Wheat prices have been moving higher of late based on concerns over the Hard Red Winter wheat crop due to pockets of dryness across parts of the Plains.

Chicago wheat has been pulled higher by the strength of KC wheat running to almost a year high as it closes in on the July 2017 highs $5.60.

Looking solely at the price chart, the trend remains higher in price in spite of the two strong down days to start this week’s trading.

Notice both the shorter-term trend line is up as well as the trend line based off the January low near $4.15.

The +DMI has remained above the -DMI since the middle of April showing that the bulls have control of prices at the moment but the recent downturn in the ADX suggests a pause in the move higher could be forming. Bulls will need to take price higher to finish out this week to flip that trending indicator back to the upside once more.

The large specs have been net short in wheat during the entirety of this move higher but as you can see from the Commitments chart, they are getting pushed out to the tune of having seen their huge net short position at the start of this year whittled down extensively to where they are net short by only 29,000 contracts or so, down from a massive -166,000 back then.

As a general rule, I do not like to see markets moving higher where the large specs are short covering. The reason is because once they are finished closing out short positions, unless they actually start moving over to the long side to build long positions in size, the market will fall on its own weight as there will not be enough upthrust to push it higher.

Take a look at the Commitments of Traders chart for KC Wheat. Notice how dramatically different the positioning of the large specs is in this specific wheat market. They are huge net longs! What this tells us is that the strength in the wheat market is coming from the Hard Red winter wheat crop and not the Soft Red winter wheat. The latter is essentially being pulled up grudgingly by its sister counterpart in the Plains.

The buying by these large specs has taken KC Wheat to within a whisker of its July 2017 high before it backed down this week.

As is the case with Chicago Wheat, the trend is higher and the +DMI remains well above the -DMI. The ADX has however turned lower so unless the bulls can flip this thing higher the next two days to finish out the week, we might get a sell signal in KC wheat very soon.

Based on the fact that the big specs remain net short in Chicago Wheat, we could see that one turn lower in a real hurry if KC falls apart for any reason.

Stay tuned as we might have some trades setting up.


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