Technical analysis is the language the market uses to tell us what it thinks the price of a commodity will do. Like all languages, technical analysis is difficult to learn.

A level of support is a price at which the futures will be less likely to trade below. The reason for that support is there will be an ever-increasing number of buy orders as the futures price moves lower toward that support level. Why? Because technicians, using the tools of their trade, have determined the market thinks the price will have difficulty moving below that price.

Obviously, support levels get “broken,” but there is always another layer of support; each lower support level is stronger and more likely to stop a down-trending market.

Likewise, a level of resistance is a price at which the futures is less likely to trade above. There is always another level of stronger resistance as the price moves higher.

Each trading day, technicians determine where those levels of support and resistance are, and place their orders accordingly.

Why this matters

Even if you never trade futures, you want to know if those levels of support hold because the market is giving you a daily update on its strength, or lack thereof.

Each day, pay attention to how many levels of support are broken or not broken. That gives you a sense of the strength of the bull move (higher trending price). Over a period of months during an uptrend, eventually more levels of support will be broken as the bull loses its energy; It will be slower to make new highs after breaking progressively more, but higher, levels of support.

Clues to watch

Eventually, there will not be enough energy to make new highs. Before that happens, you will be warned of the dying bull by the progression of broken levels of support and how quickly the market recovers or fails to recover.

Our technician identified Tuesday afternoon (Feb. 22, 2022) the levels of support for May beans for Wednesday were $16.33, then $16.12 and the third level was $15.91. He wrote: We will see if $16.33 to $16.30 functions as support. If May beans do not trade below $16.33 tonight and tomorrow, this is one strong bull and get out of the way.

What happened next? The low on Wednesday was $16.36 early in the trading day. The high was $16.75 and the settlement was $16.71, up 36 cents.

Our Tech Guy said Tuesday evening May corn had support at $6.69 and then $6.60.

The low was $6.67½, the high was $6.82¼ and the settlement was $6.81¼, up 8¾.

He said Tuesday evening May wheat had support at $8.39 and then $8.21.

The low was $8.42¾, the high was $8.84¾ and the settlement was $8.84¾, up 32¼.

On Wednesday, the market said wheat was the strongest because its lowest trade was 3¾ cents above the first level of support. Soybeans were a close second to wheat in the strength category as its lowest trade was 3 cents above the first level of support. Corn was a distant third on the strength scale because May corn traded 1½ cents below the first level of support before moving to new contract highs.  

If multiple levels of support had been broken on any of the commodities, even if the market fully recovered by the end of the trading day, it was the market telling us this bull is running out of energy.

Instead, the market said: look out for higher prices, especially wheat and beans.

Wright is an Ohio-based grain marketing consultant. Contact him at (937) 605-1061 or [email protected]. Read more insights at www.wrightonthemarket.com.

No one associated with Wright on the Market is a cash grain broker nor a futures market broker. All information presented is researched and believed to be true and correct, but nothing is 100% in this business.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.