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TRADE Focus
10/30/2008
We received evidence this week what the stock markets and other financial markets have been telling us for months now regarding the state of not only the US economy but really the global economy. Consumer confidence here has fallen to dismal levels and the advance GDP figures for the third quarter fell into the red with a decline of 0.3 pct. We understand this to be the worst reading in the past 7 years. In light of this type of evidence the 2-day FOMC meeting resulted with the anticipated .50 reduction in the fed funds rate and .50 lowering of the discount rate to 1.0 pct and 1.25 pct respectively. In its statement the Fed said "The pace of economic activity appears to have slowed markedly," ... "The intensification of financial market turmoil is likely to exert additional restraint on spending," and .. "The committee expects inflation to moderate in coming quarters to levels consistent with price stability." The focus now is firmly on the prospect of economic growth rather than inflation. The US is not alone as consumer confidence in the eurozone plummeted to its lowest in 15 years, and with its business sentiment index registering its largest month on month decline many are lead to expect similar interest rate cuts of .50 basis points at the next ECB policy meeting Nov. 6. Additional measures and packages to help alleviate the liquidity crunch continue to be announced as Japan considers additional measures and the US making available currency swap agreements with the banks of foreign nations such as Mexico , Brazil , and South Korea . Many may wonder why new lows in the various stock markets were not achieved in light of this, but this is not a new phenomenon either. The old adage "buy the rumor sell the fact" still applies in this environment and with such dramatic percentage declines during this month alone there just may come a time that the market runs out of sellers. We will find out to what extent this is true as the days go on.
The next time we present our Trade Focus our nation will have a new President elect. The markets may or may not react to whichever candidate wins the election. We suggest you continue to trade 'em as you see 'em. And we urge those of you who are registered US voters to exercise your right and VOTE. It is a great privilege. [Plus it gives you the right to complain about the outcome].
We cannot leave without reminding all market participants of the importance of money and trade management in this or any trading environment. Too often we hear how traders don't want to place protective stops because they fear they will be stopped out only to see the market turn back around. That can happen and does happen. Our advice is, though, don't let the pains and suffering of the past distort your perception of reality. Each trading situation or position is its own and we have found it beneficial to trade each accordingly. Just because doing something wise in the past may have caused suffering, do not allow that experience to sway your best judgment in the present or in the future.
Note: We are archiving the Traders Focus from here on so that those interested can follow more easily.
Silver - Silver made new lows down to 840 basis the December contract before rebounding to as high as 1064.50 as of this writing. The downtrend is still intact and with a new low being registered the next retracement resistance levels of interest become 1083 and then 1112; 1177. Last week we said the 860 target was still in play and it has now been satisfied and exceeded. The trend remains down and below the 50 month moving average.
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 Gold - The low of 681 basis December gold made on 10/24 took it slightly below the low end of the channel mentioned last week but it held and has rebounded somewhat. The downward trend is intact and remains the overriding force but some further recovery would not be unlikely. The day that the 681 low was made was a reversal bar. Recovery resistance levels are approx 778 (hit 10/30/08 ); 808; 838.5.
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 Euro Currency - The euro exceeded last week's low reaching 12326 before turning course upward. The low made it through the 12600 target we spoke of previously and came closer to the 12100 big picture retracement support level. We also warned that a retracement could occur at any time and it looks like this is at least some measure of that. We also noticed that the 12326 low on 10/28/08 was just one tick below that of the low on 10/27/08 ; thus what many refer to as the 1 tick rule. The euro also put in a near sweeping key reversal that day. Since the low, the euro has reached 2 of the first of 3 retracement points. That leaves approx 13315 as the next in that particular series. Still above the current price (12930 as of this writing) are approx 13280; 13580; 13880. We will note here that half way back from its all time high of 15907 basis the December contract and this 12326 low is 14116.5. Short positions entered upon the making of new lows through the 13275 level mentioned a few weeks back should make sure to utilize money management and protective stops if they have not yet been enacted. Look for reselling opportunities at appropriate retracement levels. And continue to mind your protection.
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 Canadian Dollar - Last week we mentioned that the low seen basis the December Canadian dollar contract was significant enough to warrant attempts at the long side. At that time the low had been 7863. This week saw a new low to 7686 from which it put in a reversal. It since has rallied to a high of 8401 made the day of this writing 10/30/08 . Coincidentally enough 8401 represents a .618 retracement of one of the last significant swings down. The next retracement resistance levels are approx 8460; 8701; 8942. Retracement levels of support are approx 8128; 8043; 7960. We believe buying opportunities should continue to be explored in this market. Do not forget to adjust protective stops accordingly if you are currently holding a position and to utilize immediately if you should make an entry. |
| Chicago Wheat - The December contract made a new low of 496.50 the day after we last wrote. Since then there was somewhat of a recovery attempt up to 578.50 but as of today's close it has slid back to finish at 538. The action remains bearish while the aforementioned extension target of 500 was hit and the one at 485 within reasonable striking distance. The low did not provide a daily range reversal bar as had occurred in both corn and beans so it lacks even that "friendly signal." Retracement levels start with this set from an offspring wave approx: 597; 628; 659. The parent wave to those provide resistance levels of approx: 685.50; 744.50; 803.50. To reiterate what we said last week, wheat seems to find its way back to trading prices in the 2.00 area after hitting extreme highs such as in 1973 and 1996. The Head & Shoulders pattern we have spoke of in previous Focus editions suggest this could happen again and we shall stick to that belief until further notice. |
 S&P 500 - S&P 500 was finally able to take out the October 10 low of 83700 basis the December emini contract and hit 82500 Monday October 27. [Interestingly, the cash S&P did not make a new low]. There has been a reasonable sized rally since then reaching as high as 97125. In the course of doing so there have been some near term downtrend lines broken with more long term ones still above. This does, though, provide some semblance of hope that a recovery of some magnitude is under way. There has already been a first set of retracements associated with the new low hit as they were approx: 91625; 94500; 97400. The high so far off this 825 low has been 97125. We will now be watching fore retracement resistances of approx: 100200; 105725; 111250. We will make the comment here that we believe the construction of the chart on the S&P to be bullish since the move off the low has developed. There is, for example, a pattern showing on some of the intraday charts we like to refer to as an accelerator. To us this would mean that buying breaks in price action may be a good approach. Retracement support levels initially, based on the 825 low and the subsequent high, are approx: 91575; 89850; 88100. |
| Dow Jones Industrial - The October 10 low remained intact in the cash Dow Jones this week even as the stock markets around the globe were once again under severe pressure. This means that the retracement we have spoke of; the 50 pct retracement from the 1987 crash low to the October 2007 high is still relevant. Here too, as in the S&P, we see the recent chart construction as bullish at least in the near term. This doesn't mean that the trend is now up and all things are rosy. It does mean we view the near term providing opportunities for price advancement. |
| Soybeans - Virtually nothing new developed here over the course of the week. The reversal low remains intact which helps to give a glimmer of hope for price advancement. We shall suggest switching focus to the March Soybean contract. Although we believe lower prices are coming sometime down the line the near term may see a move higher of some magnitude. The price action has not, though, demonstrated that much strength. We will continue to update. |
 Bonds / Notes - The day after we last wrote the December T-Bonds ran as high as 119-29.0 before beginning a retreat taking them all the way back to 113-19.5 which was today's (10/30/08) low. Our previous suggestion of using rallies to the previous stated retracement levels to initiate short positions would have been possible but the stops if too close to the 119-03.0 mentioned would have also been executed. We still believe the bigger picture will see lower prices with ideas of 105-00.0 in our mind. The price area of 112-16.0 basis the December T-Bond remains a significant level of support and warn of establishing new short positions too close to this price. We will update upon further development.
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 Coffee - We are adding coffee to our coverage this week as it has reached a price level of interest. The advance from the 2001 low of 4150, basis the monthly continuation data, reached a high of 16970 in February 2008. The recent low of 10505 reached almost a precise 50 pct retracement (actual .50 retracement price would be 10560). The 50 month moving average is approximately 11385 and the current price is 11100 as of the 10/30/08 close. We believe this is a price area that could prove to be of some value and will suggest that long positions be considered. 10985 - 10875 basis the December ICE contract may be a price range to use for this purpose. If new lows are made it is likely a negative signal. Utilize protective stops somewhere below 10505 and perhaps on a closing basis.
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