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TRADE Focus
12/04/2008
If any questions, comments, observations or more importantly any answers, please feel free to contact us at : 1 800 321-5810 ; email cbands@cbandsbrokerage.com
The Commentary portion of this edition was prepared and written on Wednesday evening. The trade analysis and charts were prepared during the course of business on Thursday December 4.
In last week's edition we spoke about the Thanksgiving holiday week rally. The Dow and S&P 500 had just posted their 4 th consecutive higher close which was the first time they had done so since August. We questioned then whether it was a holiday event and if there would be follow through in the post Thanksgiving week. Monday started the week off with a more than 600 point loss in the Dow. We understand that it was the fourth worst day in Dow history. Big things come in fours now it seems. The stocks were then joined in weakness by most every commodity sector as grains, energies, softs and metals went into mid week with significant losses. Only the stocks, it seems, were able to recover with any significance from their Monday losses. Most others continued lower. This description excludes the Treasuries, though, which continue to press higher as economies around the world post more and more dismal news. The Fed's beige book was released Wednesday and to really no surprise said that things continue to worsen. The stock indices sold off into the release but followed shortly thereafter by making new daily highs. We would have to say that that was a bit impressive. The market was unable to use the bad news as an excuse to produce another deep sell-off. The rally was attributed in part we hear, to comments from a well-known brokerage analyst the bottom was in. We would love for that to be, but are not ready to join that camp just yet. There is, in our opinion, a need for more evidence. And more patience. Monthly U.S. employment is due Friday morning and will likely bear market impact.
There is an old saying around here (seems like we've used this before) that "those that pick bottoms get smelly fingers." It applies too to picking tops. We have seen commodity products and stock prices suffer severely particularly over the course of the second half of this year. Treasuries, such as the T-Bonds and T-Notes have soared, particularly of late, to all time highs. Stepping in front of these types of runaway market freight trains can be murderous. We suggest that attempts at being a hero by picking the top or the bottom in any of these markets be avoided. Heroes die young. Patience is truly a virtue and we believe is at least one of the two most important aspects of success. The other being discipline. Patience will allow a trader to let the market actually do something that suggests a turn in direction has come. If right, there is very usually more than enough of a move to come to make a reasonable return. It seems to make sense to take action based upon an event that lends a higher degree of confidence to your market position. Its part of the trading plan and will often then provide parameters particularly for knowing where you would be wrong if your idea fails. Failed trades are common in the business of trading markets. We have heard it for many years that those that can accept losses stand a far better chance of long term success. From what we have observed we believe this is true.
Note: We are archiving the Traders Focus from here on so that those interested can follow more easily.
 Sugar - The March sugar contract exhibits a double top scenario with the operative highs of approximately 1580 and the low between the highs at 1242. Having closed below this provides a measured objective down to the area of 900. We like these formations and have found them useful and very tradable over the years. We would suggest establishing short positions particularly on rallies if the market allows. We also urge to be mindful of stop protection and keeping to something like 3 to 1 as a reward to risk ratio.
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 Feeder Cattle - The monthly chart of Feeder Cattle also exhibits a top formation that seems to have been confirmed as the price fell below the low of a rather long term trading range. There were multiple highs in the price range of 11870 to 11980 over the course of August 2004 and August 2007 using the monthly continuation data. The lowest low between these highs was 9210. Having now closed below the 9210 level allows us to state a suggested price objective over time down in the area of 6500. We believe short positions are warranted based on this event. Entries will depend on personal risk tolerance. It would seem at this time that a closing price for the March Feeder Cattle contract above 9310 or so would negate this trade idea. Rallies can be used to establish the shorts with this area of protection in mind or additional negative price action may be used to signal an entry point.
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Silver - Silver has remained in its trading range bound by 107750 and 85100 basis the March contract. We would like to amend our retracement resistance prices to approx 105800 (hit); 112200; 118650. Extension targets below the market that apply are approx. 81850 and 69500. These will be negated on a close above 1077.50 basis the March contract.
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Gold - Gold headed south with most everything else as we started the post Thanksgiving week and new month. Our view of the chart from last week fell short of potential. The trend remains down and we notice there is reason to expect good resistance in the area of 842 - 845 basis the February contract. We see 3 significant series of retracement resistance. Last week we had included the highest of the three series and noticed one typo. We shall include all three series this week. Some of these price levels have been hit on the way to last week's highs. They are approx.: 78320 (hit), 81290 (hit), 84260; 80600, 84250, 87900 and 82380(last week's typo), 86600; 90800.
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Euro Currency - We said a few weeks ago that a close above 12848 might ignite a signal to the upside with potential for 13320 but with some notable resistance in the area of 13100. It did close above the 12848 on November 24 but the upside so far has been capped at 13077. The low since that high has been all the way back to 12546 which was posted early on Thursday, December 4 the day we are writing this. It appears the euro is forging a broader pattern which will have chart resistance now near 13000 and support near 12400. We would like to revise slightly what we consider significant retracement resistance levels to approx.: 13285; 13585; 13885. We believe a close above the 13000 level should suggest continuation to the upside and a close below 12400 will suggest continuation to the downside. This coming Monday, December 8 will be roll over from December to March contracts in the currencies. We will switch to covering the March euro in our next edition.
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| Canadian Dollar- Last week we said, "A close above 8724 will trigger a double bottom confirmation buy signal (basis December contract). The measured objective would be in the 9750 area." Thus far there has been no cause for action. Interestingly, the rally highs made following the lows which constitute the possible double bottom mentioned have stopped just at the area of their respective .500 retracement resistance. These two prominent series are approx.: 8082(hit); 8204(hit); 8327 and 8464(hit); 8704(hit); 8944. Here too the roll over from the December to March contract will be Monday December 8 and we will be switching our coverage to the March contract in the next edition. |
 Chicago Wheat - The wheat has turned back downward in price since the start of this calendar week and with the new month. It is still bearish with extension targets in play of 447 and 412. The recent chart formation from which it has now broken down from has a near term price objective of approximately 475. We believe this market should continue lower and eventually find itself back to levels from which it started its march to 13.00 per bushel in February of 2008. That would put it in the lower 2.00 per bushel area.
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S&P 500 - The Thanksgiving week rally stopped shy of 900 at 89750 basis the December emini S&P. Monday following the holiday saw a tremendous drop where the Dow was said to suffer its fourth worst single day loss ever. There has been some recovery since the Monday low but the situation remains tenuous. This price action, though, may be nothing more than a bear flag and with the November unemployment report due on Friday morning. We actually do have some momentum indicators in what we call positive mode and there was a daily reversal made November 21 which remains intact. We also see the formation of a new downward sloping channel which has the high end around 945 at this time while the 50 day moving average happens to be approximately 940. The low end is down near 710 as we write and it is downwardly sloped. A breakout of either side of this channel would appear at this time to offer a reasonable trading opportunity. We shall reiterate the retracement resistance levels mentioned last week of approx.: 84070(hit); 87275(hit); 90450 and 863(hit); 902; 90450. These show a double number near the 900 level which add to its significance. Patience seems to make sense in any of the stock indices. That doesn't mean to ignore opportunity. Next Thursday December 11 is rollover from December to March contracts in the stock indices. We will begin covering the March in the next edition. |
Soybeans - Soybeans were not unlike many of the other commodities this week as the Thanksgiving week rally ended abruptly. We had set a close below 850 as a trigger point for extending downward but after only one close below that the March Soybeans rallied to a high of 90750 before turning back down to where they closed today at 81550. We show extension targets now of approx. 750 and 698 being active.
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 Bonds / Notes - We said last week that, "a new high close in the March T-Bonds will activate target levels of approx.: 131-10.0 and 133-01.0." As we write today March T-Bonds are trading above 134-00.0. These are unprecedented prices we are seeing. We see another count to approximately 136-00.0 and other than that there is a long term channel on the monthly continuation chart which shows the high end of that currently being more like 136-16.0. And it is upward sloping. Patience is urged if considering that these prices are too high and short positions are warranted. We will await further developments before making that attempt. If still long from the double bottom confirmation, we strongly suggest moving stop protection upward.
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Coffee - The March Coffee contract closed below the 11000 stop protection level at 10615 today as so many commodities came under pressure. Extension targets of 10355 and 9935 are now active.
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|  Crude Oil - Last week we revised our active extension targets for the January crude oil contract to approx. 4295 and 3665. The low so far and which has been made just today, has been 4336. We also believe the 3665 lines up with a price objective of a H&S type pattern on the daily chart. |
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