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Author: JsnStein Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 113  
Subject: Market Summary 6-30-06 Date: 7/2/2006 1:14 PM
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This is late because I was away on business on Friday and Saturday.

Currencies

The dollar got hit at the end of the week. My previous short dollar plays, the British Pound and Japanese Yen, still look quite technically weak. Most of the strength is coming from the Euro. Because the U.S. Dollar Index is weighted over 50% to the Euro a short Dollar Index or long Euro would be valid. But there doesn't appear to be any solid, tradable patterns. A small inclining wedge pattern developed in the Dollar Index that could be played. Also momentum is turning up in the Euro. Both weak signals that I am inclined to pass up. However, because of my fundamentally bearish stance on the U.S. Dollar I will potentially look to take a small short Dollar Index position using tight stops after the holiday.

The Canadian Dollar is still trading in its channel, I am watching for a break either higher or lower.


Energy

Crude broke above its declining trendline but all other indications are not supporting the break. Momentum is low and the other energy markets are not breaking out. I can't see any tradable patterns emerging.


Grains

With Corn's break of uptrend support 2 weeks ago I am still looking for a place to get short. On Friday corn had upward spike, which may be setting up a good place to get short. I would look to short December corn around its 50-day MA, in the mid to upper 60's.

Soybean oil looks to be the market to watch for an upside break. It appears to be on the cusp of making a new 52-week high, momentum also turned up. However, December oil closed well off it's high and the overall lackluster performance in the bean complex does not elicit much excitement for the bull case.

I would be remiss not to mention oats after mentioning soybean oil. Oats is breaking out to new highs too, but it is up against multi-year highs. I wouldn't consider a long unless it could clear those highs. Those highs were made in 2001 – 2002 at around 220 – 240.


Interest Rates

I'm still bearish. However, the market's manic response to the Fed is getting a little tiresome and being able to see past all the drivel is difficult. I am also watching long-term trend indicators flattening out which could make the case for some short-term strength. However, playing any short-term strength would be stupid as the trend is solidly down. I am still watching for a good short entry although consolidation looks like it is most likely in the near-term.


Meats

These markets are still in bull mode. In my view, any longs would simply be chasing the market so I am just watching.


Metals

Even with the strong move higher on Friday, momentum is still pointing down, albeit turning. This move higher looks to me to be more of a lack of selling rather than buying. Because the long-term trend is still higher I am wary of the short side but warming up to it. The move in gold was the most impressive as it definitively outpaced the strength in copper, which I have viewed to be the strongest metal up until now. Silver was predictably the weakest.


Softs

I am still watching Sugar #11 for a place to re-short it. Now looks like an opportune time with the market stalling at heavy resistance but short-term momentum is still solidly higher so I am biding my time.

I am still long September OJ. The market has simply stalled this week. I moved my stops up to a break even and will wait. If the market breaks lower I will be out, if it breaks higher I may add a little to my long position if the break is strong. The fact that every jab lower meets with buying almost immediately is heartening.

I entered a small short position in Cotton #2. I expected the market to consolidate the spike downward so I also placed an order to short a little more above the market, bringing me up to a full position. That order still hasn't been hit. My main impetus for the short is a break of a long trendline drawn from the low in 2001 on a continuous chart, so I am playing with fairly wide stops.

Cocoa did indeed break out to the upside. There looks to be solid support at the 1600 level in Sept Cocoa. However, there is also layered resistance through the 1650 – 1850 levels as well. I am looking to buy this market. I will buy as the market fights through the layered resistance overhead and liquidate if support doesn't hold or the market fails to keep pushing through resistance.

Lumber is still resting on a long-term uptrend support. Coffee looks like it is in an oversold bounce with heavy resistance at around 105.


Indexes (Stock Markets)

I am still solidly bearish and volatility still remains high. The Nasdaq is the market I continue to watch for a short. With the 50-day MA just above this market and the 200-day MA not far away the bulls will have to push the markets through these levels to take control and keep it. If the market continues to be unable to provide any significant follow-through to the 200 point rally on Thursday I will be actively looking for a place to get short next week. Holidays tend to bring low volume and the potential for quick moves, especially bullish moves so I will probably wait until after the holidays before doing anything.

Nothing has changed in the Nikki 225. It still appears like it is tracing out a bear flag, which I will watch for a break lower. The 50-day and 200-day MA's as well as chart resistance are just above this market providing heavy resistance to any upside moves. However, a clean break higher through those levels would negate all the bearish arguments. I don't see this likely so I will continue to look at the short. Fundamentally I am more bullish on Japan than I am on the U.S. so if I short the Nasdaq I will probably forgo a short on the Nikki due to the correlation of these markets.


Notes

After looking at last week's post I thought I needed to clarify the “Open Positions”, “Potential Trades” and “Liquidated” sections below because I am not proposing a specific trading plan. “Open Positions” are markets that I am currently trading. I feel this is important for anyone to judge how credible I am. Also because of the nuanced nature of technical analysis this shows the markets where I do believe in the potential for a move as this is where I am actively risking money. Every position I hold I will list here. The same with the “Liquidated” section, every position I liquidate I will list here. It is possible for something to appear in the “Liquidated” section that never appeared in the “Open Positions” section if I enter and exit a trade in the same week.

It is also important to note that I expect up to 50% of my trades to end with a break-even to loss. As long as I let my profitable trades run I can make a nice return while only being 50% accurate. I use stops in every market I trade. I have not advanced to the point in my trading where I can use “soft” or mental stops so every stop is a “hard” stop, an actual order placed with my broker. That raises the risk of being stopped out of a trade that turns out to be profitable. But I accept that risk because the risk (and loss) of riding a losing trade is much higher. Also, some markets trade 24 hours a day. I can't watch them 24 hours a day so I don't feel comfortable without a hard stop as the market can run quite far while I am not watching.

I use the market's average true range to set stops. So I will include the market's average true range with all my open positions. It can be assumed that my stops are between 2x – 3x the average true range from the recent high or low. Although I will sometimes move the stops a little closer or a little further based on the market action and the risks, never less than 1x or more than 4x.

The “Potential Trades” section is everything I could potentially see myself entering a trade in during the next week. Generally I won't take most of the trades here. That may be because the technical or fundamental conditions change, because the market didn't complete the chart pattern that I was looking for it to form, or because I simply couldn't find a low risk entry point. I see the potential trades I list being used (or not used) simply as an idea generator and to summarize what I am actively looking at.


Open Positions (with average true range)
Long Sept OJ, (3.2)
Short Dec Cotton #2, (0.95)


Potential Trades
Long Sept Euro
Short Sept US Dollar Index
Sept Canadian Dollar
Short Dec Corn
Short Sept 10-yr Treasury Notes
Short Sugar #11
Long Sept Cocoa
Short Sept Nasdaq
Short Sept Nikki 225


Liquidated


Jason
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