Chart of the day, August 29, 2012 (Soybeans)

 

Charts are like onions — they unfold layer after after layer with each layer revealing something a little different.

I know some readers do not like the fact I am bullish one day and bearish the next only to be bullish again a week later. Sorry, but that is the way I am. I am a trader not an analyst. I am constantly on the alert for subtle changes in market behavior. Also, keep in mind that as a charts I can be constructive on a market for one time frame yet guarded, or even negative, on a market for a different time frame. I realize that for you Silver bulls this is just uncomprehensible.

A monthly chart is made up of many chart patterns from the weekly chart. The weekly chart, in turn, is comprised of many patterns from the daily chart. The daily chart consists of many patterns from the intraday charts. In the above, most of the patterns fail and morph into larger patterns within the same time framing.

Intraday patterns are far less dependable than are daily charts. Daily patterns are less dependable than are weekly patterns, and on it goes. You get the point. Nevertheless, as charts unfold every time frame must be considered. Rather than a comparison to an onion, charts are actually like a three-dimensional jigsaw puzzle.

And all of the above bring us to Soybeans.

The quarterly chart is powerfully bullish. The advance in Dec 2007 completed a multi-decade rectangle. The advance in Jul 2012 completed a 4-year triangle. The triangle projects prices to the $22 level.

It is important to always remember that the longer term charts trump the shorter term charts. Shorter term patterns that run contrary to longer term trends have the highest probability of failing.

The weekly graph of Nov Soybeans shows the sustained rally during the past three years. The incredible advance since Jun 2012 reflects this summer’s drought in the important growing states.

The daily chart shows that a possible 5-week pennant was completed on Aug 20. Patterns such as this are often “half-mast” or half-way patterns, indicating in this case that the rally from the Aug low will equal the distance of the move from the Jun low to the Jul high. This “half-mast” target is is $19.90 per bushel. Please, please, please, please remember that targets are NOT sacred. Markets are not obliged to travel to targets. Markets are always subject to morhping and revision.

Next, note the small congestion area of the past seven days. Given that chart confusion (a congestion area is a confusion area) resolve themselves in the direction of the next larger-scale trend, this small pause should lead to a further rally — or to morphing before a further advance occurs. Chances are greatest that this current pause in the daily chart will be quickly resolved. Thus, for scalp and swing traders this small pause could be used for a quick trade.

Yet, this current pause can be seen as a possible H&S top on the intraday chart. This is where it gets dicey for me as a chartist. On one hand I understand that charts tend to resolve themselves in the direction of the next larger scale trend. On the other hand I know from experience that massive trends (such as we have in grains) often end with very brief tops. So, I must respect this small H&S if it is completed by a downward breakout.

So, how should a chartist play the Soybean market?. Well, it depends upon the time frame of your analysis and trading. Are you a position trader? You would have no reason to care about this current pause. Are you a swing trader? You would use this pause as an excuse to go long for another thrust up. Are you a scalper? Then you could play this intraday H&S for quick short trade (selling against the Aug 26 high or waiting for a breakdown before selling).

As for me, I am already long the grains (Soybean Meal). I would wait for the Soybeans to break back toward $17.00 and then I would place a buy stop above today’s high. Or I would wait for this small H&S top to breakdown, but fail, then I would go long for a swing trade.

But remember, charts morph. What I think today may change by next week. There is a major difference between a longer term view point (for me, that is being a Soybean bull) and a shorter term scalp or swing trade (for me, that could be in either direction despite my longer term bias).

Markets: $ZS_F, $RJA, $DBC

 

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Note: There are three seats left for the Oct boot camp in Colorado Springs. The odds are very high this will be my last teaching/training (at least in North America). Past attendees tell me that this training is the most impactful learning they have experienced as traders. In the boot camp I attempt to “hand over” every thing I have learned in 30-plus years of market operations. To secure a seat click the link below.

Soybeans — comparing the current bull market with the bull move of 1972/73

 

If history is any indication, the bull market in Meal has a long way to go

I could provide many links to past blog posts touting a major bull market in Meal. For starters, click here.

I maintain that the bull market of 2011-2012 will replicate the bull trend of the early 1970s. So, both charts are shown below.

Let’s examine both bull markets:

1972/73

  • Total advance = $350/ton in 8 months, a 4.25-fold increase
  • Final thrust = $285 in 2 months, a 2.75-fold increase

 

2011/12

  • Advance to date = $230, a 1.91-fold increase
  • Final thrust = $125 in 11 weeks, a 1.35-fold increase

Thus, the current bull market has a long way to go if 1972/73 is an analog period. The quarterly Meal chart indicates a target of 620. Yet, if the final blow off in the current market equals the 1973 blow off, the target would be $1,086 per ton. Not even I believe this figure, so I am using a 620 target.

Markets: $ZM_F, $ZS_F

 

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Charts of the day:Platinum and Silver have breakouts, Gold fails to follow (yet)

 

Silver and Platinum diverge from Gold. Time will tell is these buy signals are any good.

Yesterday the daily Silver chart completed a 7-week 5-point symmetrical bottom. The target is not huge — only 29.20 (we are almost there).

 

The Platinum chart (due largely to disruptions and a major mine) completed a similar triangle last Thursday and a possible falling wedge on Friday, although the wede interpretation is not decisive. The target in Platinim (if the wedge is correct) is 1560.

Gold is actually the metal in which I have the greatest trading interest. The Gold daily chart is lagging and has not yet confirmed the breakout in the other precious metals. The daily chart exhibits a possible 3-month triangle. An attempt to decisively clear the upper boundary of the triangle in late July and mid August and now again during the past three days have stalled (so far).

A close above 1631.7 would confirm the triangle bottom and complete the small ascending triangle that has taken shape since July 31. A bull signal would establish a minimum target of 1685 to 1710.

Final note: My own personal opinion is that all of these bullish signals will faily. Yet, market action must be respected and until there are signs of failures the correct momentum play is to buy dips.

Markets: $GLD, $SLV, $GC_F, $SI_F, $PL_F

The British Pound — and a short lesson on why most novice traders lose money

 

This post will eventually discuss the Cable ($GBPUSD, $G6B_F), but let me first explore a related rabbit trail.

There are many reasons why 80% to 90% of novice traders end up losing money. Among the reasons include:

  • Being under capitalized
  • Taking way too much risk (expressed as a % of capital per trade)
  • Attempting to pick tops and bottoms
  • Chasing markets
  • Becoming obsessed by a scenario (e.g., Silver MUST go up)
  • Trading with trading range
  • Being compelled to become a day trader

I believe the above reasons, in composite, account for 80% of the failure among pedestrian traders.

When I talk about “trading with trading ranges,” my specific reference is to the habit of buying on bulges and selling on dips or buying at the top end of the ranges and selling at the bottom end of ranges. The mentality of the novice trader in this regard goes like this … “The market is really strong, it is going to breakout out this time … I want to get in before it breaks out.”

Ok, now on to the British Pound.

Since January 2009 (that is 44 month for you math geniuses who always seem to find a problem with chartists) this currency is a textbook example of a market that goes up, goes down but goes no where. Attempting to buy strength and sell weakness in the Cable has been a recipe for trading losses.

The quarterly chart below shows that the Pound has historically been either in a rip-roaring trend or stuck in neutral.

The weekly chart below displays the current period of congestion as a classic triangle. This coil has an apex that will converge in about July 2014. This means that the market has moved 68% of the distance from the start of the coil to the apex. Let me quote Edwards and Magee (“Technical Analysis of Stock Trends,” 5th Edition — BTW, all editions after the 6th edition are GARBAGE because the new author, W.H.C. Bassetti, has ruined the book with his additions):

“Another point to remember — and one which does not conform at all to the “coil” simile — is that the farther out into the apex of the Triangle prices push without bursting its boundaries, the less force or power the pattern seems to have. Instead of building up more pressure, it begins to lose its efficacy after a certain stage. This best moves (up or down) seem to ensue when prices break out decisively at a point somewhere between half and three quarters of the horizontal distance from the base (left-hand end) to the apex.” [Page 90]

 

To retain its power the coil in the Cable must be completed soon — very soon. Otherwise the symmetrical triangle interpretation will lose its validity.

If the symmetrical triangle coil is the correct interpretation, this means the market will begin a strong trend within the next month or so. Thus, the daily chart could give us a clue on timing and direction.

Several factors on the daily graph are worth of note.

First, the lower boundary of the multi-year coil comes into play right at the 2-year shelf of support around 1.5230. A close below 1.5230 would penetrate the shelf of support and the lower boundary of the coil.

Second, the chart displays a possible 12-week ascending triangle. A decisive close above 1.5790 would set a target of  1.6250 — and if the market goes to 1.6250 an upside breakout scenario would come into play.

 

I will end this post where I began — with the mistakes made by novice traders. I can only imagine (and I could be wrong) that novice traders have lost money in the Cable by buying buldges and selling big dips. The market has lacked follow through in either direction, sucking in new longs on big rallies, bringing in new shorts on big breaks.

Waiting for a big pattern to fully develop and then become completed requires unusual patience. But it is just such patience that is needed. Eventually the Cable will have a huge move of 20 cents or more. I will wait for confirmation of this move before entering the market. It is possible for a trader to repeatedly get burned within a trading range, in anticipation of a big move, only to miss the big move when it happens. Has this happened to you? This is why it is best to wait.

Markets: $GBPUSD, $G6B_F, $FXB

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Grain markets may be on verge of final blow-off top

 

Grains are forming chart patterns that often lead to a blow-off

The grain markets have been in a bull trend since 2005/2006. From the 2005/2006 lows to current prices, grains have advanced as follows:

  • Soybeans – up 3.2 fold
  • Corn – up 4.3 fold
  • Wheat – up 3.2 fold
  • Meal – up 3.2 fold

It is the wrong time to become bullish on U.S. agriculture. In fact, it is the right time for grain farmers to sell their land for an outrageous price and retire to Hawaii. This is a post for another day.

Yet, the charts indicate there could be one more strong upthrust in grain prices before the top is reached. The daily charts of all the major grains display possible pennants. A pennant is a brief pause within a strong trend, seldom lasting more than four to six weeks. Pauses longer than six weeks often indicates that a more extensive congestion area will develop.

But for now, a move into new hights (Corn has already done this) should trigger a strong two to four week rally.

Markets: $ZC_F, $ZS_F, $ZM_F, $ZW_F, $RJA, $DBC

 

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Should the inevitable chart breakout in precious metals be trusted?

 

The metals are coiling ever so tightly. But, can a breakout of these coils be trusted?

All the precious metals — Gold, Platinum and Silver — continue in their well advertised coiling action.

There is a general rule in charting that the further into a coil a market travels, the more suspicious traders should be of the initial breakout. Gold is presently 13 weeks into its coil (see daily chart). A vibrant breakout is long past due. Some analysts/traders claim that Gold has already broken out. I am not among this group. The diagonal boundary of a triangle means nothing to me. Only a decisive close above the early and late July highs would represent a breakout in my book.

But even such a breakout might not be trusted. An upside breakout followed by the market’s failure to sustain strength would be a giant bull-trap sell signal. I draw your attention to the weekly Gold chart with is potentially negative by way of the violated trendline from the 2008 low and the possible descending triangle.

Nevertheless, I would go long if an upside breakout is confirmed. I would also go short if an upside breakout fails or if a downside breakout is confirmed.

Platinum is the most negative of the precious metal charts for two reasons. First, the monthly graph shows that the market topped way back in 2008, with a secondary top in 2011.

Second, the daily chart displays a more orthodox series of lower highs and lower lows. The market is forming a 10-week running wedge, a very negative pattern if it is completed.

Next, the weekly and daily charts of Silver are shown. The daily chart is very awkward — I would not trust an upside breakout.

Finally the daily chart of Gold priced in Swiss Francs is shown. This 9-month triangle needs to confirm a breakout in the individual precious metals. A close in GC/CHF above 1630 is required to complete this pattern and establish a target of CHF1830/oz.

 Markets: $GC_F, $GLD, $PL_F, $SLV, $SI_F

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Why I think Platinum prices can drop, possibly sharply — and other random ramblings

 

Platinum charts are “on the edge of the cliff” for a $130 per oz. drop and possibly a $250 drubbing

Before I jump into my analysis I want to ramble about two points.

First, as many of you have noted I do not blog much anymore. This is exactly what I stated months ago that I would do. Not blogging is easier for me — it also gets rid of the riff raff from my blog site. If I blog frequently I get as many as eight times more visitors to any given blog post. Most of these additional visitors are curiosity seekers or tourists looking for a magic pill. The numeric relationship between regular readers and pedestrian traffic is consistent with the known fact that 9 out of 10 traders leave poorer for the experience as they seek for guru after guru. I stopped frequent blogging because I became tired of tossing pearls to swine (most likely not you if you are a semi-regular reader).  To those of you readers who regular check this blog so that you can remind me later of my miscues I would only say to you, “oink, oink.”

Second, as I have said so many times before, a viewpoint is not a position for me. I have viewpoints on the markets all the time — sometimes my viewpoint on a given market may change during the course of a week. Most fiddle dee dee market observers do not have the first clue about trading. They consider the changing of one’s mind to be a sign of weakness. They are, for the most part, trading wanna bees. I view changing of one’s mind as a necesary part of the gorilla war fare calling speculation.

In reality, while I have thousands of market viewpoints during the course of the year on the markets. I follow (about 40 futures and forex pairs) so I only get about five signals per month, or 60 or so trades per year. Do the math, 40 markets represent more than 12,000 markets days (counting Sunday night hours). Yet, there is a one in 200 chance that I may be taking a trade in a given market on a given trading trading day.

This discrepancy between market opinion and actual trading is due to the fact that my standards for actual trading actions are much more precise and demanding than my standards for having a market opinion. For those pedestrian traders among you, this means that my comment one way or anther on a given market may have no correlation to my trading portfolio.

On to Platinum! — finally you say.

This is a market where harmony of opinion to portfolio may occur. Platinum is set to offer me one of my 60 trading signals in 2012. It has already provided me with one signal (a short in April). Two signals in the same year — wow, this is more excitement than I can handle as a medicare patient.

Here is what I see in Platinum.

The quarterly graph shows that Platinum is in a broad trading range defined by the 2008 high and low. This trading range could contain the market for years to come — meaning that on yearly basis there is NO trend in Platinum. Note the massive symmetrical bottom completed in late 2003. Yet, there are still market fools who claim that long-term charts represent random price behavior. I don’t get it.

The weekly graph shows that Platinum has been the far weakest precious metal in recent years, topping in 2008 compared to an 2011 top in Silver and a September 2011 top in Gold. It is always my preference to be short the weakest member of a market category, when short the category, and long the strongest member of a category, when long the category.

The daily chart shows the importance of the 1365 to 1375 zone. I consider the December 29 close to be the important price point — the low that day was simply a “wash-out” event. Closing prices are ALWAYS more important than intra-day highs and lows.

Also, the market has formed a 10-week running wedge. I far prefer running wedges to reversal wedges because their downside completion is accompanied by a new low, not simply a boundary penetration. In this case the wedge completion would solidify a 2-1/2 year bear trend.

Thus, I will take a close below 1375 as an official sell signal. There is always a caveat — a close below 1375 followed quickly by an “end around” would totally negate my analysis.

 

Markets: $PL_F

 

 

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