I got a call a couple of days ago from a “broker” who was touting the virtues of investing in the petroleum markets in light of the pending war with Iraq. This fellow was pretty much promising me a “sure thing”, with hardly any risk; and if I could just see my way clear to send him a few thousand dollars to invest on my behalf, I wouldn’t regret it.

After a little poking and prodding I learned that brokerage was going to achieve this little financial miracle through the use of options; however, the more the broker went on, the more it became obvious to me that he didn’t know what he was talking about. When I asked him a few option related questions I was promptly referred to another “broker” who obviously knew a little more than the first guy, but despite his best efforts, he too failed to close the deal. I have to say though, that it was interesting listening to him try.

I still don’t know if the phone call I received was from a legitimate operation or not; if it was legit they need to seriously reconsider how they go about soliciting business. Either way I got a bad feeling about the whole thing and with one hand on my wallet, I hung up the phone.

About a week before that I was received a fax from Dr. Precious Ben (yep, that’s the name he used), who apparently is somebody important in the Nigerian National Petroleum Corporation (NNPC). This obvious scam wasn’t commodity related but it was interesting all the same.

It seems that poor Dr. Ben is in trouble. He has millions of dollars tied up in the NNPC and he is unable to get the money out for political reasons; however if I would just allow him to use my bank account number and business identity to get his money into the country the good Doctor would be prepared to pay me a large chunk of money for my trouble. Sounds harmless enough, right? Heck, I’d even be doing a good deed in the process!

I have a sneaking suspicion however, that Dr. Ben would need some of my money first; you know, to grease a few palms at the NNPC. Makes sense, doesn’t it? After all the poor Doc can’t even get his money out of the corporation without begging the help of a total stranger. Sure I’ll give you my bank account number Dr. Ben…just excuse me a minute while I check myself in this mirror. ;-)

Enjoy this week’s issue.

Erich

Corn tested support from February and May 02, as well as the weekly 50% level early in the week before bouncing higher and stalling on more recent resistance at 247. While the weekly chart shows the market still is in an uptrend, it is testing some substantial support along the 40 week moving average as well as the nearby weekly 50% level of the last uptrend. If the support here holds we can expect to see corn prices head higher.

If the market can clear the resistance at the recent high of 247, we should see prices test the resistance at 249 ¾. This is a fairly significant level, and if the market shows a strong close above here it will possibly test the resistance at 255 ½ and 258 as well. Once the market is above these levels then we might see a resumption of the longer term bull trend.

Increasing volume and open interest seem to indicate that the current bear trend is fairly strong however. If the trend holds, expect to see prices turn down after a brief pullback. The recent low at 238 ¾ is roughly equivalent to the weekly 50% level. If the market can post a reasonable close below here we should see prices continue to decline to test the next support at 235, 228 ¼ and maybe even the contract low at 224.

After a classic pullback last Wednesday to the 62% retracement of the recent uptrend at 4880, cotton prices rallied on increasing volume and open interest to push as high as 5180 on Friday before encountering resistance and completing a rounded bottom formation. If the market should continue higher there is more resistance just above the current high at 5200. If we see the market post a close above this level it is possible that prices could also challenge the resistance at 5250.

Although the bull trend seems strong, the resistance at 5250 is pretty substantial. If the market fails to break through the current highs, or subsequent resistance, we could see cotton dip once more to support at 4930 just above the new 62% retracement at 4914. Below here there is more support to be found at 4860 and the 50% level of 4830.

Last week saw beans retrace 50% of the recent uptrend which began back on October 9th. The market rebounded from this level thereby completing a large symmetrical triangle which we can use to trade from. The market has a little room to move on either side of the current market position before the boundaries of the triangle are challenged, which might allow for a day trade or two; however position traders might want to stand aside until the market clarifies its direction.

There is some support below the current lows at 560, which also coincides with the 62% retracement of the last uptrend. If this level holds look for prices to challenge resistance at 574. If we see a bullish breakout and close outside the upper boundary of the triangle, we could see prices test the resistance zone at 577 ½ to 580, before possibly challenging the current contract highs at 593 ½.

If the support does not hold, look for the market to once more test the 50% level of the last trend. If we get a close below this side of the triangle we could see the market continue lower and test support at 547 ½ which is also the 38% level of the last trend. Below here there is more support at the 540 level.

Cattle prices continued to push higher last week before running headlong into long term resistance at 7707, which coincidentally is also the contract high. Although the market is in a short and long term bull trend, the long term resistance combined with declining volume suggests that we might see a pullback in the next week or two.

There is some support at the current low of 7645, and if this support holds look for the market to continue higher. A close above the current high should see prices continue higher to the next long term resistance zone at 7807 to 7842. Above here the next test will be the resistance found at 7938.

If we do indeed see a pullback next week, look for prices to first challenge the nearby support at 7615 and 7555. If cattle continue downward the next support is at 7450. If the market posts a decent close below this level the pullback might be strong enough to challenge the support at 7415 and 7345 as well.

Cocoa finds itself at a crossroads this week. While the daily chart is in a definite downtrend, the weekly chart is still in an uptrend; although it is testing support on the trendline as well as the 38% retracement level of the 2001-02 up trend. Depending on what happens this week we could see the market continue with the downtrend, or possibly see cocoa rally to resume the long term bull trend.

The current lows and support around 1711 coincide with the 38% level on the weekly chart at 1715. Should the market close below the 1711 support it will not have far to go before encountering the 50% level of the year long uptrend that began September 2001 at 1690. There is more long term support just below here around 1668 before the market gets a little breathing room. The next stop looks like 1588 before possibly reaching the 62% retracement of the daily uptrend at 1521.

While I am not one to buck the current trend, the market finds itself up against a fair amount of support, which might send prices higher next week. Whether a rally would merely be a short term pullback or a full blown reversal remains to be seen however. The first barrier for a bullish rally is at the resistance just above the recent high at 1800. There is more resistance again at 1859, which incredibly enough is the same as the 38% level of the large daily up trend. Should the market post a decent close above this level we could see prices head higher to around 1930 before encountering the 38% retracement level of the recent downtrend at 1970.

Well sugar didn’t waste any time giving us a pullback last week. Prices fell, ignoring all support levels on the way down, and almost retracing to the 50% level of the large daily uptrend. The decline was halted by the large support range of 663 and 638, as well as the 38% retracement line on the weekly charts.

Although it is not entirely clear what sugar intends to do next, it does appear that sugar prices might continue to move lower. While prices rallied slightly towards the end of the week, the rising market now has to contend with all the former support levels as new resistance levels to any bull move. Furthermore the weekly chart shows a failed rounded bottom formation and the daily chart is in a definite short term downtrend.

If the market continues higher, look for prices to test resistance at 717 and 730. If the market can post a close above the resistance at 730, then the bull trend might make a comeback; in which case look for the market challenge 777 and eventually try to retrace the weekly 50% level at 790.

If the current rally is nothing more than a pullback you can expect to see sugar continue to decline. The recent support level is at 658 within the larger support range of 663 and 638. Just below here is the 50% daily retracement level at 648. If the market declines below the bottom of the support range then next stop seems to be 620.

Unable to get above the current resistance, and still trapped by the trading range dating back to last August, the Franc pulled back some last week before possibly trying another run up at the upper resistance this week.

While I am currently bullish on the Franc for the long term I’m not convinced that the market has finished pulling back yet. If the market closes below current support, look for it to next test support at the 62% (6796). If the downward slide continues the next significant support can be found at 6770 and the 50% at 6748. If the market fails to reverse off the 50% level, and we get a close below here we may no longer be in a bullish market.

Should prices reverse off any of the retracement levels, or the current support level, we could expect another run at the neckline of the rounded bottom formation at 6945. Above here are the nearby contract highs at 6986 before we get a little breathing room. If the market can post a strong close above the current contract high we should see a continuation of the uptrend.

Silver spent most of the week channelling between 465 and 455. While the market appears to be in a longer term uptrend, volume figures have fallen off suggesting that the current trend might be due for a pullback in the near future. Fortunately we can use the range of last week to bracket the market for this week.

A close above 465, hopefully accompanied by an increase in volume, should see the market continue higher. The next resistance level above the channel can be found at 468, 471 and again at 474.

If the market should close below the channel look for it to find support immediately below the channel at 453, just above the 62% retracement. If prices continue to decline, they should also test support at 450 and 449 before encountering the 50% level at 447.50.

Asher's trading price Ranges, Breakouts, and Pivot Point calculations for Corn, Swiss Franc, Silver, and Soybeans for tomorrow. Fresh calculations for these and other commodities are posted daily. Very useful, so bookmark this page! http://www.TradingThingys.com (Free Stats)

$1-2K: 17%
$2-5K: 33%
$5-10K: 33%
$10-15K: 17%

It seems that for most new traders the magic number, as far as beginning account size goes, is around $5000 of risk capital; and while $5000 might be a lot of money for the average person to play with, it can disappear like a hiccup in the commodity markets. It makes sense that given the unpredictable nature of the commodity markets, the more money you have to begin with, the better your chance of success. I have spoken to some brokers who don’t want anything to do with you if you have less than $50K to trade with!

Does this mean that there is no hope for the small trader to be successful in trading commodities? No, but it does mean that the small trader has to trade much smarter since they can not afford to be wrong too many times.

You have to learn to pick your markets and your trades very carefully. This is one area where an experienced broker can be invaluable. Get the advice of someone who has been dealing with the markets for a long time. Don’t be shy or embarrassed to tell them your current situation. Remember, it is in their best interest to see you succeed in the long term as well.

Study your markets and learn as much about trading as you can, and most importantly paper trade, paper trade, paper trade! Many brokers will also simulate orders for you while you are paper trading, so that you can learn to deal with some of the emotions of trading before risking real money.

Make sure you are as prepared as you can be, before you begin trading with real money. Make sure your system produces a lot more good signals than bad ones, but don’t be too anxious to trade. Remember, those “once in a lifetime” opportunities have a habit of showing up every couple of months or so, so take your time. Most importantly, make sure you know how to develop a trading plan with entry, exits and profit targets, and make sure you know how to stick to it! This one factor alone could spell the difference between your ultimate success or failure.

What kind of charts do you like to use: bar charts, candlestick charts, close only, or point and figure?

I am a little confused on the stop loss issue: if I buy one contract of "whatever" using a stop order, would I also place my stop loss at the same time? My thinking is that a stop loss is to get me out of a trade if it goes against me so I don’t eat up all of my account, is that correct?

Answer

Whenever you plan the entry of your trade you always need to plan for a stop loss as well. You NEVER want to have an open position without a stop loss of some kind. Obviously you want the stop loss order initiated after your buy/sell order is filled, not before. It would be worth your while to find a good broker to help you with the technical part of placing the order. Check the reference section at the end of the newsletter for some broker recommendations if you don’t already have one of your own.

Personally, I usually let my broker worry about this technical stuff; after all that's what I'm paying him for. To me it is worth a few extra dollars to make sure my order is placed correctly than to save a couple of bucks only to find myself in an order I didn't want!

You are absolutely correct about your stop loss statements. Stop losses are there to protect you in the event that the market moves against you in an unpredicted manner. If this happens it is usually a good indication that it is time to leave.

Stop loss placement is a bit of an art form and requires some practice. The good news is you can gain a feel for it through paper trading. As a rule of thumb, the further back your stop is, the longer you can stay in a market; however, this of course leaves more of your money at risk as well.

Some people will disagree with me, but I think most newbie’s with small trading accounts, would do better to place profit targets, rather than trailing stop losses. What this means is that as you examine your chart, determine where you think the market will go before reversing, and place an order to exit the market slightly before that point. If the market continues past your predetermined exit you can always re-enter the market; but in the meantime you will have banked your profits to date, and it doesn't take long for those smaller profits to begin adding up to a bigger account.

Erich