28 February, 2014
Today we will consider commodity futures on wheat and frozen beef for composing the Wheat/F-cattle PCI using GeWorko Method. According to Food Agriculture Organization (FAO) forecast, the seasonal consumption of cereals in 2013-2014 will increase by 4% compared with 2012-2013. It is expected that the volume of trading coarse grains in the world will increase by 5.5%, breaking the historical high throughout the history. We believe that increasing the proportion of fodder wheat in its overall production will increase the meat production. The wheat prices could rise due to its increased use as livestock feed. Thus the meat prices will respectively decline due to more accessible prey. In this case, it is very likely that the Wheat/F-cattle will stabilize and begin to rise in price after a long decline. You can find more detailed and comparative analysis of wheat and frozen beef futures in the article “PCI based on agricultural futures”.
Taking into account the considered example, we analyze the potential long position on Wheat/F-cattle PCI. We compose and analyze it using NetTradeX platform by IFC Markets. Looking at the chart, we can see that monthly, weekly, and daily trends were under bearish influence. However, in late January, the Bollinger Bands (20.2) channel was reversed upwards. That is the first sign of possible assault at resistance level 1.0532. We recommend opening a pending buy order above that level. If the price crosses the specified level, both the resistance trend line and the ParabolicSAR are to be broken. There is high probability that the price will be accelerated towards the green area and we will be able to take profits.
We should expect the price growth up to 1.0761, that is determined by Fibonacci system and the top of Bollinger channel. When this level is reached, positions should be switched into a breakeven state cause, perhaps the price will break this strong resistance. The preliminary stop can be set below the latest low, but as the price moves up we would raise it to the next level of the ParabolicSAR, located below the price level.