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Trader's Tip
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No matter what your trading timeframe -- be it an active intra-day trader or a longer-term position trader -- you should examine longer-term weekly and monthly charts to gain that important bigger-picture perspective on markets.
- Jim Wyckoff |
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Special Message from Our Author
Today's Featured Article
Hello Fast Break readers. It's a pleasure to show you some
of my recent work, and it is 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 from Dec. 3, in which I do take a longer-term perspective
on selected key markets.
Remember, too, that it's important for traders to keep a
close eye on the key "outside markets" that have been impacting so
many other markets recently. Those markets are the U.S. dollar index, crude
oil, gold, and the U.S. stock indexes. This phenomenon is called
"Intermarket Analysis,"
an analytical approach for trading perfected by my friend and pioneer software
developer Louis Mendelsohn.
The recent news of a debt repayment snafu in Dubai prompted
a quick "flight-to-quality" move among investors worldwide, amid the
heightened, albeit brief, market uncertainty. While the Dubai news has
seemingly passed by without serious, overt market implications, some markets'
reaction to the news was telling, providing clues about future price action in
key markets.
The fact the U.S. dollar posted a solid rally on the Dubai
news, amid the keener market uncertainty, once again shows that when the going
gets real uncertain, investors worldwide will still seek out the U.S. dollar
and U.S. government securities (T-Bonds and T-Notes). Interestingly, before the
media reported the Dubai news, T-Bonds and T-Notes prices had been trending
higher for a few weeks. The U.S. dollar's reaction to the Dubai developments
also is one clue that there is not much downside left for the greenback and
that a market bottom for the U.S. currency is close at hand.
Another interesting observation: Gold futures sold off
sharply at the height of the Dubai market uncertainty. That's not a good sign
if you are a gold market bull. Gold bugs have historically touted the precious
yellow metal's "safe-haven" status during times of heightened market
anxiety. The fact gold did sell off late last week on the Dubai news is a clue
that the market has come too far on the upside and is due for at least a solid
corrective pullback in the near term, if not a major market top being close at
hand. Go here to
see a recent market forecast for gold.
Crude oil futures prices spiked lower on the Dubai news
reports, hitting a fresh six-week low before posting a rebound. While prices
did rebound, the sharp spike lower on the Dubai markets scare reveals the crude
oil market is susceptible to more downside price pressure in the coming weeks
and months. On the daily charts, crude oil prices have been trending lower for
seven weeks.
The Dubai news is a "speed bump" for the markets.
That news, once again, reminded all that the state of world economies and
financial markets is still fragile as the world works to lift itself out of the
worst economic and financial turmoil since the Great Depression of the 1930s.
While the Dubai news has passed by the markets with
seemingly little lasting impact, when will the next "speed bump" for
the markets occur? It's not a matter of if another speed bump will occur. The
questions are when will it occur, and what will it look like. Will it be
another nation experiencing debt repayment problems this next week, or will it
be a geopolitical shock coming from the volatile Middle East tomorrow? Will it
be a barrage of worse-than-expected economic data next quarter that strongly
suggests the major economies of the world will get that "double-dip"
recession that many have talked about for months? More than likely, one such an
event will occur sooner rather than later.
Finally,
the Dubai market scare did allow some markets to "tip their hand" and
it provided solid clues for traders to digest. For me, those clues suggest
that, at present, I do not want to be long gold or crude oil, and I do not want
to be short U.S. Treasuries or the U.S. dollar. This is a prime example of why
intermarket analysis is imperative for any trader's success. Using neural
network technology, technical analysis and intermarket analysis, VantagePoint
finds hidden patterns and relationships between twenty-five related markets and
a target market. |
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Dow Futures
The monthly continuation chart for nearby Dow stock index
futures shows that since March, prices have been trending sharply higher. A
bullish V-Bottom reversal pattern has formed on the monthly Dow chart. The
symmetry of this particular V-Bottom pattern projects the rally in nearby Dow
futures will start to stall out around the 12,000 area, which would complete
the pattern on the monthly chart. The next longer-term upside technical
objective for the Dow bulls is to push nearby futures prices above major
psychological resistance at 11,000. On the downside, a drop in prices below
solid longer-term technical support at 9,700 would suggest the major uptrend
has ended.
If you cannot view the Dow Chart,
go here.
U.S. T-Bonds
Prices on the longer-term monthly continuation chart for
nearby U.S. Treasury bond futures are in a choppy uptrend that dates back to
1994. Prices have backed down from last year's all-time record high in prices,
but have also made a solid rebound from this year's lows to confirm the
longer-term price uptrend remains in place. Just recently, both T-Bonds and
T-Notes have produced solid rallies on the daily charts. As I see it, the
"risk" in the T-Bonds and T-Notes markets at present is for a bigger
upside price surge, as opposed to a larger-degree sell off in prices.
If you cannot view the T-Bonds Chart,
go here.
Crude Oil
Crude oil futures on the New York Mercantile Exchange have
been trending higher since early 2009, as seen on the monthly continuation
chart for nearby futures. There are no longer-term clues to suggest the uptrend
on the monthly chart will end any time soon. However, on the daily chart for
crude oil, prices have been trending lower since mid-October, as witnessed by a
series of lower highs and lower lows on the daily chart. Last Friday's sharp
spike lower did produce near-term technical damage that suggested crude oil
futures prices would continue to trend sideways to lower in the coming weeks.
However, this week's rebound in crude prices has repaired most of the chart
damage. This now suggests choppier trading in the near term. Strong technical
support for January Nymex crude oil is seen at last Friday's low of $73.39 a
barrel. A close below that key support level would produce serious chart damage
and would open the door to a quick slide to major psychological support at
$70.00 a barrel.
If you cannot view the Crude Oil Chart,
go here.
Gold
With gold prices this week hitting new all-time record
highs, traders are wondering what the next major upside technical objectives
are for the precious yellow metal. The work of W.D. Gann suggests major round
numbers are important technical support and resistance levels. In the case of
gold, the next round numbers on the upside are $1,300, $1,400, and then $1,500
an ounce. By using Gann angles overlaid on the monthly chart for gold, major
upside objectives based on those angles are $1,350, $1,750 and then at the
$2,200 area. Here's an important point to remember about commodity markets that
are on major bull runs -- the last 15% to 25% of a price move during a major
bull run occur very quickly, and prices do not stay at those higher levels for
very long. This type of price action in a mature bull market produces the spike
tops or V-Top reversal patterns that are so commonly seen on the longer-term
monthly charts for commodity markets. Go here to see a recent market forecast for gold from VantagePoint -- the
software that is up to 86% accurate* at forecasting market trends.
If you cannot view the Gold Chart,
go here.
Silver
The monthly continuation chart for nearby silver futures is
a classic example of why it's important to examine longer-term charts and to
know the historic highs and lows for a market. Those traders not knowing the
longer-term trading history of the silver futures markets might reckon that
prices approaching $20 an ounce have to be near all-time record highs. Not so.
Back in 1980, nearby silver futures hit an all-time high of $41.50 an ounce.
From a longer-term historical price perspective, the silver market does have
much more room to run on the upside.
If you cannot view the Silver Chart,
go here.
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Cotton
The longer-term monthly continuation chart for nearby cotton
futures shows that a steep uptrend is in place as another major bull market run
is playing out. An examination of the major bull market runs that have occurred
in cotton over the past 30 years shows that virtually all of them do not start
to peter out until nearby futures prices push above 80 cents per pound. This
suggests the present bull market move in cotton has at least a nickel more to
go (500 points), basis nearby futures, before history starts to suggest a
market top forming.
 If you cannot view the Cotton Chart,
go here.
Corn
Corn bulls have enjoyed some upside success in recent weeks.
Did you miss this opportunity? With
VantagePoint's up to 86% accurate* forecasts you have the ability to cherry
pick the best trades.
From a longer-term perspective as seen on the monthly chart for corn futures,
nearby futures prices will have to push above longer-term technical resistance
at $4.50 a bushel to suggest bigger gains are forthcoming. And if prices do
back off from present price levels on the monthly chart, then the specter of a
big and bearish head-and-shoulders top reversal pattern looms.
 If you cannot view the Corn Chart,
go here.
Soybeans
See on the monthly chart for nearby soybean futures that
prices have made a solid rebound from the late-2008 lows. Prices are presently
trapped between two important psychological levels, $10 support and $11
resistance. A price move above $11 in nearby soybean futures would be
significantly longer-term bullish, which would suggest a quick challenge to the
psychological resistance found at $12 a bushel. Meantime, a drop back below $10
would produce some longer-term chart damage, which would suggest sideways to
lower price action in the coming months.
 If you cannot view the Soybeans Chart,
go here.
An examination of the monthly continuation chart for nearby
Chicago soft-red winter-wheat futures does not reveal a bullish technical
situation. However, one important factor has attracted buying interest from
fund managers worldwide -- wheat futures prices had backed off from the 2008
highs by more than $7 a bushel, or more than half its value. Many commodity
fund managers are still viewing wheat futures prices as a "value buy"
compared to levels seen the past 18 months: for more
information on wheat and its related markets go here.
Many veteran grain-market watchers may be scratching their heads at the above
thought process from fund managers. However, it's a fact, and this type of
thinking in the commodity market world cannot be ignored, especially when large
pools of investor monies are still sitting on the sidelines looking for a home
outside the traditional stock market world.
 If you cannot view the Wheat Chart,
go here. |
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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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