- Dugald Malcolm, Montreal, Canada.

Last November I took a look at the various grain indices and subindices to examine whether or not the correction at the time presented investors with a buying opportunity. Sure enough, despite its then 60% gain from its lows in June, the Dow Jones/UBS Grains Index continued its upward trend. in fact, following the November correction the Index went on to climb a further 32% to its intraday high put in earlier last month.

Since that February intraday high, however, the Dow Jones/UBS Grains Index has put in another correction. What’s more, this correction has brought with it a breach of the upward trend line that has been in place since last summer.

To reveal if this trend line break holds any significance, let’s take a look again at the charts for the “Big Three” grain subindices: corn, soybeans and wheat.

First, let’s look at the chart for corn:

The chart of the Dow Jones/UBS Corn Subindex looks to be holding up quite well. Corn prices continue to push higher with no signs of relenting.

The uptrend line continues to remain intact and the MACD and ADX continue to give us bullish signals.

The chart for Soybeans, however, is a different story:

The Dow Jones/UBS Soybeans Subindex shows definite signs of weakness. Like the overall grain index, its upward trend line has been breached last month as prices fall below their 50-day moving average.

A divergence in the MACD has also been observed on the chart since November’s correction. While the subindex pushed up putting in higher highs, the MACD declined steadily, eventually dropping below the zero line. Such divergences are important warning indicators that often point to reversals or, at the very least, significant declines.

The ADX looks equally bearish, as the ADX has fallen steadily since the beginning of the year and now lies below 20, further suggesting the previous uptrend has reversed.

Finally, let’s look at wheat:

I have extended the consolidated trading range of the Dow Jones/UBS Wheat Subindex to include the November lows as well as the early 2011 highs. February’s recent correction in wheat prices has brought the subindex down to support levels at the 200-day moving average which lies just above the bottom of the consolidated trading range.

The subindex continues to show no sign of any clear trend neither up nor down. The MACD has fallen once again below 0 on the lack of significant momentum. This too is demonstrated in the ADX line which is unable to rise very far above 20 so that we may point to the existence of any kind of trend other than sideways.

The charts of “Big Three” grains could not be more different. The chart for the Dow Jones/UBS Corn Subindex shows a strong and continuing uptrend. The Dow Jones/UBS Soybean Subindex, on the other hand, shows a broken trend line and significant technical weakness pointing to potential further downside. Finally, the Dow Jones/UBS Wheat Subindex shows no trend at all other than sideways.

So it appears that soybeans are the culprit of recent weakness demonstrated in the overall Dow Jones/UBS Grains Index. If they manage to re-establish their uptrend in making a new higher high, this correction might prove to be nothing but a good buying opportunity within a major bull market for the grains.