I hope you all had a nice holiday. Mine was very nice, thank you for asking; however as always, it was a little more hectic than I would have liked. We had a lot of family coming and going, but that’s just a part of the holiday so I’ve learned to enjoy it.

It’s all done now for another year and life gradually returns to “normal”; however with all the time off I’m having a heck of a time remembering what day it is! It’s terrible to get older isn’t it? They say the mind is the first thing to go…but for the life of me I can’t seem to remember what the second thing is. ;-)

The New Year is off to a great start. The year is not even a week old and I’ve already broken half of my New Year’s resolutions…talk about will power! Oh well, each day is a brand new start, right? ;-)

Judging from the many nice emails we received, many of you really liked the special report we sent you for Christmas. The New Year is a great excuse to try the 10 things in 12 months exercise, if you haven’t done so already. I encourage you to give it a try; you might be pleasantly surprised at the results.

If you don’t know what report I’m talking about just send an email to Shaggy@xtn.net and ask for the special report entitled “How to Get What You Really Want” and we will get you a copy right away.

Shaggy and I have got some great plans for you this year. We received some valuable suggestions over the last few weeks and we will be working to incorporate some of them into the e-zine. We want this to be your best trading year ever…are you ready?

Enjoy this week’s issue.

Erich

After a brief bullish rally during the holidays where the bulls even managed to breakthrough the first resistance barrier at 241, the bears returned to once more take control of the corn market driving prices back to the support at 235. We now have a double bottom formation at this price level, which could also be interpreted as a small rounded bottom formation, with the market currently trading at the neckline.

If the market managed to post a close below 235 it would likely signal that the bears continue to control the market. The next support level below here is substantial daily, weekly and monthly support found at 230. If prices continue to decline there is scattered support found at 228 ¼ and 225 ¾ before encountering the contract lows at 224.

If the support at 235 holds look for prices to once more test the upper resistance at 241 and 243 ½. If the bulls can keep prices above here the next resistance will be encountered at 249 ¾ before testing resistance at 255 ½ and eventually at 258.

Cotton rallied hard over the holidays setting a new contract high at 5225 before Christmas. Afterwards the market stalled and continued to chop around for the next week before making another run at the contract high last Friday. While prices have been steadily increasing since the beginning of December, volume has continued to drop off indicating that the current trend might be losing steam. The market has currently completed a 123 top formation and might be setting up for a reversal next week.

The weekly chart shows us that the matching highs of the last two weeks are just shy of the 38% retracement of the large downtrend of 2001. If the current high holds look for the market to test support at 5070 before retracing the 50% of the December uptrend at 5012. If this level fails, look for next support to be found at 4930 followed by more support at 4850 which is also 50% of the larger October – January uptrend. Below here the market would be able to retrace to the December low of 4800.

If the uptrend has the momentum to continue the next obstacle for the bulls is the weekly resistance found at 5250, just above the current highs. There is more resistance nearby at 5350 before the market would encounter heavy long term resistance at 5500.

Soybeans continue to trade within the large trading range established mid-September to early October. The market rallied towards the end of last week thereby completing a small rounded bottom formation inside the larger range. Thursday’s high traded right on the neckline while Friday’s trading fell off slightly. The last two bullish sessions caused quite an increase in volume indicating that the bulls might be trying hard to push prices higher.

If we can see a close above the neckline the next stop seems to be the current contract highs at 593. There is a fair amount of long term resistance here so the market will need some serious momentum if it is going to break through. Above here we encounter weekly resistance at 604 and again at 621 ½.

If the neckline of the rounded bottom formation holds, look for prices to slide to support found at 572 ½. There is plenty of support below here as well at 559 ½ and 553. If the downtrend continues look for beans to test support at 549 as well.

Cattle prices were choppy over the holidays with the market continuing to test the contract high at 7965 for most of the week; however by the end of the week the bulls took control of the market blasting through the old contract high and setting a new high at 8100 stopping just short of the long term resistance we pointed out last month.

While the market is up against some longer term resistance, if prices can continue higher there seems to be a little room to move as the next resistance seems to be located at 8270. Beyond here we find more resistance again at 8360 and 8430.

If the current highs hold look for cattle to find support near the recent highs at 7940 and then again just below those at 7830 before the market would fall to the recent lows of 7710. Below here the market would again find daily and long term support at 7645 and 7600 before encountering the 38% level of the large daily uptrend at 7505.

If anyone has ever wondered why we don’t trade the markets over the holidays you need only to consult the cocoa market. After a couple of weeks of light trading it began to look as thought the market had topped out and was setting up for a retracement, but then at the end of last week the bulls returned to drive prices to a new four week high in just two sessions. Since we are coming off the holidays this week it can be a little difficult to judge which way the market really wants to go.

While the current and long term trends are both up, the market might be losing steam as it approaches substantial resistance. Just above the current high is daily and weekly resistance at 2170. If the market did manage to exceed this resistance the next level is nearby at 2188 which is in the middle of the gap formed around mid-October last year. If the market momentum is strong enough to drive prices higher still, there is mild resistance to be found at 2247 before encountering stronger resistance at 2310.

While there is mild support on Friday’s low of 2120, if the current highs hold look for prices to fall to nearby support at 2092. Below here prices would retreat to the multitude of support at 2008 before testing last Monday’s low of 1985. Below here the market could retrace to 50% of the November 25 uptrend at 1902 after breaching the support at 1965.

Sugar continues to be a choppy market. The market remains trapped in the sideways trading range that has contained the market from the beginning of December until now. The trading from the last few weeks could also be interpreted as the beginnings of a large symmetrical triangle. If this is the case, then we could expect the market to test the boundaries of the triangle before finally committing to a direction.

Seasonally speaking, sugar normally peaks this time of the year with prices generally falling off rather quickly the next three or four months. If this is the case, look for prices to continue to slide and test the lower boundaries of the symmetrical triangle at 730 and 715. There is plenty of support below here, the most notable being at 703 and 690, followed by more support at 670, 660 and finally the 50% level at 654.

If the market breaks through the top of the triangle, look for prices to test the current contract high at 789. Increasing volume should accompany the breakout to make certain it is not short lived. Above here, look for the market to encounter weekly resistance at 810 and again later at 820.

What a nice Christmas present the Franc gave us! After breaking through the topside of the rounded bottom formation we pointed out, the market skyrocketed to 7265 before encountering long term resistance and stalling. Depending on where you exited your paper trade, that move was worth a cool $2000 to $3000 per contract. Not bad for a rally that lasted just over two weeks and just in time to pay the VISA! ;-)

After encountering some serious weekly resistance it appears that the Franc might be setting up for a pullback next week. David Duty’s students will recognize the blip formation that developed toward the end of last week (for more information on David Duty’s course click here. There is some mild support to be found on Friday’s low of 7121; however below here there is not too much to keep the market from retracing at least to the 62% level at 7046. If the market does not bounce here, look for it to continue lower to the 50% level of 6976, which coincidentally, is very close to the old contract high of 6980.

If we see current support hold and prices continue higher next week, the market will first encounter resistance at 7228 before challenging the current contract high at 7265. If prices rally enough to set a new high, look for long term resistance at 7380 and 7455 to possibly slow prices down.

Like most of the markets over the holidays, silver bounced around until the latter part of last week when prices rallied quickly before encountering resistance at 492. The market has finally emerged from the large trading range that had trapped silver since last August. While the market is in a definite uptrend, it has made some large gains last week and might be in a position to pullback a little next week.

Just above the current high is more resistance at 494. If the market can clear this level it should not be hindered again until 503 and 507.50. If the bull trend is really strong it might even test the resistance near the contract highs at 517.

If we do see a pullback next week, look for the market to find support at 475. Below here we encounter the 62% level at 468.50 before the market might make a full 50% retracement of the last uptrend at 461.

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I’ve noticed in the e-zine that on occasion you will not enter a market until after it has retraced to the 62% or the 38% retracement levels. I was wondering if this method was one that has a good track record. I can see that you want to make the market prove itself before you get involved.

You can use retracement levels to trade from with the same reliability as using the resistance formed by price levels, as they are just another form of resistance. Many times the market will range between retracement levels (ie. between the 50% and 62%) in which case you could use these levels to bracket the market and trade it as a breakout from a channel when the market finally commits to a direction.

Many times when you calculate a market's retracement levels you will notice that the market has already hit these "imaginary" lines several times. To me, these hits help to reinforce the validity of the retracements I have calculated and give me confidence to trade from them.

It can be a valid trade to take a position above/below the 62% (or 38%) retracement level; however I would avoid trading this strategy off of the 50% retracement (especially on the market's first approach to the 50%) as this retracement level tends to be a little more unpredictable, even if the market manages to exceed the retracement line it might whipsaw and head the other direction. In this case it is wiser to wait for a strong close above/below the 50% level to make sure that the market has committed to a direction and is not merely chopping around.

Erich