Planning a Larger Reversal or Another Trap for Corn Traders

Aug 15, 2014: 11:20 AM CST

Even if we don’t trade commodities, it’s helpful to learn educational lessons and plan trades as they develop from interesting patterns.

Corn is forming a great potential Reversal Example, but we need to monitor it in real time to determine whether this time will be different, or whether we’ll just see a repeat pattern of the similar failed trend reversal signal from June 2014.

Here’s the current Reversal Pattern and the prior failed pattern in a strong downtrend:

I’m showing the Teucrium Commodity Trust Corn Fund – an ETF – but you could also trade or monitor the actual corn futures contract (@C).

Let’s focus on two prior “Rounded Reversal with Divergence” patterns before discussing the current situation.

Rounded Reversal #1 (Success)

From April to May of 2014, Corn shares formed what I like to call a “Rounded Reversal with Divergences” pattern into the $35.50 per share (ETF) level.

Note the red line showing divergences in the Momentum Oscillator as price formed an ‘arc’ pattern or Rounded Reversal Dome.

Price triggered a liquidate/sell-short signal on the break beneath the rising 50 day EMA at the $34.00 per share level and a reversal was confirmed with sharp downside price action.

Rounded Reversal #2 (Failure)

A possible support play and similar “Rounded Reversal with Divergences” developed through June, but price NEVER broke above the 20 day (or 50 day) EMA and the pattern FAILED to generate a reversal buy (breakout) signal and thus the sharp downtrend continued.

In fact,  note how price failed (traded down against) the falling 20 day EMA.

The large red sell candle of June 30th set in motion another liquidation or sell-short breakdown trade.

Price collapsed from $30.00 to the $25.00 per share level where we’re planning another potential “Rounded Reversal with Divergences” price pattern.

Rounded Reversal #3 (In Motion)

This time, we are seeing initial strength from the break above the falling 20 day EMA above $26.50.

Follow the chart to monitor additional upside action through “open air” which simply targets the falling 50 day EMA near $28.00 per share.

A firm breakthrough above $28.00 per share opens another bullish price pathway toward $30.00.

Otherwise, any re-break under the “arc” trendline (like June 30th) sets up another liquidation move – as would a trigger-break to new lows under $25.50.

Afraid to Trade Premium Content and Membership

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.

Corey Rosenbloom, CMT
Afraid to

Follow Corey on Twitter:

Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

1 Comment

One Response to “Planning a Larger Reversal or Another Trap for Corn Traders”

  1. Sunday links: earned intuition | Abnormal Returns Says:

    […] out the reversal in corn.  (Afraid to Trade also StockCharts […]