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Trader's Tip
Use technical support and resistance levels for stop placement. Professional traders like to place their protective sell stops just under a technical "support" level when getting long a market--or just above a technical "resistance" level when getting short a market. This lessens the odds that the stop will be hit, because a support or resistance level could stop and reverse any price trend.
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Jim Wyckoff | |
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Today's Featured Article
Hello Fast Break
readers. It's a pleasure to show you some of my recent work. It's my goal that after reading my Fast Break analysis you will take away at least one valuable "nugget" to improve and enhance your own trading plan of action. Today I'm going to show my latest bi-weekly newsletter, in which I do take a longer-term perspective on selected key markets. My bi-weekly newsletter is one part of my overall analytical and trading advisory service, "Jim Wyckoff on the Markets." Remember that no matter what your trading timeframe, it's prudent to examine longer-term price charts to gain that important bigger-picture perspective on recent price action and where prices may be headed in the coming
weeks.
General Comment on Grains: The first half of 2008 saw grain futures prices score all-time record highs, amid keen speculator interest in the grains and most other commodity futures markets. Nearby corn futures hit a new high of $7.62 1/2 -- surpassing the previous record high by over $2.00 a bushel. Nearby soybean futures peaked at a record high of $16.60 a bushel -- beating its previous record high, scored 35 years ago, by over $3.50. Nearby wheat futures in Chicago notched a record high of $13.00 a bushel, beating its old record mark by $5.50.
Then during the last half of last year the bottom fell out the grain markets when crude oil futures prices started to slide. By the end of 2008, grain futures prices had lost over 50% in value from their record highs. At present, price downtrends are still in place for corn, soybean and wheat futures, which suggests still more downside price action in the coming weeks or even coming few months. For more information on grains
go here.
From a fundamental perspective, the severe economic depressions gripping most major countries have sapped demand for raw commodities. On the supply side, worldwide production of corn, soybeans and wheat is running at a record or near-record pace. The present posture of the world's major economies is one of commodity price deflation -- ample supplies and reduced demand. Deflation is the archenemy of commodity market bulls.
However, at some point during 2009 -- likely during the last half of the year -- it's likely that grain futures markets will become a "value buying" opportunity for traders and investors. There are two main factors supporting such a notion. One is the history-proven fact that commodity futures markets behave like a big pendulum. During bullish times, exuberant traders push commodity futures prices too high to reflect the bullish supply and demand fundamentals, and then prices "correct" to the downside and begin to trend lower. During the gloom of major bear markets, traders push commodity market prices down too low, which re-ignites demand and prices then see a rebound to start a fresh
longer-term price up-trend. | |
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The second major factor supporting a strong rebound in commodity futures markets in the coming months is the likely rekindling of inflationary price pressures -- both on the consumer level and the wholesale (raw commodity) level. Reason: The massive injections of liquidity (money) into the world banking system of the past several months will at some point in the not-too-distant future prompt inflationary price pressures. Again, history proves this notion. The first clues of inflationary price pressures will occur when interest rates bottom out and start to rise again. At that time, it's also likely that grain futures markets will be valued at attractive price levels for buying
opportunities.
The price ranges at which corn, soybeans and wheat futures will likely become "value buys" are as follows. Corn: $3.00-$3.25. Soybeans: $6.50-$7.50. Wheat: $4.00-$4.50. These prices are based upon the nearest futures contract for each market. Also note that nearby futures prices may actually trade lower than the aforementioned ranges, but not likely for very long. To find out about grains and its interrelated markets
go here.
One other point on corn and soybeans: If prices continue to erode into the May/June timeframe, it would then be prudent to explore opportunities for purchasing out-of-the-money call options in these two futures markets. Remember that the U.S. summer months do usually produce significant weather scares and weather market rallies in the corn and soybean futures markets.
Corn: See on the monthly continuation chart for nearby corn futures that a big V-Top reversal pattern has played out the past two years. Now, prices are trading right about in the middle of two major longer-term support and resistance levels, as shown on the chart. I would not be surprised to see nearby corn futures drift down toward the $3.00-per-bushel level in the coming weeks or few months. One factor all grains traders need to keep in mind is that the world is presently in the worst economic/financial shape since the Great Depression of the 1930s. We've seen crude oil prices tumble over $100.00 a barrel from their all-time highs seen last year. We've seen the U.S. stock market shed
around half of its value the past several months. To have corn prices drop below $3.00 a bushel, soybeans below $7.50 a bushel and wheat below $4.50 a bushel in such economic conditions would not be the most shocking news ever to hit the markets.
If you cannot view the Corn chart, go here.
Soybeans: The monthly continuation chart for nearby soybean futures at the Chicago Board of Trade also shows a big V-Top reversal pattern that has played out the past couple years. Receive complimentary recent forecasts for soybeans -- go here. Longer-term price history in the soybean futures markets shows several big V-Top reversal patterns on the monthly chart. V-Tops and V-Bottoms on longer-term monthly charts are classic examples of how, during major bull and bear runs, prices overdo it on both the upside and the downside and then see a sharp corrective move to produce the V. See the key longer-term technical support and resistance levels on the monthly chart for nearby soybeans.
If you cannot view the Soybeans chart,
go here.
Wheat: The monthly continuation chart for nearby Chicago soft red winter wheat also shows a big V-Top reversal that has played out the past two years. My bias is that nearby Chicago wheat futures prices will at some point soon challenge or push below the key longer-term technical support level at last year's low of $4.55. It would take a move in nearby wheat futures back above strong longer-term technical resistance at $6.50 a bushel to provide the bulls with solid longer-term technical power to suggest bigger price gains.
If you cannot view the Wheat chart,
go here. |
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Gold: Gold prices have backed down from recent highs, but no serious short-term or longer-term technical damage has been inflicted. See on the monthly continuation chart for nearby gold futures that prices are still hovering close to historic highs. To predict gold's next move with nearly 80% accuracy
go here. A drop in nearby gold future prices below what was the previous all-time high of $873.00 an ounce, scored in 1980, and what is now solid longer-term technical support, would produce some longer-term chart damage to suggest a major market top is in place in gold. And a close in nearby gold futures prices above major technical resistance at the all-time high of $1,014.60 an ounce would be significantly longer-term bullish to suggest more upside price pressure forthcoming -- possibly much more upside pressure, with bigger daily price moves to the upside.
If you cannot view the Gold chart,
go here.
U.S. T-Bonds: I always tell my valued readers to more than just occasionally examine longer-term price charts in order to gain that very important bigger-picture perspective on market action and where prices may be headed on a longer-term basis. See on the monthly continuation chart for nearby U.S. Treasury Bond futures the key Fibonacci retracement levels of the major price move from the 2000 low to the 2008 high. Note that the recent downside move in prices has not even yet challenged the 38.2% retracement level of the aforementioned longer-term price up move. In other words, the longer-term technical posture of the T-Bond market, from a Fibonacci perspective, is still fully bullish. Fibonacci
analysis suggests the recent price pullback in nearby T-Bond futures, on the monthly chart, is still just a downside correction in a longer-term bull market.
If you cannot view the T-Bonds chart,
go here.
U.S. Dollar Index: The U.S. dollar index hit a fresh nearly three-year high this week. The greenback bulls have gained fresh near-term and longer-term technical strength recently. See on the monthly continuation chart for nearby U.S. dollar index futures that the next upside price objective is longer-term chart resistance at the 2005 high at the 92.50 area. While the U.S. economy is certainly not in good health and the U.S. government continues to "print money," the venerable U.S. currency is still the best game in town for the major currencies, which are all in worse shape than the greenback. For more information on the markets that directly affect the U.S. dollar
go here.
If you cannot view the Dollar Index chart,
go here.
S&P 500 Futures: The monthly continuation chart for nearby S&P 500 futures shows that a big double-top reversal pattern has played out over the past dozen years. The next downside price objective, on a longer-term technical basis, is technical support at the 600.00 price area, basis nearby S&P 500 futures.
If you cannot view the S&P 500 chart,
go here.
Crude Oil: See on the monthly continuation chart for nearby crude oil futures that a big V-Top reversal pattern has also played out the past couple years. The one thing to point out on this longer-term monthly chart for crude oil is that there are no technical clues that prices have reached a bottom during the recent strong downdraft. In fact, the recent pause after the steep run lower seen during the last half of 2008 is not bullish.
If you cannot view the Crude Oil chart,
go here. | |
About the Author
Jim Wyckoff is the senior market analyst with TraderPlanet.com
. TraderPlanet.com, a Tampa Bay, Fla.-based financial social networking site, provides individual traders of all skill levels a one-stop destination for financial information and trading tools. TraderPlanet.com is the only financial social networking site that offers its members a full suite of market data feeds, advanced technical analysis tools and exclusive analyst commentary across asset classes, while enabling members to give back to the broader world community through gift-giving to charitable causes. Designed to level the playing field between institutional and individual traders, TraderPlanet.com's fully interactive, multi-media rich platform is designed to promote the free-flow
exchange of ideas through questions, answers and comments designed to improve trading strategies and investment performance.
Jim has spent nearly 25 years involved with the stock, financial and commodity markets. He was a financial journalist with what is now the Dow Jones Newswires service for many years, including stints as a reporter on the rough-and-tumble commodity futures trading floors in Chicago and New York. As a journalist, he has covered every futures market traded in the U.S., at one time or another. Not long after he began his career in financial/commodity market journalism, Jim began studying technical analysis. By studying chart patterns and other technical indicators, Jim realized the playing field could be leveled between the "professional insiders" in the markets, and traders/analysts like
himself. As a proponent of Intermarket Analysis, VantagePoint Intermarket Analysis Software is one of the tools in Jim's tool-box. | |
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