Just kidding! Just kidding! :-)

I don’t mean to panic anyone, but in case you haven’t realized it yet, there are only 23 days left until Christmas. I guess that would account for all the people at the shopping malls this weekend. Personally, I like to take my time and pick out just the right gift for everyone on my list, and then I like to rush out on Christmas Eve and buy it. :-)

My wife and I saw an interesting commercial on TV the other night. A husband and wife meet each other in the mall and say “do you want to see what you bought me this year for Christmas?” In other words, rather than buy gifts for each other, the husband and wife both bought Christmas presents for themselves on behalf of the other person. The commercial of course, was meant to be humorous, so I was a little surprised when my wife asked me if we wanted to do that this year: buy our own Christmas presents.

You see, we’ve both fallen into the “hard to shop for” category; although technically I think my wife is harder to shop for than I am. My wife has the bad habit of buying all the items I was considering as Christmas gifts for her, before Christmas. She just can’t seem to resist the sales, or she’s afraid that I won’t have the foresight to get her something she really wants. To make matters worse, her birthday is also in mid-December, so not only do I have to find a Christmas present she hasn’t purchased for herself already, I need to find a birthday present as well.

Thinking back on some of the other gifts I’ve bought for her in the past, I’m thinking that this might not be a bad idea. I’ve learned through experience not to buy her things like clothes as gifts. I made the mistake of buying her a dress once, which I caught her admiring in the store showcase window. Little did I know at the time, but just because a woman says “she likes the dress”, does not in fact mean “she likes the dress”. The truth is my clothes shopping ability is so pitiful that I’m no longer allowed to buy my own clothes either. My clothes buying privileges were officially suspended the day I brought home a Rugby shirt two sizes too small (but on sale) almost 10 years ago.

However, if we do decide to buy our own gifts this Christmas, I think I might take advantage of the situation to buy myself some clothes again. I saw a great pair of green and red plaid golf slacks at the pro shop the other day and I think they might even be my size. ;-)

Enjoy this week’s issue. ;-)

Erich

PS. Speaking of Christmas presents, Shaggy and I are going to be sending out a special trading-related-Christmas-present-report as a way of saying “thank you” to all our subscribers this year. The gift will only be sent to those of you who are current subscribers, so if you haven’t subscribed already to our free ezine, make sure you do so.

To subscribe, simply send an email to shaggy@xtn.net with the word SUBSCRIBE in the header. It’s that simple. I promise this is one present you won’t want to miss out on!

After giving us a text book pullback the week before by coming to within ½ cent of the resistance we pointed out at 249 ¾, corn continued the downtrend this week getting as low as 241 ¼ before encountering support. For the moment it appears that the bears have a firm grasp on the market and will likely try to drive prices lower again next week.

If the downtrend continues, look for corn to once more challenge the recent low of 238 ¾. This price approximately coincides with the 50% retracement of the last uptrend on the weekly charts. If prices can break through, and close below the 238 ¾ barrier, look for the slide to continue to support at 235, 228 ¼ and finally the contract low at 224.

Until the bulls can get the market above resistance at 249 ¾ it is pretty safe to say that the bears control the marketplace. Above this resistance level we find more resistance again at 255 ½ and 258. However until the bulls can prove that they can get prices beyond the first hurdle you might not want to commit too heavily to a bullish position at this time.

Cotton continues to decline in what some might view as a bull flag formation and others might see as a pennant formation. I have outlined the pennant on the chart as I think this formation will give us greater flexibility to trade from next week.

Volume has fallen off dramatically since the bull flag began developing around November 21st, lending some credibility to the bullishness of the flag formation. If we see an upward break out of the flag, or pennant, we can expect prices to once more challenge the resistance at 5130 recent highs at 5180. If the market continues higher there is more resistance in the history of the chart at 5250 and 5300.

If we treat the formation as a pennant we can also prepare ourselves for a bearish break out of the triangle. To the downside we have immediate support found at the 62% retracement level at 4914. Below here there is more support at 4860 and the 50% level at 4830. There are several levels of support scattered below the 50% level but the most significant appear to be around the 38% retracement (4746) and 4700.

Last week we finally got a bullish breakout from the large triangle formation that had trapped bean prices for the last few months. Prices were held back to a degree by the resistance zone just above the triangle formation in the 577 ½ - 580 range. If the market can continue high enough to clear this barrier then we could expect to see prices eventually challenge the contract high at 593 ½. The only obstacle in the way of reaching that target would be some weekly resistance around 586.

If beans are unable to clear the current resistance, or the subsequent weekly resistance at 586, then we could expect prices to fall and test the weekly support around 571. If prices continue below here there is pretty solid support at 565 and again just below the 62% level at 560, before encountering the support just above the 50% level at 555.

Cattle prices pushed higher last week; although the dropping volume would indicate that they have lost some of the bullishness they had a few weeks ago. The last two days of trading had almost identical ranges, and while two days of trading do not technically form a channel, we could use the support and resistance levels associated with the highs and low to structure a trade for this week.

The market is current up against some fairly substantial weekly resistance at the top of the “channel” at 7875. I would favour waiting until prices could clear the nearby high at 7882 before committing a long position. Just above 7882 there is more long term resistance at 7890. At this level the market would complete a rounded bottom formation on the weekly chart. If cattle post a strong close above this level we could expect prices to continue higher; although at the moment it seems more likely that the market will give us a pullback, or reversal, first.

If the market succumbs to current resistance and breaks through support on the matching lows of 7835 look for prices to retreat to support at the middle of the gap of mid-November at 7700. If this support does not hold look for the market to test the 7555 and 7457 levels before possibly falling to the 38% retracement of the uptrend at 7370 and the support just below it at 7320.

Cocoa prices dipped briefly below the 50% level (1690) of the large daily uptrend (yellow area) early last week, eventually getting as low as 1655 before finding weekly support. The market is currently at a crossroads and could literally go either way next week.

In spite of the spike up on Wednesday, cocoa’s closing prices have remained confined to a rather tight range. Closing prices usually show commitment to a direction, yet with cocoa, the closing prices have been decisively uncommitted. They are stuck in a small range between the daily 50% level (1690) and resistance at 1711.

The high of 1780 on Wednesday tested the upper boundary of a pending bullish reversal. There is more resistance just above this level at 1800. If the market shows enough strength to close above this level we should see it test the resistance at 1859 which is also the 38% level of the larger daily uptrend. If the rally has the strength to continue we could see the market make a 62% retracement of the recent downtrend (green area) at 1935 and maybe even fill the gap just above this level.

The market is still in a strong downtrend for the short term. If we see prices close below the 50% level (1690) we should see them decline further to the next support level, based on the weekly charts, found around 1553-1558. Not far below here we encounter daily support on the 62% retracement of the large daily uptrend at 1521.

After a couple weeks of extreme volatility sugar finally calmed down a little last week. The market is now trading squarely between two important support and resistance levels: 752 and 730. We can use these levels to bracket a channel which we can use to trade from.

While the market seems like it is trying to regain recent highs, falling volume and open interest figures suggest that the trend is not as strong as it once was. There is plenty of weekly resistance associated with the top of the channel at 752 as well, so the market will need some serious momentum if it intends to go higher. Should the market post a decent closing price above 752, then we should see prices continue to the 777 highs and maybe even retrace the weekly 50% at 790.

If the uptrend is not strong enough to continue, look for prices to break through the support at 730. There is a fair amount of support below this level; however the most notable seems to be located at 717 and 700. Followed by more support at 689 and finally 670.

The Franc spent last week continuing the short term downtrend before finally finding the support we pinpointed last week at 6700 (6695). From here the market regrouped a bit and channelled for a few days meanwhile forming resistance at the highs of 6754.

It looks as though the market might try to continue lower next week; although we are getting into some substantial short and long term resistance around 6680 and 6630. If the market manages to get this low we should see it continue to test the recent low of the last uptrend at 6601.

If current support holds watch for prices to test resistance at the 50% level of 6773. If the bull rally is strong enough we should see a test of the 62% level of 6814 and the resistance above it at 6858.

Next week we will shift our focus to the March contract.

Silver is another market that only traded for a few days last week; however the market did manage to give us a near perfect retracement to the 38% retracement level getting as low as 4300 before finding support. From here it appears that the market is poised to continue lower; however this is a fairly significant retracement level, so we could see a pullback to slightly higher prices in the short term.

Assuming we get a close below the 38% level (443.30) we should see prices continue lower to the next support level at 440 and below that, 435.50. If the 435.50 support does not hold we could see prices retest the recent lows at 430.

As mentioned, since the market is currently against an important retracement level, we could see a short term pullback next week. If the market does pullback it will not have too far to go before encountering resistance in the 449 – 450 range. Above here there is a fair amount of resistance found at 455 as well. If the market did manage to exceed this level, the next resistance is found at 461 and the recent high of 465.

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

I know you like to trade support and resistance, but how can you tell which way the market is going to go in the future?

Answer

You can always trade either direction off of support and resistance; although sometimes one direction will seem more favourable than another, so you would obviously structure your trade that way.

Some considerations when determining future market direction:

• Does the resistance on one side outnumber the resistance on the other side? If you have a ceiling with four hits of resistance and a floor with only two hits of support, the market will usually take the path of least resistance, in this case falling through the floor.

• Is the resistance on a contract high/low? The contract highs and lows are very strong, and it takes quite a bit of market momentum to break through; therefore the market will often reverse off of these levels.

If there is evidence that indicates that the current trend is strong enough to break through the contract high/low (such as a favourable market report), then you can place your order on the other side of the contract high/low, and make the market prove that it can get past that level before you commit to it with a contract.

• Is the market coming off of abnormally high highs, or low lows? You'll need to consult a longer term chart for this information, but it is usually safe to say that if the market is trading at an extreme price, high or low, there is considerable pressure on the market to retrace to more "normal" prices.

Generally speaking, extreme lows are more reliable in this respect than extreme highs. While the upside is technically unlimited, a commodity will never fall to zero in value.

• Does the resistance coincide with long term resistance on the weekly or monthly charts? Sometimes the markets will seem to stop and reverse for no apparent reason, until you consult a longer term chart. Resistance, even from many weeks or months ago, can impact what is happening in the market today.

• Last, but certainly not least, is to consider the direction of the trend. Those of you who know me know what a stickler I am for trading with the trend, at least for the long term. It is possible to scalp a few points against the predominant trend in the short term, but for the long term you will want to trade with the trend for as long as possible.

I'll let you in on a little secret: Trading support and resistance is very much like developing a scenario for the market to fulfill, rather than actually predicting where the market will go. If the market does as your scenario indicates, then you're in the market; and if it does not, well then you're not.

As you practice using support and resistance to develop your own market trading scenarios, study the markets more to learn things like, seasonal tendencies, relationships to other markets, usual length of trends, etc, and you will also find yourself getting better at making "predictions".

Erich