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ROUND TOP & BOTTOM


Corn Futures Looking For Another 33% Upside

03/24/04 08:53:20 AM
by Ashwani Gujral

Corn futures have formed a rounding bottom over a period of eight years and are now breaking out. A sharp gain of 33% can be expected immediately if futures maintain over 2922.

Security:   N/A
Position:   N/A

Rounding bottoms form over a period of years. Ideally, this would occur in a single year, but the longer the time interval for the bottoming, the stronger the formation. During this period, investors and traders tend to overlook the particular security or market. Volumes drop very sharply. But under the surface, long-term investors accumulate, as the company or industry restructures and sheds its excesses. The breakout from the rounding bottom formation happens months before fundamental news is known by the general public. This is known as the discounting mechanism of the market.

The weekly chart of Corn (Figure 1) shows an 8-year bottoming formation that has just broken out. This is a great foundation for a strong upward rally, with the upper end of the rounding formation providing support. An approximate target for the medium-term would be 4250. This is calculated by extrapolating the width of the rounding bottom over the flat line. In addition, the important Fibonacci levels are in confluence with the resistance levels, with the next levels of resistance being at 3441 and 3840. The ADX is rising towards the 37 level, showing an extremely strong trend and the RSI shows a breakout from a head and shoulders pattern, thus providing advance confirmation of the move. Indicator breakouts generally lead price breakouts.

Figure 1: Weekly chart of Corn futures.
Graphic provided by: eSignal.com.
 
The daily chart of Corn futures shows a strong uptrend as well. By using a 20-day MA, it is possible to enter an uptrend each time the price dips and stays below the moving average. This buying is successful so long as prices continue going up.

This chart also offers a number of entry points before the weekly breakout. But with the sharpness of the expected rally, I doubt they will all materialize. These frequent corrections also point to skepticism in the rally, which only makes the rally stronger. But both the ADX and the RSI point towards a sustained uptrend. An ADX of 41 indicates good trend strength. Rising bottoms in the RSI are also an indication of continued bullishness in the Corn futures chart.


Figure 2: Daily chart of Corn futures.



Ashwani Gujral

He is founder of AGIP Securities Pvt. Ltd. which offers money management services, live chat rooms (during market hours) and independent technical analysis consultancy. The company has a big media presence from the likes of CNBC, NDTV Profit, and ZEE Business.

Title: Chief mkt strategist
Company: AGIP Securities
India
Phone # for sales: 9871066337
Website: www.ashwanigujral.com
E-mail address: contact@ashwanigujral.com

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