Traders Helping Traders Big Weekend Edition

Traders Helping Traders E-zine for May 31st, 2009

Shooting the Breeze!


Well, today we made the last of the DNS changes to the site and hopefully now the move will be complete and we should all be able to access the site without problems.

I'm not a conspiracy nut but something's not right here. This is the third weekend in a row that I'm unable to access the site to upload videos! The stupid thing is that I can access the site during the week. I checked. We ran through everything to make sure there wouldn't be any more glitches... and here we are again – glitched! These last DNS changes should solve this (holding thumbs).

I feel so helpless when this happens. We have (ie. "I") become so dependent on computers that when they screw up, which seems to be more and more frequently, you're left hamstrung until the problem is resolved. And it's not like the "old days" when this was something you could fix yourself. Computers are far too complicated for any mere mortal to fix the problems that arise in the ether. We always have to wait for the techies to work their wonders so that everything works again.

As you've no doubt noticed we've had our share of technical difficulties these last few months as we've switched between two different servers and now we're on to the third. I have no idea why this should be so difficult but it seems that the geeks that relish in binary code have a language all their own and they expect everyone to know it as well as they do. It's kind of like having someone speak Klingon to you, only they're doing it through email. You recognize the letters but you have no idea what they're saying.

Anyway, the point of my rant is my roundabout way of apologizing for the inconvenience. I really am sorry for the inconvenience to all of you, and I will make it up to you – I promise! In the meantime...

Enjoy this week's issue,

Erich
erich@tradershelpingtraders.net
 

Currencies


Currencies Market Overview

A lot of the foreign currencies saw some big moves last week spurred higher by a weaker US Dollar and rising energy costs (which weigh on the USD). It looks as though we can expect more of the same for both the short and long term; however it's going to be difficult for us to get in until we see some resistance form and have a retesting of support.

I much rather buy a market off support so I can have a smaller risk exposure, but now that markets have momentum and are moving so quickly I wonder how long it will be before we get our chance?

FLAT Currency Complex

The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can try it for free here.
 

Financials


Financials/Indices Market Overview

A rather choppy week in the minidices this week as I continue to look for a major bear pullback in both the mini Dow and emini. Momentum continues to decline in both markets and I'm still wondering what's holding them up? I want to be as bullish as the next investor; however until we see a pullback to "normalize" the market I have a difficult time buying right now.

The 30 year bond and Eurodollar both seem to have found support last week. Since the Eurodollar's support came with the trend I'll look at buying the market on a continued move higher this week.

Eurodollar

In fact, the support is almost text book. Did you notice where the support came? Yep, right off our moving average lines. And while we don't trade the line per se, we still use it as a tool to help us identify where important support is likely to occur. Momentum seems to be strong and the first real resistance obstacle is at 98970. Once we're over here we'll have the previous reactionary high at 99100 to deal with, but so far it looks as though the bulls have no reason to let go of their hold on the market.

If March Eurodollar opens at or below 98930
BUY March Eurodollar at 98945 (stop)(day)
If filled: Exit Stop: 98865 (stop)(GTC)
Approximate Risk: $200 per contract
Profit Target: 99070 (limit)(GTC)
Approximate Profit: $312 per contract
Degree of Risk: Moderate

Eurodollar Chart
 

Grains


Grains Market Overview

The Grain complex was semi-cooperative with us last week, at least as far as Wheat was concerned. We managed to take a few dollars out of the mini-Wheat market ($200+) but our other trade in Corn was a little more reluctant. We did get filled to the long side on Friday but the market didn't have much upside momentum... but it was Friday so I shouldn't get too anxious.

Canola is another market that's ideal for the small spec trader and one that's often overlooked. This week Canola's giving us a buy signal as price found support by the end of last week.

Canola

Granted this one's a little more difficult to see, but not so difficult that you shouldn't be able to spot it. Work through it with me. What's the first thing you notice? The market's trading near a moving average line, right? A long term moving average line no less. This is a biggie.

Okay, what else do you see? Did you say the support bar combo? Yes, you're right. The market is showing support. There's one other thing... can you see it?

Momentum? No. Momentum hasn't moved yet. RSI? Nope, RSI is buried in the oversold section, from which it will eventually rise, but there's no indication of that now. So what is it you ask? It's price consolidation.

Price will often consolidate before a bigger mover and this is what's happening in Canola right now. Do you see how Friday's range couldn't break Thursday's? That's significant. In fact many times you'll see a market make a very small range just before a big move or reversal.

Of course there's nothing wrong with waiting for momentum to confirm the shift and wait to buy then, there's rarely only one chance to get into a trade, but if you're living a bit on the wild side you might consider buying on a breakout to the upside.

BUY July Canola at 4657 (stop)(limit)(day)

If filled: Exit Stop: 4493 (stop)(GTC)
Approximate Risk: $328 per contract
Profit Target: 4763 (limit)(GTC) Approximate Profit: $212 per contract
Degree of Risk: Moderate to HIGH

Canola Chart

Corn

CONTINUATION of Long July mini-Corn at 436 3/4 (May 29)
Exit Stop: 416 3/4 (stop)(GTC)
Approximate Risk: $200 per contract
Profit Target: 463 3/4 (limit)(GTC)
Approximate Profit: $270 per contract
Degree of Risk: HIGH

Corn Chart
 

Meats


Meats Market Overview

Lots of choppiness in the Meat complex last week and more in store for this week as well. The only market of interest to me in this complex this week is Feeders but not until we see support. August Feeders are in an uptrend but in the middle of a pullback phase. Now we're on the lookout for support to come back into the market. Once we have support and a momentum shift we'll be in good shape to buy the market again.

The two lines that seem to have the greatest strength are 100.00 and 101.00, or something reasonably close to it.

FLAT Meat Complex
 

Metals


Metals Market Overview

I'm a little choked at the Gold market, or more accurately, how I handle the Gold market (what else is new, huh?) I've been waiting for support to come back and last week we did get support midweek, but I must have been napping because I flat out missed it. Of course the market bolted adding insult to injury. Now I'm on the sidelines again waiting for the next support to come back into the market. It might be a little while but the good news is that Gold will likely rally for quite some time to come.

FLAT Metal Complex
 

Softs


Softs Market Overview

OJ reminded me last week of why it's a bad idea to do a countertrend trade. In case you missed it, OJ spanked me for a loss when I tried to short it for the short term. Why is that not a good idea? Because you NEVER really know how far a pullback move will go and in most cases it never goes far enough.

That was my case when OJ came within a few ticks of my profit target only to come up short. >From here the market floundered for a few more days before giving a buy signal and rallying higher. Of course I was already stuck on the short side, so the best I could do is cover my trade and suck up the loss.

The thing with OJ is that there's serious divergence in the market which "should" put pressure on price to head lower. But that's not been the case thus far. In fact OJ continued to put in a nice rally right up to the weekend; however that divergence will have me gunshy about buying anytime soon.

Which brings us to Cotton...

Cotton

Cotton's momentum is declining but I don't think it's falling off enough to give us a full reversal at this time. The market has been in an uptrend since mid-March and remains in an uptrend, but just barely. Why would I say that? Because last week, for the first time in many many weeks we saw support fail at 5600.

I don't take the failure too seriously yet; however as we got a bounce off trendline support, which is been stronger than the 5600 support because this one is accompanied by rising momentum. As such I think we'll get to see Cotton continue with the uptrend, at least for one more week.

I like this trade too because the last "line" for the bulls is the resistance at 5800, which also happens to be our entry. This line has to give way for the bulls to continue higher. If it holds then the bears will come back in and force prices lower. If the resistance yields then we should see prices continue higher to challenge previous highs.

All bets are off if the support goes first. If that happens prices are likely to slide to 5200 after which we'll reassess our positions.

Sorry about the expense behind this trade. Cotton is not a cheap market to trade.

If July Cotton opens at or below 5800
BUY July Cotton at 5810 (stop)(day)
If filled: Exit Stop: 5530 (stop)(GTC)
Approximate Risk: $1400 per contract
Profit Target: 5960 (limit)(GTC)
Approximate Profit: $750 per contract
Degree of Risk: Moderate

Cotton Chart

The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free here.
 

Pick of the Letter


Pick #3 – BUY July Canola

This is a good trade as well; however if you're making me pick 'n choose then this is the order I'm going with. In spite of getting stuck in third place this is a very good trade for the small spec as Canola makes nice ranges and is not too expensive if we're wrong.

Pick #2 – BUY July Cotton

It's a little expensive and can be very volatile, but Cotton's showing us a nice move off support. The best news is that price will have to break nearby resistance before bringing us into the trade.

Pick #1 – BUY March Eurodollar

This trade has a lot of things going for it – a bounce off support and rising momentum – which make it look like a good buy for this week..
 

Lesson du Jour


Last week's Homework question will be answered in next week's issue because there is a point I want to make!

This week:

I'm a stickler for trading trend. Whenever I have a bad trade it is almost always the result of going against the trend. The problem with trading trend is in recognizing which way the true trend is. After all, all markets have brief periods of retracement and profit taking that can blur the true trend of the market. Therefore as traders we need a tool that helps us define the overall trend of the market so we know which way we want to be trading. One such tool that I tend to rely on is the weekly chart.

For a position trader the weekly chart is an indispensable tool because it condenses what has been happening on the daily chart. This condensing helps eliminate a lot of noise that we see in the shorter time frame making it easier for us to know which way the market is really trending.

Let's take a look at some examples.

This is the weekly chart for the June Japanese Yen:

Japanese Yen Weekly Chart

In this chart we see an uptrending market showing signs up support. We have our support bar combination and a reaction off the trendline and moving average lines. Prices have been advancing for the last couple of years and at the very least we can anticipate a short term bounce off these levels.

Therefore, with all these factors lining up on our long term charts we would naturally become more bullish on the daily chart. This is what I mean when I say that "the long term charts drive the short term". Of course the short term charts supply the data that makes up the long term charts, but it's easier to see the results of all that data on the long term chart.

This is the daily chart from that same weekly time frame:

Japanese Yen Daily Chart

Doesn't look very bullish does it?

That's because the weeks prior was the retracement period on the weekly chart. Of course there was plenty of money to be made trading the weekly retracement (I did a couple of short trades myself) but the weekly chart clearly shows a market in an uptrend; therefore we need to be alert to signs of support and a potential rally.

Pattern traders might identify (usually in hindsight) the current formation as a Head 'n Shoulders bottom. As support and resistance traders we don't really care what it's called; rather we're looking to see which side of the market gives way first – the support or the resistance – but by looking at the weekly chart we can already guess that the support side will hold and that the resistance side will give way first.

Remember (this is important!) as traders we do NOT predict which way the market will go; rather we set up our trades at the right place and time to take advantage of the market when it does as we think it should. There is nothing that says the market must bounce off these levels; however there are quite a few factors in play which would make us suspect that a rally might be around the corner. As a result we could set up to take a long trade above the recent highs and put our exit stop under the support.

This is what the chart looked like a couple of weeks later:

Japanese Yen Chart

Nice little rally, huh? And we "saw it coming" all the time off the weekly chart.

There are very few tools in trading that will give you advance notice of what a market might do next, but the weekly charts are definitely a tool that can do that. Take the time to study your weekly charts. If nothing else you will gain an overall perspective of the market and get a better feel for which direction you should be paying attention to.

Got a question that needs answering like an itch you can't scratch? Send it along to Erich@tradershelpingtraders.net and I'll be happy to try and clear things up for you.
 

Futures Trading is Risky! Never trade with money you cannot afford to lose!


Nothing in this publication is either a solicitation to trade or a recommendation of any strategy. Always consult your broker or advisor before attempting any trade. Commodity trading involves substantial risk of loss.

THE DATA CONTAINED HERE IN ARE BELIEVED TO BE RELIABLE BUT CANNOT BE GUARANTEED AS TO RELIABILITY, ACCURACY OR COMPLETENESS; AND AS SUCH ARE SUBJECT TO CHANGE WITHOUT NOTICE. TRADERS HELPING TRADERS AND IT'S ASSOCIATES WILL NOT BE RESPONSIBLE FOR ANYTHING WHICH MAY RESULT FROM RELIANCE ON THIS DATA OR THE OPINIONS EXPRESSED HEREIN.

DISCLOSURE OF RISK: THE RISK OF LOSS IN TRADING FUTURES AND OPTIONS CAN BE SUBSTANTIAL; THEREFORE, ONLY GENUINE RISK FUNDS SHOULD BE USED. FUTURES AND OPTIONS MAY NOT BE SUITABLE INVESTMENTS FOR ALL INDIVIDUALS, AND INDIVIDUALS SHOULD CAREFULLY CONSIDER THEIR FINANCIAL CONDITION IN DECIDING WHETHER TO TRADE. OPTION TRADERS SHOULD BE AWARE THAT THE EXERCISE OF A LONG OPTION WOULD RESULT IN A FUTURES POSITION.

NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
 

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