Relative Strength Index (RSI) is a technical-momentum indicator that attempts to determine when a market is in an overbought or oversold condition. It is deemed to be overbought when above 70 and oversold when below 30, but traders often have individual preferences and set their parameters accordingly. RSI is best used as a valuable complement to other individually preferred technical tools.
The bullishness and subsequent toying with overbought territory that dominated the agriculture sector up until recently has given way to a long overdue period of consolidation. However, the DJ UBS agriculture index is already showing signs of buyers returning, not least in the grain and livestock sectors. Two key US government reports from the Department of Agriculture — covering estimates for prospective planting and quarterly stocks — will be released on Monday and, if recent history is anything to go by, some fireworks in soybeans, corn and wheat can be expected. The March quarterly grains stocks figures will indicate the current pace of demand for the 2013/14 season, while the Planting Intentions Report will offer the first surveyed look at which acreage US farmers will allocate to the different crops during the 2014/15 season.
In corn, the previous three reports have yielded daily ranges on the May contract of between USD 0.35 and 0.4, i.e. price moves well above 5 percent. Staying with corn, the current estimates from a Reuters survey are pointing towards a planted acreage range between 90 and 94 million acres while stocks range between 7 and 7.5 billion bushels. With expectations ranging so widely we could once again see volatility spike higher. The downside probably poses the biggest risk considering the current elevated speculative net-long positions, especially in corn and soybeans. However, so far we have not seen any major signs of long-liquidation, with hedge funds and money managers happily maintaining a bullish strategy.
The energy sector remain neutral at the moment while the metal sector has suffered to the extent that both silver and platinum are showing signs of being oversold. Palladium, which received a boost last week from elevated fears about supply disruptions from Russia, has gone into reverse today and once again this shows why this metal is great to trade while momentum exists but horrible when corrections set in due to poor liquidity.