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The Buy Point in All This Corn Volatility


December corn (ZC) has undergone massive volatility from late June to late July. On June 15 the contract traded as low as 362.50; a month later it traded as high as 454.25. That's a 25% move in a month, and way beyond normal. As of July 29 the price has retreated to a low of 375.75, erasing nearly the entire prior rally. With all the volatility and the recent sell off, is there is a buy point?

After a massive rally, where the price starts that move from can often be a point of support (for another example see the Swiss Franc in March of 2015).

Everything was pretty normal in corn futures until June 23; that's when we see volume in corn start to ramp up. The price consolidates between 384.75 and 377.5. This consolidation was at the top of a falling trend channel the price was in since May.

After the rise and fall, corn is right back where it was trading before all the volatility--near the top of the channel, and right in that consolidation zone. So far the consolidation zone has provided support to the falling price.

Figure 1. December Corn 4 Hour Chart

If the price moves back above 384.50, the consolidation area has held for now and may present a buying opportunity with a stop loss below 375.75 (plus a bit of a buffer).

If the price continues to fall through 375.75, it could mean a continued decline toward the next support level: the bottom of the channel near the 2015 low of 362.5. Beware the false downside breakout though. These types of areas do tend to be quite strong, so a longer consolidation or bounce is likely in this area.

Until the price moves back above 384.50 there is no current indication the price will bounce though. This is an area of great interest, yet wait and see which way the price breaks before acting.

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