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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. 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.
Continuous Commodity Index: The Continuous Commodity Index (formerly called the CRB Index) is a basket of 17 raw commodity futures prices rolled into one composite index price. The CCI has been in existence, in various iterations, since 1957. It's an excellent gauge for the overall trend in major raw commodity market prices.
The daily CCI chart reveals that price action has been choppy the past few months. However, since last December's major low, the CCI has favored a sideways to higher path, with a spurt higher in May and then a downside correction in June. Importantly, an up-trend line drawn from the December and March lows remains in place on the daily chart.
While trading has been somewhat choppy in the CCI, the technical posture of the index on the daily chart does favor the bulls. From a key Fibonacci technical perspective, the fact the CCI has held above the 50% retracement level of the price move from the December low of 322.53 to the early-June high of 420.30 is a significantly bullish technical clue. A move in the CCI below that key 50% retracement level, located at the 376 area, would produce serious Fibonacci technical damage to then suggest the CCI trending sideways to lower in the following weeks.
Go here to see complimentary recent forecasts for the CCI.
 If you cannot view the Daily CCI chart, go here.
Leonardo Fibonacci da Pisa was a famous 13th century mathematician. He helped introduce European countries to the decimal system, including the positioning of zero as the first digit in the number scale. Fibonacci also discovered a number sequence called "the Fibonacci sequence." That sequence is as follows: 1,1,2,3,5,8,13,21,34 and so on to infinity. Adding the two previous numbers in the sequence comes up with the next number.
Importantly, after the first several numbers in the Fibonacci sequence, the ratio of any number to the next higher number is approximately .618, and the next lower number is 1.618. These two figures (.618 and 1.618) are known as the Golden Ratio or Golden Mean. Its proportions are pleasing to the human eyes and ears. It appears throughout biology, art, music and architecture. Here are just a few examples of shapes that are based on the Golden Ratio: playing cards, sunflowers, snail shells, the galaxies of outer space, hurricanes and even DNA molecules.
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The weekly CCI chart for last week also shows an uptrend in place from the January lows. It also shows that price action during the first half of last year very closely resembles price action seen during the first half of this year. History does repeat itself in markets, but not every time, of course. If history is going to repeat itself in this instance, then the CCI will have to very soon back down and push below the uptrend line seen on the weekly chart. If, at the end of the summer, the CCI has not backed down significantly, the commodity bulls will gain more technical power to extend the uptrend.
As has been the case for quite some time, crude oil is and will be the leader of the raw commodity market sector. As goes crude oil futures, so will likely go the rest of the raw commodity futures markets.
 If you cannot view the Weekly CCI chart, go here.
U.S. Dollar Index:
The fate of the commodity markets lies, in part, in the hands of the U.S. dollar's value against the other major currencies. Go here to see recent market forecasts for the U.S. dollar. The U.S. dollar index last week hit a fresh 10-month low. The index is poised to produce a bearish downside "breakout" from a trading range at lower price levels on the daily chart. If that downside breakout does occur, then look for another solid leg down in the U.S. dollar index, which would very likely correspond to fresh buying interest on the long side of raw commodity futures markets.
See on the monthly continuation chart for the U.S. dollar index that the technical picture is also fully bearish. Recent price action has pushed prices below what were major technical support levels at the 1995 and 2005 lows. Now, the next downside longer-term technical objective is the 2008 low of 70.80, basis nearby U.S. dollar index futures.
 If you cannot view the U.S. Dollar Index chart, go here.
Copper:
This red industrial metal has been rallying strongly for six months. A rallying copper market suggests a recovering world economy and rallying world stock markets, which has indeed been the case. Copper price moves can foretell impending price moves in the stock indexes. If copper prices continue to rally, the stock indexes will likely do the same. And if copper futures prices start to back down, then the stock index futures are likely going to be poised to do the same.
 If you cannot view the Copper chart,
go here.
Coffee:
See on the monthly continuation chart for nearby ICE coffee futures that prices have been in a choppy uptrend since 2001. However, for the coffee market bulls to gain solid longer-term technical strength they would need to push nearby futures prices back above solid longer-term technical resistance at the 145.00-cent area. Coffee is one of those markets that is difficult to trade. It's choppy and can suddenly be volatile. A 500-point move can quickly occur, which can quickly stop a trader out of the market if he's or she's on the wrong side of the move. Yet, if a trader catches a solid trending price move and his or her timing of entry into the trade is good, then big profits can
accrue in a hurry. Don't miss these trading opportunities. Go here to see how VantagePoint can provide you with leading indicators.
 If you cannot view the Coffee chart,
go here. |
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Live Cattle:
The longer-term monthly continuation chart for nearby live cattle futures at the Chicago Mercantile Exchange shows prices have been in a choppy pause mode since backing down from the big price gains of 2008 that did produce all-time record highs. This pause is not bullish. A drop in nearby live cattle futures prices below strong longer-term technical support at the $79.00 level would produce fresh longer-term chart damage to suggest still more downside price potential in the coming months. Meantime, a move in nearby futures prices back above strong longer-term chart resistance at $88.00 would provide the bulls with some fresh longer-term technical strength to suggest still more
upside price pressure in the coming months.
 If you cannot view the Live Cattle chart,
go here.
Natural Gas:
The natural gas futures market has seen prices back way down from last year's highs. In recent months prices have hit a multi-year low. By examining the monthly chart for nearby NYMEX natural gas futures, one can see that prices are close to the lows and to the trading range that occurred during most of the 1990s. Logic would state that natural gas futures should be a "value buy" at these present levels. I cannot disagree with that logic. However, I also know, for a fact, that any trading opportunity that seems way too logical and way too easy usually winds up being a losing trade. My bias is that there is not much downside left in the natural gas futures market. However, neither
would it surprise me to see natural gas trade "with a 2 handle" (meaning below $3.00) for a period of time in the coming few months, before establishing a major market bottom.
If you cannot view the Natural Gas chart, go here.
Cotton:
The monthly continuation chart for nearby ICE cotton futures shows that prices backed way down from the 2008 high to hit a fresh multi-year low late in 2008. Prices have since made a solid rebound from the low, hitting in June the 50% Fibonacci retracement level of the price move from the 2008 high to the 2008 low. Prices have backed off from the June high. Now, the June high of 63.10 cents, basis nearby cotton futures, does become very strong overhead longer-term technical resistance, bolstered by that level also being a 50% Fibonacci retracement level.
Go here to see how cotton is affected by related markets like canola, wheat, and soybeans.
 If you cannot view the Cotton chart, go here.
Kansas City Wheat:
Hard red winter wheat futures at the Kansas City Board of Trade have seen a big price decline from the all-time record highs scored in the summer of 2008. If HRW prices drop below major psychological support at $5.00 a bushel, then more long-term chart damage would be inflicted to then suggest a challenge of longer-term support at $4.00 a bushel. There is strong overhead longer-term technical resistance at $7.50 a bushel. My bias is that both Kansas City and Chicago wheat futures prices at present do have more downside price potential than upside price potential.
 If you cannot view the KC 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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Special Message from Our Author
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