A pivotal trading decision arises each time a market hits a new multimonth milestone high. Will it break through to a multimonth extreme and continue on to even higher ground, implying that one should go long? Or will the market stall, reverse and retrace in a failed breakout, suggesting that the right course of action is to fade the market at the new high?

Wheat, sugar and cotton are now in situations that may be exposing subtle clues about whether they will -- or will not -- carry on to new multimonth highs.

Let's start with a market that appears likely to follow through on a developing breakout situation.

On its daily chart, December wheat (WZ2:CBOT) appears poised to break out to new high ground. As frequently occurs, though, there are technical reasons to doubt that wheat will continue its momentum run -- namely, a confluence of Fibonacci resistance shown on its monthly chart.

But a closer look at the daily pattern, shown below, yields subtle clues that suggest wheat will succeed in breaking above this critical resistance and continue higher. First, notice that wheat held a plateau of support at the 325 area indicated on the daily chart. More important, wheat stealthily made a new

closing

high -- a 13-month record -- and nudged out the high of the past seven days in an outside bar.

Outside bars at milestone highs can be powerful indictors of continuation moves. The outside bar at the high also engulfed the past week's consolidation, finishing above the highs of the past six sessions. The pattern setup indicates wheat will break through the above-described resistance at 334 1/4 and continue to fresh multimonth highs.

October cotton (CTZ2:NYBOT) is set up in a similar situation at a 13-month high.

Jagged Little Peak

October sugar (SBV2:NYBOT) followed through powerfully on a momentum impulse I wrote about

on Monday, adding a quarter (.26) over the past two days to make it five up days in the past six sessions.

But the speed of the ascent has left the contract overextended. Although the market is in a bull phase, the "V" bottom that has resulted from the steep climb leaves sugar vulnerable to a pullback at these levels, even though the recent momentum is a strong indication that the market could continue higher after retracing and resolving its V formation. The steep ascent also leaves this market vulnerable to attacks from traders looking to take windfall profits or to fade the new two-month high.

From a technical standpoint, sugar also has a tight confluence of resistance factors: two Fib levels from prior swing highs, as well as the 50-week exponential moving average and an equivalent

price projection from a prior corrective upswing where the low-to-high swing between points A and B (not shown due to size constraints) is equal to points C and D on the chart.

Markets that spurt in V formations are more likely to carve jagged peaks -- falling back into valleys -- as few markets are able to long sustain near-vertical rises.

Marc Dupee is an independent trader and co-author of the book

The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to

Marc Dupee.

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