- New Science in old markets -

Top extension in corn futures – another short sale candidate

The ongoing grain rally has now produced a top extension in corn, to go with those already seen in Soya and cotton. Soya meal and beans (not shown here) also made further similar signals:

Corn & meal top exts

There has been no signal in wheat, which has only rallied a little in this general strength, but the price is hitting resistance from the old compressions shown here:

Wheat & soya oil update

It is also worth pointing out that soya oil was the first of these markets to extend, back in March. We often post a health warning on top extensions for the reasons that can be seen in this soya oil chart. Upward trends usually end with top extension signals but the normal pattern is not for a drop to happen immediately afterwards. Instead it is more common for prices to move erratically sideways as a 'top' forms. In this soya oil case it looks like what technicians call a 'head and shoulders' which is one of the more identifiable chart patterns. When these form we usually get a top extension at the 'left shoulder' and we may also get one at the top of the 'head'. We almost never get another one at the 'right shoulder' but we may get a compression instead, just before the next move occurs.

Any good technician will point out that 'head and shoulders' are not always reversal patterns and can also result in a continued move in the original direction (in this case that would be upward) but we are not technicians and we have the new top extensions in soya beans and meal as evidence that further strength is unlikely from here.

These are all short-sale candidates in the short-to-medium term, as is cotton. We currently have our maximum number of three short commodity positions in soya oil, cotton and sugar so will not adopt any more of these positions until we liquidate some or all of those.