was at $7.10 ½ a bushel. Compared to September Wheat, December Wheat is trading at a premium of around 14 ½ cents.
In the continuous chart of Chicago Wheat (W-SpotV) in Chart 1 below, I have focused on the run up from the 18 November 2005 low at $3.01 ¼ to the 17 October 2006 high at $5.57. Using a Gann Retracement tool from the low to the high, we can see how Chicago Wheat pulled back from the high to find support at the 50% retracement area, forming a low at $4.12 on 2 April 2007.
This market could only manage to close below the 50% retracement of this range for two consecutive days. After testing support around this area, prices were propelled upwards. Take a look at the previous tops in May and September 2006, highlighted by shaded ovals on the chart. They offered further support for prices to bounce up. Old tops can also be found around these prices in late 2003 and early 2004.
Chart 1 – W-SpotV Daily Bar Chart
click here for more detail
In Chart 2 below, I have again used the range from the November 2005 low to the October 2006 high. By using the ProfitSource software ABC Pressure Points Tool, I have duplicated that range from the 50% retracement level – the April 2007 low where this strong up-trend recommenced. It was only over this past week that prices managed to duplicate the previous range and reach the 100% milestone.
Over this past week as well, there were more contracts traded for December Wheat than for September. Therefore the continuous chart stopped getting the Open, High, Low and Close figures from Wheat for September delivery and started using the December figures to build the daily bar chart. This is evident below, where we can see the upward gap in price over the 100% milestone that occurred as December Wheat traded at a premium to September Wheat.
Chart 2 – W-SpotV Daily Bar Chart
click here for more detail
I have marked the chart with a red dotted line to indicate the $7.50 a bushel all-time high in Chicago Wheat. We are not that far from this top. If this market has the legs to continue to this level, strong resistance may be encountered. Should this market forge through this price barrier to new highs one would turn to the swing chart and look for a higher swing bottom being formed above the previous top.
Prior to continuing towards the $7.50 top, I would suspect that prices may retrace over the next week in an attempt to close the price gap formed by the rollover of volume in contracts traded from the September to the December delivery month. This should give us another tradeable low.
Trade Smart
Mario La Marra
Trading Tutors
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