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TRADE Focus

10/16/2008

Deflation rather than inflation seemed to be the theme for the week. Energies, grains and metals fell to new recent low levels. Gold which had been fighting the pressure to move lower finally gave up the fight and broke downward from a pattern it had adhered to. Talk around here made it to the gasoline futures which saw 1.60 a gallon traded. The big question asked was will we ever see it at the gas pump. It wasn't too long ago that we were afraid of running out of everything. There were food riots and fear over the amount of energy supply we would have for our cars our homes and our industry. Energy became a big political issue in this presidential election year. Focus has shifted a bit off this topic it seems to us, but its importance in the bigger scheme of things remains. And now too, OPEC is talking about production cuts.

So we have gone from too little to now there is too much. This too shall change. Stick around.

Don't forget the importance of utilizing money management in your trading. It's a good habit to develop. Falling off this wagon is like falling off a diet. You are bound to give back any progress you have made.

Note: We are archiving the Traders Focus from here on so that those interested can follow more easily.

Silver - The 1031 low basis the December contract was indeed breached and so far has led to a decline to 925. We had mentioned target levels of 950 and 860 as possibilities upon the making of new lows below 1031. Watch for new target and retracement levels to develop if prices continue to decline.

Gold - Since our last writing prior to our brief respite, December Gold did penetrate through the previous 93200 high made Sept. 29 before dramatically reversing course after trading 93600 on that wild day of October 10. As this is being prepared, December Gold is trading 80400. We had mentioned in our last Focus that those with bearish attitudes toward gold should protect above 93200. This was in fact penetrated on an intraday basis. Near term targets below are now approx. 77600 and 74200 - the previous low of Sept. 11. The weekly chart displays a series of lower lows and lower highs since the high was made the week of March 17. Closing below the 73500 level on a weekly basis likely sets up a move toward 6500 and then possibly 55000. There appears also a double top type set-up which provides an objective near the 715 level.

Euro Currency - We suggested to those who initiated short positions using the previous rally to the 14846 retracement resistance level to look for target levels of approximately 13550 and 13275. So far the low has been 13280 made on that fateful day of October 10. If this price can hold, there could be a recovery to retracement resistance levels of 14050; 14250. Reducing or liquidating shorts may make sense at this time waiting for the next scenario to develop such as a rally to the resistance or new lows through the 13280 / 13275 level. If new lows are made prior to trading above 13835 that will activate new near term targets of approximately 12980 and 12795.

Chicago Wheat - Wheat continued to track lower having surpassed our previous short term targets of 610 and 575. As of this moment, December Chicago Wheat is at 554.75. The weekly chart found a trendline support just above today's low of 543. If this low should hold the retracement resistance levels of 625; 650.50; 676.50 may be tested. New lows would negate these.

Live Cattle - Nothing new in the cattle. We had a previous trade situation based on a Head & Shoulders pattern that had an objective since reached and now exceeded. We declared previously, "Mission Accomplished."

S&P 500 - Today's action may provide some glimmer of hope for a relief rally of some sort. There was a noteworthy divergence that occurred where the volatility index (VIX) hit an all time high level of 8117 while the S&P and Dow did not make a new low. (The NASDAQ actually did by a very minor amount before turning around to move rather significantly higher on the day). S&P eventually did turn on the jets to move higher later in the session. Basis the December eMini contract the first set of retracement resistance levels are approximately 96550 and 98950 as long as the 86525 low posted today holds.

Dow Jones Industrial - The previously mentioned return to breakout level we had pointed to did very little to stop the drop. However we noticed the low of 7882.50 registered October 10 happens to fall just slightly below the half - way back retracement level of 7949.00 when considering the 1987 crash low of 1706.90 and the October 2007 high of 14191.80.

Soybeans - Soybeans basis the November contract reached a low of 825 this week. In our last Focus we mentioned a Head and Shoulders that suggests something below 800 as an objective. It has come close. Going all the way back to September of 1969 there was a low of 236.25 basis monthly data. Coupling that with the July 2008 high of 1663 produces a significant retracement level at 781 or so.

Bonds / Notes- US T-Bond futures basis the December contract did rally above the 120-00 level since our last Focus and made it beyond the 121-10 protective stop level for short positions. It went as high as 122-11.5 before giving it up all the way back to 113-22.5 as of this moment. Given the monthly reversal we mentioned last time we would like to concentrate on the short side opportunity. Currently, retracement resistance levels are approximately 116-23.0; 117-25.5; 118-28.0. Protective stops should be used somewhere above 119-03.0 level depending on personal risk tolerance or parameters. This week's low in the T-Bonds fell against its 50 month moving average. We are eyeballing the 105-00 area as an eventual objective. Stay tuned for updates.