Are Warning Flags Waving for the Three Major US Stock Indexes?

• The three major US stock indexes are in position to complete long-term bearish technical reversal patterns at the end of December. 

• Do technical patterns matter these day? Do the three have fundamental reasons to extend long-term uptrends in 2025? These discussions will be had early in the new year. 

• The Grains sector was quiet overnight, though there were signs Eastern Hemisphere buyers may have been interested in US soybeans. 

Morning Summary: As we approach the end of year, month, and fiscal quarter for financial markets the red flags are flapping wildly in the winter wind over US stock indexes. A look at the futures markets tied to the big three indexes early Monday morning shows all are trading lower once again. While there is a lot of month left the next two days, as a good friend in the industry likes to say, from a technical point of view the three major indexes are in position to complete another set of bearish reversal patterns. All three posted new all-time highs in early December on follow-through hysteria/euphoria tied to the US election in early November[i]. However, at Friday’s close the S&P 500 ($INX) was down 61 points for the month and the Dow Jones Industrial Average ($DOWI) was 1,918 points below its November settlement. This put the DJIA within 1,345 points of last month’s low[ii]. The outlier is the Nasdaq ($NASX) as it still sat 504 points higher for the month. However, this high-tech index closed 298 points lower last Friday with its futures market down 44 points to start the day. As I talked about recently, it will be interesting to hear/read/see what those folks who told us how catastrophic the markets were the past four years have to say now. 

Corn: The corn market was in the green to start the day, though overnight trade volume was still light. March (ZCH25) posted a 3.25-cent trading range, from down 0.5 cent to up 2.75 cents and was sitting 1.75 cents higher at this writing while registering 20,000 contracts changing hands. Another theme I’ve talked about of late is how I still like the corn markets as long-term investments; be it holding cash, futures, or exchange-traded funds (ETFs). As we make our way toward the end of December, all three are in the green from recent buy signals[iii]. That being said, there are a couple questions hanging over King Corn: Does it have the bullish fundamentals needed to extend its uptrends? At last Friday’s close the March-May futures spread was back on the neutral side of the 33% calculated full commercial carry threshold while the May-July was still bullish at 14%. On the other hand, national average basis weakened for the third consecutive week, bringing to mind either a contra-seasonal change in trend or a Benjamin Franklin Fish Analogy[iv]. The second question came from a friend in the investment industry, “Can corn trend higher if soybeans are growing more fundamentally bearish?” I’ll talk more about this later. 

Soybeans: The soybean market was also in the green to start the week, also on a slight uptick in overnight trade volume. The March issue (ZSH25) posted an 8.0-cent trading range, from down 0.75 cent to up 7.25 cents and was sitting 3.75 cents higher at this writing while registering 20,200 contracts changing hands. Given March hit its high around 2:00 (CT), 16:00 Beijing time, it’s possible some overnight sales were made to the world’s largest buyer, or its alias “unknown destinations”, with March giving back as much as 4.0 cents after Eastern Hemisphere markets were done for the day. We’ll see if USDA has a sales announcement for us later this morning. The latest weekly export sales and shipments update, released last Friday for the week ending Thursday, December 19, showed US total sales (total shipments plus unshipped sales) of 1.458 bb as compared to the pace projection for 2024-2025 export demand of 1.966 bb. In other words, if the US is going to hit the pace projection, it needs to make another 500 mb of sales. This will get more difficult once the next Brazilian harvest starts in late February. National average basis weakened again last week with Friday’s calculation coming in at 58.25 cents under March futures. 

Wheat: The wheat sub-sector was in the green pre-dawn, but as usual I’m not reading anything into the overnight move. What does stand out to me is all three markets continue to see noncommercial short-covering. We’ll get our next round of CFTC Commitments of Traders reports Monday afternoon, delayed by a day due to last week’s holiday, for positions as of Tuesday, December 24. A quick recap shows March Chicago (SRW) (ZWH25) was down 10.25 cents from the previous Tuesday (December 17), March Kansas City (HRW) (KEH25) was off 8.75 cents from Tuesday-to-Tuesday, and March Minneapolis (HRS) (MWH25) was showing a 5.5-cent loss for the week. This tells us Watson likely increased its net-short futures position across the board. However, as we’ve made our way through the next positioning week, ending on Tuesday, January 31 interestingly enough, the three March contracts are showing gains of 12.75 cents, 12.5 cents, and 6.5 cents respectively. Again, this tells us there has been some year-end noncommercial short-covering by funds after what has likely been a profitable year holding short futures, particularly in the Chicago market. Fundamentally there isn’t any reason to get bullish with futures spreads neutral across the board while winter wheat basis markets remain bearish. 
 

[i] Recall all three posted bearish technical reversal patterns at the end of October.

[ii] Meaning there is an outside chance of the DJIA completing a bearish key reversal on its monthly chart. A bearish reversal is when a market goes to a new high before falling back below the previous month’s low and closing lower for the month. I’ll talk more about this in Monthly Analysis. 

[iii] December futures and the Teucrium CORN fund at the end of August, the National Corn Index (national average cash price) at the end of November. 

[iv] Like guests and fish, markets start to stink after three days/weeks/months (whatever time frame is being studied) of moving against the trend.