Grains have pulled back for four to seven days, and they're due for a push higher if they're to confirm their summer rallies and the supply-and-demand situation forecasted by the government. Drought has stressed plants sufficiently to leave Agriculture Department estimates for crop output for corn at a seven-year low, for wheat at a 30-year low and for soybeans at a six-year low. Technically, grains will trigger out of pullback setups if they move above the high of the low bar in their pullbacks. Alternately, if grains continue falling, look for support -- and intraday pattern setups for entry -- in the vicinity of the following levels:
For December corn (CZ2:CBOT), watch 265, 259 and 251. For December wheat (WZ2:CBOT), watch 339 1/2 and then 330. For November soybeans (SX2:CBOT), watch 530, 523 and 518.
Bear in mind that these figures are zones, rather than exact levels, due to the recent gapping volatility. It is safer to enter on an intraday pattern setup against the levels rather than just at a particular number.
A fractal, or a repeating pattern within a pattern, sometimes works as an early confirmation of a developing bigger-picture pattern. Markets are chaotic, but they lapse into periods of rhythmic continuity in what might best be described as dynamic cycles. What can also happen is that the smaller-cycle pattern gets in sync with the larger-cycle phase, resulting in a larger-than-normal move once the cycles merge. The September Swiss franc (SFU2:CME) has an obvious developing head-and-shoulders topping pattern. And over the past two weeks, the franc has traced what appears to be a smaller, fractal version of the bigger-picture head-and-shoulders.
The franc stalled on Aug. 14 at the fractal, or smaller head, just ticks below the exact coincidence of the Fibonacci retracements and price projection (where A minus B equals C minus D) shown in the next chart. This repeating pattern and symmetry imply the Aug. 14 high is potentially a pivotal swing high that could sync the bigger and fractal head-and-shoulders patterns and propel the franc into a cyclical bear phase. Although the franc already triggered out of a pullback from a one-month low setup a week ago, look for a two-step pullback and for the currency to potentially run into resistance in the 0.6697 through 0.7006 area if the market doesn't move lower immediately.
The intraday level I mentioned in my previous column in the September S&Ps (SPU2:CME) proved key in trading both Tuesday and Wednesday. Notice how the 931.20 level mentioned was just 0.30 below Tuesday's 931.50 low and resulted in a 12-handle rally. Wednesday's cascade opening also came to a halt within a fraction of 931.20 and resulted in a spurt of more than 20 handles.
October live cattle (LCV2:CME) touched low Wednesday at a confluence of key factors just above 67.000. The first factor is trend-line support. Second, notice that trend-line support coincides with the 50-day exponential moving average. There are also three Fibonacci retracements between 67.050 through 67.300. A sixth factor is pullback (projection) symmetry where A-B equals C-D. Given this confluence of supporting factors, the expectation is for live cattle to continue higher. If the market breaks down from the 67.000 area, that indicates that something is wrong with the current structure and cyclical phase of this market and that the market is going lower. Failed signals are generally stronger indications of market direction than the signal itself.