I don’t think either of us knew what to expect when the business finally sold. Her business had always been our security blanket and now it’s gone. The first few days it seemed kind of strange not to be answering the phones or running errands or doing other business related stuff. After a couple of days of “unemployment” however, the freedom is beginning to grow on us. It’s almost like being on vacation.

I’m told that it will take a while to unwind from the hectic business life we were both accustomed to. When my wife bought the business many years ago, she observed that the lady she bought the business from took almost a year to unwind and get back to “normal”. I think my wife is unwinding a little faster than that however. She’s already planning to remodel a couple of rooms in the house, with yours truly doing most of the remodeling. I don’t mind remodeling mind you, in fact I enjoy it, but I tried to remind my wife that I was already pretty busy with my trading stuff and I could not just drop everything to being tearing the house apart. This did not go over very well.

Funny thing, but when you are a trader no one really thinks of what you do as working, at least not “real” work. Sure you’re “busy” analyzing charts and stuff, but you’re not really working. Right? Therefore since you are not really working you must have lots of time to do other, more important things, like remodel the basement, or walk the dog, or fix the vacuum, or take out the trash.

Same thing when you meet someone new and the conversation eventually works its way around to the dreaded “what do you do for a living” question. I’ve always hesitated to tell people I was a commodity trader/analyst. It is almost as though people don’t believe you and they are tempted to say “yeah right, what do you really do for a living.” Inevitably the conversation quickly turns to something else. If you don’t believe me, try it for yourself sometime.

In the past I could fall back on my wife’s business and tell people I was in property management. At least that seemed respectable, but now I can’t even do that. Maybe I’ll tell folks I’m something exotic like an international spy, or a distant relative of one of the Kennedy’s. I have a feeling that people would sooner believe that!

Hopefully my wife will start another business soon so I won’t have to worry about it. In the meantime however, since I’m not doing anything important, I’ve got to run to the lumber yard and begin pricing out materials for our new project.

Hope you enjoy this week’s issue.

Corn remained in a short term downtrend last week although the longer term charts still show the market to be in an uptrend. Corn is fast approaching some significant support. It has already been shored up by the support at the 38% level at 245 ¾. Below here there is more support at 243 ½ and 239 ½ before the market would be clear to fall to contract lows.

If the support holds, look for a close above 250 ½ as an indication that the market might be heading higher. There is resistance at the 50% level at 255 ½ which might continue to hold the market down. Once the market can close above that level, we might be looking at the resumption of the long term uptrend, but for the time being we need to be cautious of long positions.

Cotton didn’t do a whole lot last week and spent most of the week trapped in range between the 62% and 50% retracement levels of the recent downtrend. We can use these levels to bracket a channel to trade from next week to let cotton tell us which way it wants to go.

The upper side of the channel can be found at 4700. There is also some resistance here as evidenced by the recent highs. If the market can post a reasonably strong close above this level it should continue higher. The next resistance levels to be overcome will be found at 4780, 4800 and 4825.

The lower end of the channel is at 4590. This market has been advancing for the last couple of weeks without a pullback. If it breaks through the bottom of the channel we could see the market pullback to allow the shorts to exit their positions and the longs to add more. The first support level can be found at 4510, followed by more support at the 38% retracement of 4497 and the support at the 4440-4480 range.

Beans prices continued higher last week after pausing briefly at the 50% level of the last downtrend. The market has completed a nicely rounded bottom from which we can use the neckline to determine next week’s trade.

A close above the neckline at 570 should see prices continue higher to challenge the resistance range at 577 ½ and 580. Once the market can clear this level it should be in a position to challenge the recent contract high at 593 ½.

If the market fails to close above the neckline, look for beans to pullback to support at 560 ¾ which is also the 50% level of the September to October downtrend. If beans continue to slide they will find more support at the 556 level and again at 548 and 540. The market is in a short and long term uptrend so you might want to keep a close eye on your short positions, or day trade only to the short side.

After a short term pullback early in the week, cattle rallied to push above the recent highs. The market is inching higher as the daily and long term charts show the market to be in an uptrend. Friday’s trading saw the market stall slightly hinting that the market might be lacking its original momentum. If cattle prices are to continue higher they will need to post a strong closing above the recent high. The next resistance levels to clear are at 7360 and the contract high of 7380. There is also long term resistance at 7445.

If the upper resistance proves too strong for the market to overcome, look for prices to fall to support at 7250 and 7182. The market is still in an uptrend however, so I would not get serious into shorts until the market can close below the support at 62% retracement level of 7164.

Cocoa prices continued to slide last week in spite of a slight rally the week before. Prices managed to get as low as the 38% level at 1855 before stalling. There is a fair amount of long term support here as well as support on the daily charts as well. If the market breaks through the support level it should continue lower to retrace the large daily 50% at 1681 before trying to go lower to retrace the weekly 50% as well. With all the support below here however, it could be a bumpy ride down.

If the current support level holds watch for cocoa to once more try to rally next week. Volume and open interest are low so any serious bull rally would need to be accompanied by an increase in both of these figures. The first resistance to an upward move can be found at 1967 which would then be followed by more resistance at 2059 which is also the 50% retracement of the August to October uptrend.

Sugar headed higher last week on higher volume managing to break through the previous resistance before stalling at 741. It appears as though the market might be making another charge at the weekly 50% level at 790. In order to get there however, the market will first need to overcome resistance at 754 and 770.

If the upper resistance proves to be too strong for sugar, look for the market to retreat into the range from last week. There is plenty of serious support here to hold the market up first at 717 as well as 707. The last serious barrier to a down move seems to be at 689 and 684, after which the market could have a little room to move until the next serious support level at 664.

The Swiss Franc continues to make some huge ranges while remaining stuck in the larger trading range of 6848 and 6562. It seems as though the market is content for the moment to trade within this range as it searches for direction. Some of you might see last week’s trading as a completion of a large pennant pattern with a breakout to the long side last Thursday. The end of the week saw the market touch the top of the larger range once more.

If the market can post a close above the top of the range at 6848 it should be in a position to continue higher. The next resistance to overcome will be found at 6920 before the Franc can try to overcome the resistance at the contract high of 6986.

In the past the market has succumbed to this upper resistance level on more than one occasion. If it decides to retreat once more look for prices to first find support at 6739. Below here there is more support at 6695 which will try to shore up falling prices. If prices stay below the top of the range, we can expect to see them eventually retreat to the bottom of the range in the next few weeks.

Silver prices continued to rally last week getting as high as 457.50 before encountering resistance at that level. The market is still in a downtrend on the longer term charts although it appears that it might be attempting a transition to an uptrend on the daily chart. Using Friday’s high as the neckline we can see that the market has formed a rounded bottom formation which we can use to plan our trade for next week.

If the market can close above the neckline of Friday’s high look for prices to challenge the resistance at 462.75 which is also the 38% retracement level of the July to October downtrend. If the uptrend has enough momentum it might even test the resistance at 469.50.

If the neckline holds, look for prices to retreat to support at 444-447 range. Below here there is more support at the past lows of 440 and again at 433.50 before encountering recent lows at 428.

For those of you who don’t know, single stock futures are futures contracts on stocks. Initially 80 of the big stocks, like IBM, Apple, GM, etc, will be featured, but if they fair well more stocks will be added in the future.

Unlike traditional commodity markets, the margin on single stock futures will change day-to-day depending on the value of the underlying stock. The margin of SSF’s will be based on 20% of the value of the stock; a different concept, but one that is not too difficult to get accustomed to. In spite of the changing margins, SSF’s will trade like any other commodity. You will be able to use all your existing commodity strategies in your SSF trades.

The fact that SSF’s are futures, gives futures traders a slight edge over traditional equity-only traders. Many equity trading strategies, like averaging down, can be financially fatal in a futures market. Futures traders normally use things like stop losses, or options to protect their positions if the market should move against them. This can be foreign concept to the trader who is used to the buy and hold strategies of the equity markets.

What is most exciting is that single stock futures are not just for the big traders. In fact, SSF’s could be excellent markets for the small trader to explore. They are likely going to be less volatile than some of the traditional commodity markets and with 80 markets to choose from, should have a market to suit everyone’s trading budget.

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

How can the same prices be both support and resistance? Which is stronger, support or resistance?

Answer:

First let me clarify the terms "support and resistance". Essentially they refer to the same thing, except we sometimes use the word "support" to refer to resistance likely to be encountered in a down trending market, and conversely, we use the word "resistance" to describe resistance in the way of an up trending market.

There is absolutely no difference in the strength of the resistance between these two terms. In fact, I usually refer to them all simply as "resistance", since I feel this more accurately describes how hits influence a market; rather than the terms "support and resistance".

When finding resistance levels, it does not matter if the price is the high or low of a particular day: they both count the same. The strength of the resistance relies on the exactness of the hits, the frequency of the hits, extremity of the hits, and past evidence of market reversal.

Price hits that are exactly the same are generally harder to break through than price hits that are almost at the same price, all other things being equal. If you think about it for a minute you will see that it makes sense that if the traders are stopping at a particular price (either high or low) this shows an awareness and a resistance that is  associated with this particular price. If, however, the price hits are nearly the same but not exact, there is resistance in this particular range near this price. There is still a sensitivity to the price level, but it is not as strong as it would be if the price hits were exact.

Likewise if there are many hits at a particular price (near or exact, high or low) this also shows an awareness of the particular price point in question, and possibly a hesitation when the market approaches this price in the future. The more price hits, the greater the awareness.

If the price hits are at extreme levels, such as primary highs or lows, or spikes, this usually is also an indicator of the strength of possible resistance. Primary highs and lows are extremely hard to break through, as they represent the highest and lowest prices paid for this commodity in its whole life! Well okay, at least the highest and lowest prices in the last 12 months. The market needs a real good reason to exceed these price points; therefore these levels have considerable resistance to them.

Similarly, large spikes within the life of the contract can also hint at important resistance points, especially if the market does not have limits assigned. If a large spike is stopped at a particular price, pay attention; especially if there are other matching prices to accompany it. Remember there is always a reason that the market stops at a particular high or low. If a market is running away, as in a large spike, and it gets stopped at a particular price, make certain that you respect the possible strength this price level can represent.

When you are examining price hits to consider as resistance, remember to look back into the history of your chart to see if there have been trend reversals at certain price levels to date. If the market has already exhibited a tendency to reverse off of certain prices in the past, it will be more likely to do so in the future as well. Pay attention to your retracement levels as well, as you will frequently find many hits on a price that can cause the market to pause or reverse, on these levels.

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.