US Class III Milk Futures – Technical Commentary

September Class III Milk put up a bearish outside day reversal during Monday’s session, which reflects a significant shift in sentiment. That shift in tone also marks a conclusion to recent upside correction action and suggests that the market has more work to do on the downside. This includes a re-test of last week’s low of 17.65, with potential for more. Downtrend line resistance drawn from the July and August peaks comes in at 18.50. A breach below 17.60 would help confirm more downside, with targeting based on recent consolidation at 17.38, then a longer term swing target at 16.50. Weakness in the October contract reversed the last five closes and also favors a retest of the August low of 17.67. Meanwhile, open interest continues to climb and has reached its highest levels since April.                           The combined large spec and small spec net short position reached a healthy 4,745 contracts as of August 13th. This leaves the market in an oversold condition and suggests increased buying (short-covering) could come into the market if resistance levels are violated.