I received a flood of emails this week for title suggestions for the new support and resistance manual that I will be releasing shortly. Thank you to all who took the time to write me with your suggestions. You sent me some really great titles to choose from. You’re so much better at this than I am. ;-)

If you haven’t sent me your suggestion yet, or you have thought of a few more, by all means send it along. Don’t be shy! If I choose your title for the manual you will get a copy of the course for free. Now how can you beat a deal like that?

The manual is all about support and resistance trading, in particular how to find it and what to do with it once you’ve identified it. Go ahead; give it your best shot. You can email me your suggestion at ErichTHT@hotmail.com.

This week is M-day. Yup, the M stands for moving (yuck!).

I will be in “blackout” from around Wednesday until Friday or Saturday, so if you send me a trading question or similar email and I don’t respond immediately (I usually let you know I’ve got your email; however I did not respond to all the title suggestions) you will know why.

Please don’t let this stop you from sending in your questions however, I love the correspondence…really. So if there’s something about trading that has been bugging you, or you just want my thoughts on a particular market, etc, send them along. I might be a little later getting back to you than usual, but I will get you an answer.

You might want to take a moment and check out some of the links at the site as well (www.tradershelpingtraders.net). There are chart downloads available so that you don’t have to recreate the charts you see here. You can use the same charts I use, complete with my notes and various scribblings.

You will need Gecko’s Track ‘n Trade software to open the charts however. If you don’t use Track ‘n Trade you should…seriously. It is perhaps the best charting software available for the commodity markets. You can get a FREE trial version by following this link. Check it out.

There is also an audio commentary available for those of you who are tired of reading, or just want to hear the pleasant melody of my voice (yeah, right!)

There are a couple of more goodies in the works that we should have available after this week, but for now I’ve got to get back to packing boxes.

Enjoy this week’s issue.

• Exchange: CBOT
• FND: 6/30/03
• LTD: 7/14/03
• Options Expire: 6/20/03
• Contract Size: 5000 bushels
• Point Value: 1 ct = $50

Corn responded as hoped last week as prices declined towards support at 241 ¼. The market finished the week on support at 242 and while everyone is looking for prices to rally soon it is not entirely clear if the pull back is completed.

Corn has also completed a classic head and shoulders bottom, which is normally a very reliable reversal pattern. As is characteristic of the head and shoulders formation, the market is testing the breakout by pulling back before heading higher.

This Week:

I am pretty confident that we will see the support at 241 ¼ hold this week. Look for prices to rally and head to the short term target at 262.

The plan for this week is the same as for last: enter the market above Friday’s high with stops below support at 241 ¼. This would have approximately $175 at risk with a potential reward of $875 as the market approaches 262, or a 5:1 risk/reward ratio.

These trades don’t come along every day so you might want to take advantage of it with either a futures or option position. While the market could continue to be choppy as it advances, it looks like the bulls are going to have a run at prices real soon.

262 is just shy of the daily 50% level, so we should expect the market to react here. Once safely above the 262 resistance however look for 270 to be the next target.

Click here for the Market Minutes Audio Commentary on Corn

• Exchange: NYBOT
• FND: 6/24/03
• LTD: 7/09/03
• Options Expire: 6/13/03
• Contract Size: 50,000 lbs
• Point Value: 1 point = $5

Any bullishness that cotton exhibited the week before fizzled last week as the market did not do a whole lot of anything. Prices ranged for most of the week as volume and open interest evaporated.

While traders are waiting on the sidelines for news to determine where prices are heading next, we can use the resulting narrow channel to bracket for this week.

This Week:

The top and bottom parameters of the channel are at 5375 and 5300 and while a breakout to the upside is a definite possibility I would much prefer to see the market break the support at 5300.

Many times if there is no news driving prices higher it is not unusual to see prices fall simply from a lack of interest. This is what might happen in cotton this week. Breaking the floor at 5300 will require some momentum, which should propel prices lower to support at 5000.

We might expect the market to react off the support at this level before heading lower. As prices continue to decline expect to see a test of the significant daily and weekly support at 4800.

Should the market rally this week don’t expect prices to get too high. The first stop would be the obvious resistance at 5540 which served to turn the market around a couple of weeks ago. Even if prices did break through 5540, I would not expect them to make it to the resistance at the bottom of the gap at 5680 before reversing again.

Whichever way the market goes the small channel gives a reasonable risk/reward ratio for a bullish and bearish trade.

Click here for the Market Minutes Audio Commentary on Cotton

• Exchange: CBOT
• FND: 6/30/03
• LTD: 7/14/03
• Options Expire: 5/23/03
• Contract Size: 5000 bushels
• Point Value: 1 cent = $50

Except for making a larger range than expected last Tuesday, beans are behaving themselves pretty well…so far. While the long term outlook for beans remains extremely bullish, in the near term expect prices to continue lower.

This Week:

If you are not short this market already it is not necessarily too late.

Entering below the low of last week of 622 ½ with stops above Friday’s high would have approximately $425 at risk with a potential reward of nearly $800 as the market approaches significant support at 606. This is not quite a 2:1 risk/reward; however you can tighten your exit stops by trailing them above the previous day’s high as the market heads lower.

Another alternative is to wait for the completion of the pullback to enter a long position. Look for the market to find support as it approaches 606. With stops just above the gap at 594 you would have approximately $500 at risk per contract.

The upside for this trade is huge however as the next target is the long term resistance at 672, for a potential profit of $3300. Even if the market stalled out at the current contract highs, this trade could still yield approximately $2500, depending on your entry and exit. Either way you are still looking at a 5+:1 risk/reward ratio which is very enticing.

Click here for the Market Minutes Audio Commentary on Soybeans

• Exchange: CME
• FND: 6/9/03
• LTD: 6/30/03
• Options Expire: 6/6/03
• Contract Size: 40,000 lbs
• Point Value: 1 point = $4

Wow! What a week for cattle! Between Mad Cow scares and other fundamental pressures prices took a big tumble the middle of last week. It looks as though the bullish rally that had sustained the market for the last couple of months will not be able to support prices and longer and lower prices should follow this week.

This Week:

A break below Friday’s low of 7330 should see prices continue to the support at 7200. With stops placed above the highs at 7385 you could have a nice little $250 risk to $530 reward trade.

Ideally I would like to see prices rally ever so slightly, just enough to get near the current highs but not so high as to take out the resistance at 7420. A short order in this neighbourhood would have a very small $150 risk for a very respectable $760 reward if the market should fall to the 7200 support.

That seems fairly certain however, as the immediate future for cattle appear to be lower prices. Once through 7200 support there is more support at 7145 and of course 7100, but the next downside target looks to be 7040.

Click here for the Market Minutes Audio Commentary on Cattle

• Exchange: NYBOT
• FND: 6/17/03
• LTD: 7/16/03
• Options Expire: 6/6/03
• Contract Size: 10 metric tons
• Point Value: 1 point = $10

Cocoa stubbornly refused to give us a pullback last week so that we could short it again. Rather the market went straight to our support and even exceeded it by retracing to the monthly 50% level before stopping. It wasn’t supposed to do that until this week! ;-)

This Week:

Now that cocoa has found some support look for a short term rally next week. If the market can exceed Friday’s high, look for prices to rally to 1800. Entering above Friday’s high, with stops below the low would have approximately $500 at risk with just over $1000 reward if you exit before 1800.

If the market does not halt at the 1800 resistance, look for the rally to continue to daily and long term resistance around 1895 – 1900. This should be the extent of any bullish rally however as it is unlikely that the current market has the ability to exceed this resistance.

If you decide to take advantage of this counter trend trade do not be too greedy however, as the overall trend for the market is still down. Look for signals that the market is faltering at 1800 for an opportunity to short from here.

Long term downside target appears to be weekly support at 1500.

Click here for the Market Minutes Audio Commentary on Cocoa

• Exchange: NYBOT
• FND: 7/1/03
• LTD: 6/30/03
• Options Expire: 6/13/03
• Contract Size: 112,000 lbs
• Point Value: 1 point = $11.20

The sugar trade worked out very nicely last week as the market continued building on the emerging bull trend. Prices broke through our 725 resistance area and stalled on the next resistance at 730 before resuming the trend at the end of the week. Higher prices look to be in the forecast for both the short term and long term.

This Week:

Sugar prices should continue to rally to the next resistance at 750. If you are not currently long this market you might want to wait until prices get past 750 as we could see the market pause here momentarily.

While there might be a minor pullback from here I would expect the abundance of support at 740 and 725 to keep prices from going too low.

790 is the next upside target as prices continue higher. There is a fair amount of resistance here on the weekly charts as well which will probably lead to a reaction from the market.

Very long term outlook for sugar is bullish with a possible target of 900. Now wouldn’t that be sweet!

Click here for the Market Minutes Audio Commentary on Sugar

• Exchange: CME
• FND: 6/16/03
• LTD: 6/16/03
• Options Expire: 6/6/03
• Contract Size: 125,000 SF
• Point Value: 1 point = $12.50

The Franc has a reputation for being an excellent trending market as has been evidenced over the past few months; however it appears that the market may be in for a reversal as the market approaches significant long term resistance.

This Week:

The market is beginning to flinch as it is approaching the long term resistance at 7833. Last week saw the Franc build mild resistance on the current contract highs of 7796. While it could be risky, there could be an opportunity to short the market above the current highs with stops above the weekly resistance. This would have approximately $500 at risk.

Given the large ranges that the Franc is capable of, you would not need a large move to be profitable. Even if the market retested the current support lows at 7677, that would have a profit potential of over $1400, or almost 3:1 risk/reward.

Once the Franc begins reversing however it should go further than that. A short term target would be support at 7575 with a potential profit of over $2700, or better than 5:1 risk/reward.

Long term downside target would be support at 7420.

Click here for the Market Minutes Audio Commentary on the Swiss Franc

• Exchange: COMEX
• FND: 6/30/03
• LTD: 7/29/03
• Options Expire: 6/25/03
• Contract Size: 5000 Troy oz
• Point Value: 1 cent = $50

Silver prices continued to slide last week all the way to the 50% retracement of the uptrend. Now that the market is here however, it is showing some signs of support which might cause a slight rally next week.

This Week:

While prices might rally some next week the real potential seems to be by waiting for a position on the short side.

A long position above Friday’s highs would not offer enough potential reward before the market encountered resistance at 477; however establishing a short position around 477 with stops above resistance at 481.50 could give you a nice little trade with only $250 at risk if it does not work out.

The downside target for the short trade is support at 456, or a potential profit of $1000. A solid 4:1 risk/reward trade.

As the market is in a bit of transition phase we could probably expect another bounce in prices off 456 before the downtrend resumes. Possible downside target is support at 445.

Click here for the Market Minutes Audio Commentary on Silver

The other contract is still open and I would expect the market to reach the second target at 744 early this week. I have also moved the remaining stop loss order below the support of last week, at 706. If the market can get this low, then it will probably continue lower and we want out.

I am expecting a possible correction around 750 which is the primary reason for exiting the market at 744. It is possible that the market will continue higher, but we’ll have to see what happens at 750 first. If the market merely stalls like it did last week, then I would be inclined to place another long order above the highs as the market should ride a long breakout to resistance at 790.

For the meantime however we will plan on exiting at 744.

If we exit our sugar position early next week, I might switch markets and focus on the July Bean contract instead. I fully expect the market to retreat to support at 606 before heading higher from there. This trade has excellent potential for a long position around this price.

I would plan on entering the market just slightly above the 606 support, which I would expect to hold. Ideally stops should go below support at the top of the gap around 594; however this would leave too much at risk for our small account.

A more comfortable hiding spot, dollar-wise, would be below the mild support at 598. This would leave about $400 at risk and still allow the market a little breathing room. After all, if the market breaches the support at 606 by more than 6 cents then we do not need to wait until 594 to know we do not want to be in this market at this time.

It is a bit of a high risk trade; however the upside potential is huge. There could be some resistance around 633 as the market advances so I would probably bank profits there and wait for the first pullback to re-enter a long position.

If we exit the sugar position:

July Soybeans

• Entry: 606 ¼
• Exit: 597 ¾
• Risk: 8 ½ cents, $425
• Profit Target: 633
• Potential Profit: $1325
• Risk/Reward Ratio: 3:1
• Degree of Risk: Moderate to High

This post is neither a solicitation to trade nor a recommendation of any strategy. Always consult your broker or advisor before attempting any trade. Commodity trading involves substantial risk of loss.

This post is neither a solicitation to trade nor a recommendation of any strategy. Always consult your broker or advisor before attempting any trade. Commodity trading involves substantial risk of loss.

Question:
I have heard that triangles and pennants can offer some of the most reliable trading formations on the charts, is this true?

Answer:
Yes, it is true. Triangles, pennants and channels are some of the most predictable trading formations around and they occur in all markets.

Like most graphical trading formations, triangles, pennants and channels are really in the eye of the beholder; however I like to see these formations reasonably tight, both in terms of formation and time frame. If the formation is too sloppy then the market may not react predictably once it breaks out.

Triangles are largest of the three formations and are the product of intersecting trendlines. Triangles can be ascending, descending or asymmetrical. Triangles can also form on an angle in which case they are known as wedges.

A perfect triangle would have three hits on each of the trendlines that form the triangle, both the upper trendline and the lower. The formation will preferably be at least a month to three months in duration and the market should make its breakout about 2/3’s of the way through the triangle. If the market trades all the way to the tip of the triangle then the formation probably was not a true triangle and the breakout should be suspect until it proves itself.

Pennants are the result of a consolidation of trading activity into smaller and smaller ranges. A pennant will normally begin with a rather long trading bar with each subsequent bar being smaller than the previous one. As the formation forms it begins to look like a pennant flag; hence the name.

A perfect pennant would have a long "mast" on the left side of the formation with the days following the mast trading in a progressively tighter range until the eventual breakout. Ideally such a formation will be a minimum of a week in duration, preferably longer.

Channels are smallish ranges of trading activity with similar highs and lows for the duration of the channel. There are no hard and fast rules for determining whether the width of the channel is too wide to be considered a channel or not. Generally speaking, if it looks like a channel to you then it probably is one. Channels, like pennants, should be about a week in duration with longer channels behaving more predictably than shorter channels.

Keep on eye on the markets as they get closer to important report dates. If traders are not sure about what information the report might hold or how it will affect the market, this could cause the market to consolidate and form some dandy triangles, pennants and channels.

Erich