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Since the November 2005 low the Corn market has made a steady push upwards, posting progressively higher bottoms up through September 2006. Then, in September, Corn almost doubled in price, hitting a significant top in late February 2007.

I encourage Safety in the Market Platinum traders to review the April 2007 Platinum newsletter article that shows the setup leading into the bull market rally that took off in September 2006.

In Chart 1 below (C-SpotV) I have focused on the run up from the November 2005 low to the February 2007 high and used a Gann Retracement tool to divide the range of this rally into equal quarters. This allows us to predetermine price levels where Corn may eventually find support as it retraces from the February 2007 high.

The first price level at which corn could presumably find support is the 25% retracement level. In late March 2007 prices gapped down strongly below this support level. Then the market rallied back up to close the previous gap, looked for support, and eventually gapped back down in June 2007.

The next area of support on the way down is the 50% retracement level. It didn’t take long for corn to reach this level, since prices sold off sharply once corn had broken through the 25% level again. I have highlighted the 50% retracement level with a shaded circle in Chart 1. This is where strong support was tested in July 2007, resulting in prices gapping up sharply.

Knowing that 50% is one of the most important Gann retracement levels we would expect this sudden push back up followed by the slight retracement to close the gap left behind. Now we ponder whether the support is strong enough at this level to continue pushing prices back up to higher levels, or whether a pullback in prices will break down through the support.

Chart 1 – C-SpotV Daily Bar Chart

click here for more detail

In order to take a closer look at how corn prices have reacted once support was reached around this 50% retracement level I have turned to the daily swing chart in Chart 2 below. What this swing chart shows is that corn has come back to retest support a few times around the 50% Gann retracement level since it did so the first time in July 2007.

Each successive pullback towards the support level has created a swing bottom above support and each bottom has been progressively higher. One could also argue that each successive push up in price has created progressively lower swing tops, forming a contracting triangle or wedge formation.

Chart 2 – C-SpotV Daily Swing Chart

click here for more detail 

This contracting triangle formation is like a compressed coil. Its ends are forced closer together until it springs back into its original shape, creating a break-out in price from within the boundaries of the triangle.

By keeping an eye on the swing chart we can see if the breakout to the upside breaks the old tops when it explodes upwards and forms a swing bottom above these levels. This would give us a tradable low and confirmation that we should expect another rally in corn.

An alternative is to watch for the breakout push down below the 50% retracement and July 2007 low to eventually create a swing top below these levels. This would be indication that we can take further short trades in corn.

Trade Smart 


Mario La Marra
Trading Tutors

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