As you probably remember I went to Las Vegas to attend a Futures trade show which was hosted by Gecko Software on the March 15th weekend. Although the trade show was hosted by Gecko, it was not a “software” trade show; the focus of the show was on commodity trading. To this end Gecko lined up a full day of excellent speakers to lecture to the attendees.

This was the first year I had an opportunity to attend the show so I really didn’t know what to expect. To tell the truth, I went to the trade show as much to meet other traders as I did to partake in the conference.

You see, while I have had many dealings with Tom Loge’, Kirk Kristian, David Duty, Scott Barrie and Lan Turner…I have never met any of these gentlemen in person. Sure I’ve spoken to them plenty on the phone and we’ve exchanged reams of emails, but I had never met any of them face to face. This trade show was going to be an excellent opportunity to meet everyone in person at the same time.

Lan Turner began the conference with an overview of how best to use Track ‘n Trade’s papertrading features to more accurately simulate real trading. Lan also went on to demonstrate many of the newer refinements that have been incorporated into the software and how to use them. (For a FREE trial of Gecko’s software click HERE).

If you have never met him, Lan is a big man with a firm handshake and a warm smile. He genuinely made everyone who attended the show feel welcome. Listening to Lan speak it is quite obvious that he knows a lot about trading and trader’s software needs.

After Lan’s presentation, Scott Barrie took the floor to discuss his forte, seasonal trading strategies. One thing I can tell you for sure is that it is impossible to nod off when Scott is giving a presentation. Being a former floor trader, Scott is a very dynamic individual who doesn’t need a microphone to make himself heard. Part entertainer, part serious trader, Scott’s wit and flair make him an individual you will not soon forget.

In the afternoon David Duty gave a lecture on technical analysis, in particular using Slow Stochastics and his favourite formation, blips. David is an excellent presenter and gave a very educational lesson. Even though he was suffering slightly from jet lag, he made the two hour presentation fly by. I now know why people pay a lot of money for the privilege of hearing David speak.

While neither Tom nor Kirk were giving presentations this year, the show still gave me an opportunity to meet each of them.

Kirk is a tall fellow with a great sense of humour and is as laid back and easy going in person as he is on the phone. Even though we had just met in person it was as though we had been buddies for years. Kirk is down to earth, quick to smile and one of the nicest guys you’ll ever meet. He definitely has a way of making you feel at ease.

Tom Loge’ is as great a man in person as he is on the forums and twice as cool. Tom is an energetic and vibrant man who shows a great deal of compassion and caring for those he comes in contact with. Tom has a gift of cutting through all the clutter and boiling everything down to its simplest elements which makes his explanation of anything trading related very easy to comprehend. If there were a contest for “nicest guy on the planet” Tom would get my vote.

That’s it for now. Hope you enjoy this week’s issue.

-Erich 
ErichTHT@hotmail.com

Whassup with corn? I go away for a week and the market sets a new contract low! ;-)

Corn is getting a little annoying as it is giving us one false start after another. While prices may continue lower, the smart play here is still to be on the lookout for a long position as we are getting into the normally bullish planting season and all the uncertainties that accompany it.

This Week:

I don’t think we’ll see corn do anything outstanding this week. Now that the market has set in a new low we can be on the lookout for a 123 bottom or head ‘n shoulders formation. The market will probably continue to chop around for the next week or two as the formation completes so there is nothing to get too excited about at the moment.

If, for some strange reason, the market explodes through the 241 resistance however then I might get in early, otherwise I think I’ll just wait a bit longer and see what happens.

Cotton continues to tease setting new high after new high, but the end of the bull trend does appear to be in sight. Unlike some other crop markets, cotton prices tend to take a dip once the crop is in the ground. Plantings are just around the corner which could lead to lower prices in the very near future.

This Week:

I wouldn’t be too surprised to see cotton find support at its current lows and head higher next week to test the contract highs; however if prices did dip a little more I would expect the support at 5800 to help hold the market up.

Look for prices to head higher and re-test the contract highs at 6055 without breaching them. The market should spend this week completing a 123 top formation before heading lower. The closer the market got to the 6055 highs, the more inclined I would be to short it and place stops just above the contract highs (or the #3 point if feasible).

When this market does finally decide to breakdown it could fall fairly quickly to the 50% level at 5440 where you will notice a lot of support. This probably isn’t the last stop however (long term) as the first real support on the weekly charts is not until 5240.

Of course if the market busts through the contract highs yet again, then all short bets are off. The next target to the upside is the very firm weekly resistance at 6210.

Bean prices continued to rally last week in spite of its fellow grains like wheat and corn declining. Alas, the rally was not strong enough to get the market to emerge from the large trading range that has trapped prices since last fall.

This Week:

I would expect to see bean prices continue higher next week and test the resistance just above current highs at 583 ¾ and maybe even the existing contract highs at 588; however I would not expect the market to exceed these levels at this time.

There is a Prospective Plantings report due out at the end of the week which is a biggie in the grain markets. Many analysts are expecting bearish news for beans as it is believed that poor weather forecasts has farmers planting more of the hardy soybean plant vs. wheat or corn. Whatever the case it is not a good idea to take a contract in either direction before a big report so I think we would be best off just to stand by and watch for a couple of more days.

Once the report is released (March 31) the market will have a chance to incorporate the news and it will be easier to determine a trade to take. Right now the best long term potential still seems to be long to the weekly 50% target at 650.

For those of you who insist on trading beans this week your best bet would probably be to short the market as it approaches the 583 resistance. I wouldn’t be too greedy looking for a downside target and would probably be content to exit near the support at 570.

Below here the next support can be found at 565. If this is your target remember this is a counter-trend trade a week before an important report date so don’t push it too hard and make sure you’re packing a pair of brass ones.

The USDA report last week gave out some rather bullish figures for cattle which caused prices to rally even more toward the end of the week. As a result we can probably expect prices to continue to rally a little bit more this next week as well. This is normal for this time of the year anyways as prices take a little hop before the cattle are sent to slaughter.

Actually the cattle market has been behaving itself rather predictably lately, which unfortunately is not always the case, but it’s nice for a change. ;-)

This Week:

Expect cattle prices to head a little higher this week, at least to the resistance at 7610. If the market really gets going we could even see a test of the daily and weekly resistance at 7680 as well but I don’t think it will get much higher than that.

Unfortunately we’re looking at this market a little late in the rally to get involved with a long contract so we’ll have to be content with looking for the next shorting opportunity. The next good opportunity to short the market will be found around 7610 to 7680 so keep a lookout for the first retreat in advancing prices that the pullback is over.

Next downside target is the support at 7200 located just above the 62% retracement level. Next week we will shift our attention to the June contract.

The war with Iraq and the lack of any fundamental news regarding the new government in the Ivory Coast left the market without any direction and as a result cocoa ended up ranging for the last couple of weeks between the resistance at 2055 and the support at 1930.

This Week:

Cocoa isn’t giving us any clear signals to follow for this week. The market is at a crossroads as it has firm long term weekly and monthly support below the market at 1954 and again above the market at the 50% level around 2142.

Long term I still like this market short to the support at 1770 and 1710; however I think next week we will see prices rally to at least the 50% level at 2142. If the market gets a little momentum behind it then we could see prices test resistance at 2205 as they attempt to fill the gap above that resistance.

An aggressive (and did I mention risky?) trade would be to place an order to enter the market long around 2000 with stops just below the lows of last Thursday at 1954. First target would be the 50% level which would give you a 3:1 RR (risk/reward). It is a gutsy plan however as the market still has to contend with the upper resistance at 2040 which might hold it back or even send the market lower.

A more conservative approach to this trade would be to allow the market to break the 2040 barrier before committing to a trade. The problem from here is that there isn’t a real good place to put a stop. Leaving the stop below 1954 gives you slightly better than 1:1 RR and this would hardly be worth the effort. The other alternative is to trail your stop $300- 400 after the market breaches 2040 which would give you about a 2:1 trade.

Speculative increases in demand caused sugar prices to rally before the end of last week; however trading was light as many traders were following the Iraq conflict. Technically speaking sugar has rebounded nicely off the 50% level at 598 and is poised to continue higher next week, at least for the short term.

This Week:

We can probably expect prices to continue to rally next week at least to the resistance at 750 or 762 if not higher. From here the market could continue higher but we are beginning to encounter more resistance again at 790 and 809. Sugar will likely have to move closer to the contract highs before we will get a hint as to what its true intentions are.

In fact I don’t see anything that looks like a good trading opportunity in sugar either way right now, but if you made me choose I would probably look for the market to take a bounce off either the 750 or 762 resistances and continue the downtrend from there.

The first downside target if the current trend resumed would be the small gap at 683 that was left over from a couple of months ago. If the market continued lower I would look for added support at 669 which is the 38% retracement level of the uptrend before finding lots-o-support beginning at 650.

Just before the war broke out last week the Franc was giving strong signals that it was not going to be able to take out the current highs. Sure enough once the fighting began the market fell like the proverbial rock to the 50%. For those of you who were able to capitalize on the trade it would have translated into some pretty big coin. Even conservative entry and exit points would have put over $3000 per contract into your pockets. Nice job!

This Week:

Now that the market is resting the 50% retracement level it becomes a little more difficult to call as the market could move either way. The low close on Friday would seem to suggest that the market is not finished falling yet. If this is the case look for the market to decline to the mild support at 7006 before encounter the more substantial daily and long term support at 6980.

While the market could go lower next week there is also a fair amount of support associated with the 50% retracement which might be enough to send prices higher. If prices rally on Monday look for a test of the rally at the resistance at 7300 followed by resistance at 7410. If Monday’s prices close above Friday’s highs then it would be a good signal that we could expect higher prices for the remainder of the week.

However like I said, it is difficult to accurately predict the market’s direction in the middle of a rally, especially when it is on the 50% level. We will probably have to wait a day or two to see how the market reacts from here before committing to a direction.

The precious metals markets continued to slide as the stock market found its footing as the war with Iraq began. As the market continued to slide it completed a rounded bottom formation with the market trading very near the neckline.

This Week:

Expect prices to test the neckline and possibly the weekly support below it at 429. There is a reasonable amount of fairly substantial support level at 429, 422 and 418 which makes me think that the best opportunity is to go long.

A semi-aggressive trade would be to place an order to enter the market near the neckline with stops below the weekly support at 429. The initial upside target would be the resistance at 452 followed by the next target 10 points higher at the resistance of 462.

The trade is a little riskier since we are anticipating that support levels will hold before they are tested, but setting up the trade this way gives us RR close to 3:1. In fact I like potential of this trade so much I think I’ll designate it as this week’s PICK OF THE LETTER.

• Entry Order: 434.90 limit
• Stop Loss Exit Order: 428.80 stop
• Profit target (exit): 451.90
• Risk $305
• Profit Potential $845
• Risk/Reward Ratio (RR) 2.77:

Because margin on silver is fairly expensive for our account size we will only be trading one contract next week hoping to pick up a couple of extra bucks.

-Erich

PLUG: Calculations are performed on the Range Projector panels of SMTP/DTP. SMTP/DTP also provide: (Fib and Gann, dynamic and static) Time and Price calculators, Cluster Discovery and Analysis screens, and an "on-the-fly" Elliott wave extension calculator. 13 tools in all.

When drawing retracement levels, how do I know which combination of highs and lows to use? Also, do retracement levels from longer trends still affect the market or do only the retracements from the most recent trend count?

Answer:

Choosing your high/low depends a little on which retracements you need for your trade, and retracements are rather subjective, in the sense that the retracement depends a little on the time frame of the trade you are interested in.

If you are looking at a very short term trade (hours/days) you might only want to use the highs/lows of the most recent trend for your retracement calculations, which could be a few days/weeks long.

If however you are looking for a slightly longer term trade (days/weeks) then you would need to consider the highs/lows of a larger/longer trend for your retracement calculations so that your trade had some room to move. Sometimes, if you are planning a very long term trade (months) you might even figure your retracement levels based on the information from the weekly chart instead of the daily.

Generally speaking, most trades are of the shorter or intermediate time frame. For these trades you are usually best served by using the highs/lows of the most obvious trend on the chart for your retracement calculations. This trend will usually be several months in duration, and will most likely be the trend that you first notice when you look at the chart.

Retracement levels don't have to be "fresh" to have value. The retracements based on the most recent trends will be retraced first that's all. A retracement based on a longer trend will also be reached, eventually. As will the retracement of trends on the weekly and monthly charts. The only thing that changes is the amount of time required to realize the retracement.

I always like to see an area of support or resistance which coincides with the 38%, 50% and 62% retracement levels. In my mind this helps confirm their "existence".

-Erich

We’ve already covered some of the better potential spreads out there so far this month; therefore I thought I’d take the opportunity to address some common spread related questions in this issue.

Question:

One of the most common questions traders have about spreading market is whether or not you can spread any and all markets or do some markets lend themselves better to spreading than others?

The simple answer here is “yes” some markets are better suited for spreading than others. Generally speaking markets which follow a cycle are better to spread than those that do not. One market complex which is traditionally lends itself well to spreading is the grain markets.

Here traders usually attempt to spread the price difference between the old-crop and the new-crop. While there is still much to disseminate in a typical grain market spread trade, it seems "easier" than trying to spread a market that does not follow a normal cyclical pattern.

By basing our analysis on the difference between what is left in the bins, export expectations and usage figures versus what has been planted for the coming year it is easier for most of us to distinguish between "old" crop grain and "new" crop grain. Trying to determine how prices will behave in this type of situation is generally easier than to trying to figure out what the Canadian government’s monetary policy in the front month Canadian Dollar contract will be versus the contract six months out.

Another group of markets that usually spread well are in the energy complex. One of the most predictable energy markets to spread is Heating Oil. This is because Heating Oil needs to be purchased for delivery prior to the cold winter months when it will be consumed. In a similar fashion, Unleaded Gas prices usually pick up steam going into the summer in anticipation of the summer driving season. Knowing these seasonal tendencies makes it easier for spread traders to analyze the markets and try and determine what will happen to the prices in the spread.

However finding a spread that you are comfortable with, or one in which you agree with the fundamentals AS WELL AS the technicals is not always easy. A “reliable” seasonal spread which worked well for 14 of the last 15 years always seems ready to come up and nip you in the account.

For this reason I do not recommend trading a spread simply because it may have worked in the past. The current year is always a whole new ballgame, and it may or may not behave as the previous year(s) did.

Those traders who do their homework however should reap the rewards. Sometimes this will mean staying away from a market all together or in some cases taking the opposite side of the trade. When in doubt it is always a good idea to consult with a broker who is familiar with trading spreads.

Question:

How do you know which markets or contract months to spread?

There are many sources out there which have compiled lists of the best of the past trades. In some cases those trades have returned better than 80% over the last 15-20 years. Personally I am partial to Scott Barrie's Grain Guide and Livestock Traders Almanacs (www.grainguide.com).

[Just a quick note, this week Scott Barrie is having a sale on both these publications. If you order before the end of March you will receive CFEA's Spring Planting Situation and Review for FREE ($35 value). In the notes field of the order form, type in "PLANTING" and receive an additional 10% off the purchase price! I’m not receiving anything for this; it’s just a valuable resource that I thought you should know about. You can get a copy of the Almanacs at http://www.grainguide.com/Order_Form.htm. Both publications are satisfaction guaranteed -- Erich]

These annuals (as well as others) list what has worked in the past and take a lot of the guess work out of finding out which months to spread. Always remember however, as mentioned above, each year brings its own unique situation. It is up to each of us to research this year versus the past years to determine if the same criteria which made a particular trade profitable in the past are present this year as well.

One last note: something to always keep in the back of your mind when spreading markets is to keep an eye on the weather. It is my belief that the weather affects the prices in the spread markets much more than anyone would care to admit to.