December soft red winter wheat futures on the Chicago Board of Trade on Thursday gapped higher on the daily bar chart, traded up the limit of 30 cents a bushel and also hit a fresh contract and all-time record high of $7.88 1/2. Strong worldwide demand amid very tight worldwide supplies and end-users scrambling to get needs covered has been a force driving the wheat futures market higher. Would-be top pickers who’ve sold short the market with straight short futures positions have been badly burned.
See at the bottom of the daily chart for December Chicago wheat that the Directional Movement Index (DMI) has a green ADX line reading of 42.33. Any ADX line reading above 30.00 does suggest that a strong price trend is occurring in a market.
click on the chart to enlarge
If the ADX line starts to show “divergence,” then that would be one very early technical clue that a market top could be close at hand in the wheat futures market. Divergence would occur when the ADX line begins to turn down and does not make a new high when the wheat futures market, itself, makes a new high. Wheat bulls be warned: Price history shows that when the wheat futures market does put in a major price top, then the ride south is a rapid and steep one. Stay tuned!–Jim
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