• Warning: alcohol may make other people appear far more attractive than they really are.
• Warning: consumption of alcohol may make you think you’re whispering when you’re not.
• Warning: consumption of alcohol may cause you to tell the same boring story over and over again until your friends get up and move to another table.
• Warning: consumption of alcohol is a major factor in dancing like a fool.
• Warning: consumption of alcohol may lead you to believe that ex-lovers are dying for you to call them at 4 a.m.
• Warning: consumption of alcohol may lead you to believe you are invisible.
• Warning: consumption of alcohol may leave you wondering what the hell happened to your pants.
• Warning: consumption of alcohol is the leading cause of mysterious rug burns on your forehead.
• Warning: consumption of alcohol may lead you to think people are laughing with you.
• Warning: consumption of alcohol may actually cause pregnancy.

Have a great Thanksgiving holiday. Remember the markets will be thin towards the end of the week as a result of the holiday, so be careful.

Enjoy this week’s issue. ;-)

Erich

We made a nice call on corn last week. The market rallied, getting as high at 249, just shy of the resistance at 249 ¾ which we pointed out. 249 ¾ is also the 62% retracement level on the weekly corn chart. The market is hovering just below this point, which will be the first test of any serious bullish rally.

If we can post a decent close above the 249 ¾ level we should see the market continue higher. There is a bit of resistance scattered through this area, although it appears that the next significant resistance level will be at 255 ½ and 258 before the market would be able to retrace to the 62% level of the recent downtrend.

While we may see a bullish rally in the short term, up until this point the market has been in a definite downtrend. If the downtrend continues, look for the market to once more test the support at the current low of 238 ¾. This level also coincides with the 50% level on the weekly charts, so the market will need some momentum to get through here. Below 238 ¾ look for support to be tested at 235 and 228 ¼ before the market might retrace 100% of the trend at 224.

Cotton is still fighting to get above the neckline of the rounded bottom formation from last week. The market retreated briefly at far as the 62% retracement of the recent uptrend at 4914 before bouncing back. The market is currently indecisive as to the direction it wants to take, and Monday’s trading should give it some direction.

If we see a higher close on Monday it is likely that the market will once more try to get above the neckline of the rounded bottom formation at 5180. If cotton can post a decent close above this level we should see prices advance to the next resistance at 5250 and 5300, before challenging weekly resistance at 5370.

If the market is unable to go any higher on Monday, look for prices to find support nearby at 5000. Below here we once more encounter the 62% level at 4914 and mild support at 4860 before finding the 50% retracement at 4830.

Beans continue to range sideways within the larger triangle formation. The market is quickly running out of room and will need to exit the triangle very soon. There is significant support and resistance to either side of this formation which is probably why it is taking so long to breakout. Look for a definitive close to either side of the formation before committing to the direction.

If we see a close above Friday’s high we can expect prices to tackle the resistance zone just above at 577 ½ to 580. Beyond here there is not too much to keep prices from challenging the contract high at 593 ½.

If the market heads lower, look for it to test support at the 62% (560) level. There is a fair amount of support here and the market will need momentum to head lower. Below here, look for more support to be found at the 50% (553 ¾) and 38% 547 ½) levels as well as the support at 540.

Cattle prices gapped higher last week and continued to rally until encountering the resistance zone of 7807 to 7842. Most analysts have been expecting this market to make a pullback move for a couple of weeks now, and with the gap of last Monday and the resistance above current prices we might see the market give something back next week.

If the current resistance level holds it is likely the market will retreat next week and fill the gap of last Monday getting at least as far as 7700. If the market continues below the gap, we could see prices decline to the support at 7555 and 7457. If the downward momentum is strong enough we might even see prices get as low as 7341 which is also the 38% retracement level.

The market is in a strong uptrend, and while we might see a pullback next week, the trend, for the moment, is up. If cattle can post a close above the top of the resistance at 7842 we will likely see prices continue higher to the next resistance level at 7890 before encountering more weekly resistance at 8010.

Cocoa didn’t do a whole heck of a lot last week. Prices remained stuck in the range formed November 14 of 1790 to 1711. The trading over the last week and a half can be interpreted as a sideways channel or it can be viewed as a declining pennant formation.

Prices continue to test the lower boundary at 1711 indicating that the market might be trying to go lower, if prices break through this level look for support nearby at the daily 50% of 1690. Below here there is more nearby support on the weekly levels of 1668 and 1558 before finally encountering the daily 38% retracement at 1521.

The current lows on the daily chart also coincide with support levels on the weekly at 1715 as well as trading near the 50% retracement of the daily. If the 1711 support level holds, look for prices to test upper resistance, just above the top of the channel/pennant, at 1800. There is more resistance again at 1859 and 1930 and eventually 1970. The market is currently in a downtrend, so beware of false rallies which might be nothing more than pullbacks.

Sugar was a crazy market last week making some huge ranges and recovering almost the entire pullback. The market got as high as 748 before encountering a bunch of resistance around 745-749. The only blemish on the recent bull rally is the fact that we are seeing declining volume and open interest indicating that the rally does not have a lot of strength to it.

If prices are going to continue higher we will need to see a close above the current resistance at 748. Above here look for the market to challenge the recent highs of 777 before once more attempting to retrace the weekly 50% at 790.

If the price ceiling holds, it is possible we will see sugar decline to once more test the support at 730 and 717. If prices continue lower there is no shortage of support areas down here which might shore up falling prices. The most notable levels can be found at 702, 689 and 672.

After failing to get above the neckline of the rounded bottom formation, silver declined all of last week testing several support areas on the way down. It is beginning to look as though the market might once again test the lower boundary of the large trading range which has captured this market since last August; however there are a few more support areas in the way which might cause the market to reverse the downward slide.

The market is currently balanced on at the 50% level of the last four week uptrend, and from here the market could go either way. A close below the 50% level will likely see the market continue to slide and test the support found at the 38% level of 6732. If we still do not see a reversal off this level we could expect the market to next find support at 6700 and maybe even at the weekly support of 6660.

If we see a bounce off the 50% level next week, expect prices to test the nearby resistance at 6858 before heading higher. There is a little breathing room above here with only scattered resistance until 6888 and 6920. Above 6920 is the recent high of 6945 and the contract high of 6986.

Silver gave us a textbook breakout of the channel formation we identified last week. The market broke down and out of the channel, exactly retracing the height of the formation before encountering support at 446, just below the 50% level. From here the market rebounded back into the channel on Friday. The next few weeks could be choppy trading for silver as the market commits to a direction.

If we see a close above the high on Friday we should see the market continue higher to test the upper boundary of last week’s channel at 465. Once above this level, prices should continue until encountering the evenly spaced resistance at 468, 471 and 474.

The low of Friday has some support in the 449 to 450 range. Should prices turn lower look for the market to once more test the support at the 50% level and 446. Below here there is more support found near the 38% level at 443.30 and nearby at 442.50. If the market closes below this point we might see prices fall 435 and maybe even to the recent lows at 430.

None of the above, I'm a fundamentalist: 2%
Point and Figure: 5%
Bar Charts: 34%
Candlestick: 56%
Close Only: 0%
Other: 2%

Candlestick charts were developed by the Japanese rice traders in the 1700’s and are probably the oldest form of charts used for price prediction. The second oldest charting form is the point and figure charts used by stock traders in the early 1930’s. Although commonly used in that era, point and figure charts date back to around 1880. Bar charts, and close only charts, are more recent developments in charting dating back a few decades.

It is interesting to see the different charting formats traders use. Intuitively I would have thought that most traders used bar charts, simply because this is the charting style that most traders are introduced to when they begin trading. Bar charts make it easy to spot formations and support and resistance levels, but don’t display the daily price information as well as some other charting styles.

While I began trading using bar charts, in recent years I have come to prefer candlestick charts. They take a little getting used to, but once you are accustomed to them, it is difficult to go back to regular charts. Although they contain the same information found on a bar chart, the candlestick format seems to make the information jump out at you more, thereby making it easier to interpret whether the market is exhibiting a bullish or bearish bias.

The downside to using candlestick charts is that the bodies of the candles can distract you from support and resistance levels formed by the daily highs and lows. These levels are usually more obvious on a regular bar chart, but even so, if you have never tried candlestick charts I encourage you to do so. You might find, as many traders have, they can give you a better feel for what the market is doing.

How would you classify your trading ability as: beginner, some trading experience, competent, or a pro?

What is the front month and how do you set profit targets with all those lines through the charts?

Answer

The front month is the month that is closest to expiry, but it is not always the most liquid month. We determine which month is the most liquid by checking open interest figures.

For instance, the January contract is the front month in Sugar; however the open interest is only 598. Compare that to the March contract, which is further out, but has a whopping 177,845 open interest. With those kinds of figures you can be assured of faster fills and less slippage.

Profit targets are largely a matter of time frame: how long do you want to be in the trade? We know that all markets eventually retrace to the 50% retracement level, but the further the market is trading from the 50% level, the longer it will take to get there.

Some traders are only in for the short term, and therefore will exit before each significant resistance level. Other traders are in for the long term, and will try to ride out the market swings in order to reach the bigger target (50% level). It really depends on what type of trader you are: there are no right answers.

So if you're a short term trader, you'll likely exit before the resistance line (assuming that there is enough profit potential), and if you're a long term trader you might use the resistance levels as places to hide your stops as the market eventually inches its way to the 50% level. Either way, you will normally see the market react in some way as it encounters the resistance lines.

Erich