When we were kids, Halloween was always a big deal. I wasn’t the type of kid that pulled Halloween pranks, but I did enjoy getting dressed up to go out “trick-or-treating”. My favourite costume was to get dressed up as Jake-the-peg, the man with the extra leg. The costume required a little work, but it was worth it as it was always a big hit no matter where we went.

First thing needed to make the costume was a broom handle. I usually would take the handle off my Mom’s broom and cut it down to approximately the same length as one of my legs. This was the beings of my “extra” leg. Since my leg needed a foot, I would take one of my Dad’s shoes and nail it to end of the broom stick. Next, I would cut the pant leg off a pair of my brother’s jeans and drape it over the broom stick. Finally, I needed to cut a hole in the pocket of a fairly long coat, like a raincoat or winter coat, it didn’t matter who’s, through which I could put my hand to manipulate the broom handle from inside the coat.

To make the costume work you simply put the extra leg on either side of one of your legs to become your new outside leg, and hid everything with your long coat. Now you were a three legged man and could do spits, or walk and run to the delight your friends and neighbours. This costume was usually good for a lot of candy during our Halloween rounds. I would be wired on sugar for the next few days after Halloween. Just thinking about it still makes my teeth hurt.

When I eventually came down from my sugar high however, there were always consequences to face regarding my costume preparation tactics. My family never seemed to understand that it was all just a part of the holiday. ;-)

Enjoy this week’s issue.

Corn spent much of the week in a downward slide before being shored up briefly by short and long term support around 249 ¾ - 250 ½. For the short term corn is in a definite downtrend, while the longer term charts still show the market to be in an uptrend. Corn is also flirting with some significant support just below this week’s lows which might halt the slide and maybe even return the market to its previous uptrend.

Just below Thursday’s low there is support to be found at the 246 ½ - 247 level. This is located just above the 62% level of the last uptrend at 245 ¾. If the market does manage to break through these levels there is more support at 243 ½ and significant support at 239 ½.

Friday’s high of 250 ½ has a lot of matching resistance through the history of the chart. If the market bounces off any of the previous support levels it will first need to break the 250 ½ barrier before it could possibly continue higher. The next stop to the upside is the 50% level found at 255 ½. The final resistance to the upside is the 260-265 range which turned back the previous rally attempt a couple of weeks ago.

Cotton behaved itself pretty well last week. After closing above the 40 day moving average early in the week the market made bee-line to the 62% retracement of the August to October downtrend. While Friday’s trading saw the cotton pierce the retracement level with a high of 4700, the market still has not closed above it. With more resistance nearby at 4755 we could see the market pullback next week.

A close above the 62% level would see the market challenge the resistance at 4755. There is a fair amount of resistance here as well as coinciding with long term resistance at 4762 on the weekly charts. In fact there is a range of resistance just above these levels, with specific resistance found at 4780, 4800 and again at 4825.

There is a lot of support to the downside as well. If we see cotton pullback next week look for prices to find support at 4510-4515 which is just above the 38% retracement at 4497. Below the retracement level there is a range of support found at 4440, 4460 and 4480, which could hold the market up in the short term.

November Beans are expiring soon so we will shift our focus to the January contract.

Beans have made a nice bull run the last couple of weeks and finished the week by completing the 50% retracement of the September to October downtrend. From here it looks as though the market would like to continue higher, however it is the 50% level which means that we could see the market bounce and pull back early next week.

A close above the 50% at 560 ¾ should see the market continue higher. The next resistance is found at 565 before encountering the 38% retracement level at 568 ½. If the market can exceed these levels it should be able to challenge the resistance in the 577 ½ to 580 range.

Should beans pullback next week they will find mild support early at 552 ½ which is also near the 62% retracement level. Below here there is much stronger support at 548. If the downtrend is strong enough it could possibly test the support at 540 as well, but at the moment it does not look as though the market will have enough strength to get this low.

What a wild market cattle was last week. The market shot up early in the week and continued to test the resistance at 7250 before finally breaking through on Friday. The market got as high at 7305 before encountering resistance from early March. If the market can continue higher there is more resistance at 7360 and 7380 which is also the current contract high.

If the current resistance is able to hold the market back and the market closes below the resistance at 7250, look for it to test support at 7220 and 7185. Below this level there is more support at 7135 before the market encounters the 50% retracement of the last four week uptrend at 7104.

After ricocheting off the 38% level of the big uptrend from September 2001-2002, cocoa continued higher for the remainder of the week before encountering resistance at 2059, which coincides with the August to October uptrend. Volume and open interest have both fallen off dramatically indicating that speculators are uncertain which side of the market they want to be on. From here it looks as though the market could advance a little higher to give long positions a chance to exit, and shorts a chance to load up, before cocoa possibly tanks again and heads lower.

If cocoa continues to inch higher look for a close above Wednesday’s high to challenge the next resistance at 2124, which is near the 62% retracement at 2142. If the market can close above here it is possible that the market could advance to 2170 and perhaps even manage to fill the small gap above it. As mentioned, volume and open interest show that the market lacks commitment at this time; therefore increasing volume and open interest would lend some strength to the uptrend.

Cocoa is in a transition phase and might be setting up for a longer term decline. There is resistance on, and just above, Friday’s high. If the resistance at this level proves too much for cocoa, look for the market to begin sliding and test mild support below Friday’s range at 1982. There is more support at the recent low of 1840 and the long term 38% retracement at 1855. Just below the retracement level there is more long term resistance at 1805. If this support fails the next stop seems to be 1765 and 1720 before the market can finally complete the 50% retracement of the last 12 month uptrend at 1681.

Last week saw sugar continue to test the upper resistance around 730. The market managed to get as high as 732, but it was never able to post a close above the resistance. The market gave up toward the latter part of the week and declined slightly before settling on support at 692. While it appears that a pullback is in order for next week, Friday’s range is perfectly bracketed between support and resistance. We could use those levels to determine what the market might do next week.

A close above the resistance at 708 would once more see sugar attempt to challenge the resistance at 717 and the recent high at 732. If the market did manage a close above this level it seems that the next stop would be resistance at 740. Above here the market would be in a good position to complete the weekly 50% retracement at 790.

It appears that sugar prices might be retreating in the short term however, and a close below Friday’s low would confirm this. Below here the market would next encounter support at 684 and 664. If the downtrend continued expect sugar to further test support at 650 which coincides with the 38% retracement level. If strong enough, the market might even challenge the support at 638.

The Swiss Franc spent most of last week rallying off the support at 6614. The market managed to poke through the resistance at 6690 on Friday but failed to close above this level. From here it is difficult to say which way the Swissy wants to move. The long term charts show the market in an uptrend, although the daily chart appears to be setting up for a downtrend.

If the resistance at 6690 holds then the market will have to close below support at 6655 before continuing lower. There is more support at 6630 but the significant daily and weekly support is found at 6601. If the market closed below here it is conceivable that it could eventually decline as far as 6565 which would bring it in line with substantial support on the monthly chart.

If the market closes above the 6690 resistance it will not have far to go before finding resistance at 6705. There is sporadic resistance above this level, but the next notable resistance seems to be at the 6740 level.

After chopping around for most of last week, it is beginning to look as though silver might be attempting to rally. The latter part of last week saw the market post several closes above the resistance at 440. The market even got as high as 443.50 before being halted by the range of resistance at 444.50 – 447.50. Volume has been increasing slightly while open interest remains steady. A close above Friday’s high could signal a pending reversal of the current downtrend.

If silver can post a decent close above Friday’s high it would be in the thick of the resistance at 444.50 – 447.50. If the market is able to clear this range the next resistance appears to be at 450.50 - 452.50. If the trend is strong enough it might even challenge the resistance at 456.50.

If the market breaks down and prices continue lower, the downtrend it will not have far to go before finding support at the recent lows of 428. Below here there is more support nearby at 418 and 414. Once the market is below this level it has a little room to move and might even challenge the support at 406 and 402.

Personally, I favour technical trading. Unlike fundamental traders, who must be intimately aware of the characteristics of each market they are trading, technical traders assume that all relevant market information is always in the charts. Technical traders, therefore, can make their decisions based solely on what is happening in the charts without having to consider more outside information.

Obtaining and interpreting the information that a fundamental trader requires, can be quite a burden and limits the amount of markets they can trade. A fundamental trader’s analysis is also much more subjective as they need to determine how certain variables will be interpreted by the market and ultimately reflected in the price. This expertise usually requires a great deal of experience to be effective, something that new traders are desperately lacking. This is probably why new traders normally begin as technical traders and not fundamentalists.

Some traders attempt to blend the two styles of trading thinking that they can incorporate the best of both technicals and fundamentals into their trading. This can be dangerous however as fundamentals and technicals rarely compliment each other. I suppose this due to the fact that, unless you are trading in the pits, by the time the general public receives market news it is already old news and the market has already reacted to it. This is why traders say that markets make tops on bullish news and bottoms on bearish news; the exact opposite of what you would expect.

It is probably better to stick to one system or another. Trying to consider too many variables in your trading decisions, like blending fundamentals with technicals, will only cloud your judgment. Looking at too much information can make it impossible for you to pull the trigger to get in, or out of a trade when you need to. While I have known successful fundamental and technical traders, I do not know of any successful traders that have incorporated a little of each into their trading style.

Send me your responses at ErichTHT@hotmail.com and I’ll share the results with you next week. Shaggy will also put up a survey at http://www.tradershelpingtraders.com/surveys.htm

Making trading decisions without consulting longer term charts, like the weekly or monthly, is equivalent to trading in a vacuum. Without a longer term perspective it is very difficult to get a feel for where the market is going. A quick glance at a long term chart can show you the current trend the market is making as well as whether it is relatively expensive or cheap. A market maybe making new highs on the daily chart, but the weekly or monthly chart might still say that the commodity is inexpensive.

When new traders typically analyze a chart, they begin by devoting most of their attention to the daily chart. A few of them might occasionally consult a weekly or monthly chart out of curiosity without paying too much attention to the information presented there. Their reasoning is that the information from the daily charts eventually makes up the data on the weekly and monthly charts so that is where their attention should be.

While it is true that the data on the daily chart does eventually make up the weekly and monthly charts, it is vital to consider the longer term charts in any analysis. The correct way to analyze a chart is the exact opposite of what most traders do. Instead of starting with the daily chart, you should be starting with the monthly chart, next examining the weekly chart before finally looking at the daily chart.

It is the longer term charts that “drive” the short term charts. By examining the monthly chart you can see the predominant trend that is affecting the market, whether it is up, down or sideways. The weekly chart is especially useful for determining the direction that the daily chart is likely to take. Although every trend will eventually end, the more out of sync the daily chart becomes with the weekly, the more pressure there is on the daily chart to conform and return to the weekly trend. In fact, many technical traders will only consider a trend to be truly over when the weekly chart confirms a change in market direction.

Paper trade it and see for yourself. Start with the longer term charts and work back to the daily. I think you’ll find that you will have a more accurate perspective of what is happening in the marketplace, which after all, is what all traders want. ;-)

You trade primarily using support and resistance, but do you follow any secondary indicators as well?

Answer:

This is a good question. It is true; I am primarily a support and resistance technician. I make most of my trading decisions based on the support and resistance levels on the charts. I use these levels to determine possible entry and exit points and to calculate my risk/reward ratios to see if the trade is worthwhile. However I also follow some secondary indicators to help give me a hint as to which direction the market wants to go.

The key to using secondary indicators is to choose a few and stick with them. Learn to use them correctly and they can help enhance your trading decisions. You don’t want to incorporate too many indicators into your trading system as you could find yourself ending up with conflicting signals thereby making it nearly impossible to make a decision.

My favourite secondary indicators are slow Stochastics and MACD along with my trusty volume and open interest figures. These indicators help hint as to the direction the market might take as well as giving me an idea as to how strong a trend or breakout might be.

There are many good indicators out there. Along with the ones already mentioned, there are also: Momentum, Directional Movement Index, On Balance Volume, Williams’ %R and Accumulation/Distribution indicators just to name a few of the more popular indicators traders use. Don’t be afraid to experiment with a few in your paper trades. You might find that a secondary indicator or two can help you determine what the markets are going to do next.

Got a question that needs answering like an itch you can’t scratch? Send it along to ErichTHT@hotmail.com and I’ll be happy to try and clear things up for you.