Well it is three weeks this weekend that we moved from our home in Victoria. As you might remember we listed our home and sold it rather quickly. The end result is that we did not have time to find another place to live; therefore we decided to put everything into storage and move into our ski condo on Mt. Washington until it sold and then move back to Victoria. Well we put almost everything into storage.

The problem with a partial move is planning what things you need and what things you can do without. And no matter how well you plan it seems you always end up packing something you needed and bringing something you didn’t.

For some strange reason I seemed to have packed a packing tape dispenser and an extra telephone; however my wife’s shoes are no where to be seen. We attempted to find her shoes at the storage locker, but everything is packed so tight I don’t dare take anything out for fear of not being able to fit it back in again.

We’re slowly settling into our new surroundings however.

It’s very beautiful on Mt. Washington. I much prefer the summers here to the winters. The only problem with living on a ski resort is that there’s still snow on the ground, and it’s already June! But what do you expect at 5000 feet above sea level?

The weather is warm however; warm enough for shorts and a tee shirt, but there is just something a little peculiar about wearing short pants and seeing snow. The snow is melting away quick quickly with the warmer days and is producing several creeks and streams and even the odd miniature waterfall throughout the village.

While Mt. Washington is a very popular resort in the winter it is quite desolate in the summer, which is fine with me. While the resort encompasses about 1500 acres and there are less than 20 full time residents. Naturally we all know each other.

We met some new neighbours the other day though. My wife and I were on our way to town (about 20 minute drive) when we saw a young black bear cub about two years old. Mt. Washington ski resort borders on a Provincial Park and it is not uncommon to see the odd bear or deer. Apparently there are mountain lions around as well, but in all the time I have spent on the mountain I have yet to see one of those.

You normally only see the bears in the spring as they forage through the village in search of garbage that might have been buried over the winter and is now exposed. To help prevent problems the ski resort normally organizes a big spring clean up and BBQ. There is rarely a problem however, as the animals are usually timid around humans and keep their distance. If a bear ever did become a nuisance the Parks Officers are usually pretty quick about *relocating* the offender.

It’s a nice change from the city though, almost like being on vacation. I was out walking the dog late last night and marvelled at all the stars. I had almost forgotten what they looked like.

Hope you enjoy this week’s issue.

Erich

• Exchange: CBOT
• FND 11/28/03
• LTD 12/12/03
• Option Expire 11/21/03
• Contract Size: 5000 bushels
• Point Value: 1 ct = $50

Corn continues to be difficult to call. About the middle of last week the market showed signs of turning bullish; however as it turns out it was just another false start. Good growing weather continues to pressure prices downward; however prices have thrashed about more than they have come down.

The result is that the market has formed a sideways triangle, the larger cousin of the short term pennant, and is poised to move either way.

This Week:

As with last week’s analysis I would not commit to a bullish position in corn until the market can prove that it can get above the resistance at 248. Time is running out for the bulls however, as the crop is almost *made* and out of danger as far as weather scares are concerned. This makes me think that we may see lower prices next week instead of higher ones.

There is a mountain of support just below the current lows at 237 – 237 ½. If the market can muster enough strength to break through here then I would think you will see a lot of bulls abandon their positions as the market makes its way to daily support at 231 ¼ and long term support at 228.

Those of you who are following the Support and Resistance trading manual will also notice that the market has formed a triangle on the RSI indicator, but has already broken the lower boundary of the formation (page 69). This also suggests that the bears could have the upper hand this week and maybe into the near future as well.

If prices do come down look to 228 as the first short term target, but be aware that the support at 231 could cause some problems. If the market manages to trade this low the long term target for corn could become the weekly support at 215.

Click here for the Market Minutes Audio Commentary on Corn

• Exchange: NYBOT
• FND 11/20/03
• LTD 12/08/03
• Option Expire 11/07/03
• Contract Size: 50,000 lbs
• Point Value: 1 point = $5

Cotton is another market that is in transition and continued to thrash about last week. If you were trading this market last week you might have been whipsawed as the market briefly broke support only to rebound the next session.

In spite of the wild price swings of last week however, the market has been unable to close below the 5876 support level, so if you used the closing price as your cue to enter the market you are still safe.

This Week:

I still like cotton short, but it is unclear as to whether or not the market is ready to come down or if prices will continue higher to re-test the resistance at 6095. Seasonally speaking we could expect bearish prices for another two or three weeks before things could turn bullish again.

A risky, low risk trade would be to expect the fair amount of resistance just above the market at 5955 – 5960 to hold prices down and initiate the downtrend. Placing stops above here and entering short below Friday’s close of 5916 could get you into the market for as little as $250 risk exposure.

The first downside target would be support at 5710 which would yield a potential profit of approximately $1000, or a 4:1 risk/reward ratio. The alternate target would be support at 5650 which could mean another $300 in profit.

This is a very risky trade however, and not for the faint of heart or light of trading account, as there is a real possibility that the market could try to go higher before heading lower.

If the market does continue higher, look for potential shorting opportunities as the market re-approaches the resistance at 6095.

Click here for the Market Minutes Audio Commentary on Cotton

• Exchange: CBOT
• FND 10/31/03
• LTD 11/14/03
• Option Expire 9/26/03
• Contract Size: 5000 bushels
• Point Value: 1 cent = $50

Last week we were looking for beans to fall through the 552 support and possibly challenge the support at 539 ½ as well. As it turns out beans rallied instead; however this week it appears that our plan might have a better chance of success and a better profit potential as well.

This Week:

During last week’s rally the market formed a fair amount of resistance around 576 – 578. While this is technically not close enough in price to be considered solid resistance, the low closing price on Friday hints of things to come.

A break below Friday’s low should see prices continue lower, hopefully all the way to daily and weekly support at 539; however there is an obstacle in the form of support at 552.

The proper way to formulate this trade is to enter short below Friday’s low (567) with stops above the mild resistance on Friday’s high (576). This would have approximately $475 at risk. If the market did not get any lower than support at 552 – 553 this would yield a possible profit of about $750, or a little better than 1 ½:1.

While it is tempting to place a tighter stop loss order to sweeten the risk/reward ratio, in this particular instance I would advise against it. Soybeans can be a very volatile market and placing too tight of a stop only serves to whipsaw and waste your money. If you feel you absolutely must have a tighter stop I would not place it any lower than 572.

A better scenario is to accept the initial risk but to use a different profit target.

Looking at the weekly chart shows the market in a decline and in a position to test the lower boundary of the bullish trendline. There is some support in this area around 600, which when adjusted to properly reflect November prices, would translate to 539 ½ on the daily chart.

This is also close to the 62% retracement level of the recent trend and a reasonable target for the short term.

Using the support at 539 ½ as a new profit target would give a potential reward of just over $1300 or a 2 ¾:1 risk/reward ratio. While still not ideal, it is more acceptable.

If the short order is engaged you may want to consider tightening stops to breakeven (entry + commissions) the day after the order is filled. This way you still allow the market room to move without having as much at stake.

Click here for the Market Minutes Audio Commentary on Soybeans

• Exchange: CME
• FND 08/04/03
• LTD 08/29/03
• Option Expire 08/01/03
• Contract Size: 40,000 lbs
• Point Value: 1 point = $4

In spite of still being extremely volatile, cattle are behaving themselves reasonably well. The market spent most of last week building a base on the support at 6700. There are at least 5 hits at this level from the last week and while none of them is exact it is nonetheless substantial.

We didn’t get the bullish pullback we were looking for last week, although I think we could see one this week.

This Week:

There are a couple of factors that make me believe we will see higher prices this week.

First off open interest has been falling along with prices. This suggests that there is no new buying to accompany the downtrend. While increasing open interest is not as vital to a bear trend as it is to a bull trend it does nevertheless show a possible weakness in the current trend.

Secondly the market is at a seasonally low time of the year. During the summer month’s cattle are able to graze for “free” on pasture land. As a result if cattle prices are too low ranchers simply let the herd graze a little longer before taking them to market. This ability to control supply usually helps support prices.

On a more technical level, the weekly chart shows the market trading right at the 50% retracement level. The market has made a rather quick decline to get here so it might be reasonable to expect it to bounce.

And lastly, RSI shows the market emerging out of the oversold area after breaking the bearish RSI trendline. When this happens it is common to see prices post some sort of rally.

All of the above make me a cautious bull. I say cautious because the market is still technically in a downtrend and it is possible that the market will fall through the floor of current support; but right now it looks like higher prices are a better bet.

The first upside target would be the resistance at 6880. There is some resistance just before this target at 6850 which might cause some problems, but the more recent resistance is at 6880 so I’ll go with that for now.

Right now this is a counter-trend trade so I would be inclined not to push it too hard. Since entering above the resistance associated with the support would not allow enough profit potential before encountering the 6880 target, you could average the closing prices of the recent range to find an approximate entry point.

Averaging the closing prices of the last 7 sessions will give you an entry near 6736. With stops below the support you would have about $150 at risk and a potential profit of $560, or a 3:1 risk/reward.

As I mentioned however, the market is in a downtrend; therefore it might be advisable to place an entry below support as well, just in case the floor does not hold. Using the 5 day moving average as a stop loss target if the short order is engaged and trading the market down to support at 6560 yields the exact same risk/reward numbers as the long scenario, but to the short side.

Click here for the Market Minutes Audio Commentary on Cattle

• Exchange: NYBOT
• FND 08/18/03
• LTD 09/15/03
• Option Expire 08/01/03
• Contract Size: 10 metric tons
• Point Value: 1 point = $10

Cocoa responded nicely by honouring the support that had formed at 1450 over the last couple of weeks before continuing higher. The market got as high as resistance at 1595 before falling off slightly last week. Hopefully those of you who were long cocoa at that time either saw the resistance yourselves or got the Market Alert that was sent out last Wednesday calling this to your attention.

This Week:

Cocoa looks as though it should continue the bullish rally for the time being. While it is possible to re-establish a long position above Friday’s high, I would be inclined to wait until the market pokes through the substantial resistance at 1595 – 1600.

You could still initiate a low risk trade at this point by using the resistance at 1555 – 1560 as a support level to hide your stops. This would have approximately $400 at risk.

The short term target for the trade would be resistance at 1670. The market will likely become oversold by the time it gets here, so look for a bounce off this resistance level.

The profit potential for the trade is $700, which does not quite give us a 2:1 risk/reward ratio; however if you decided to carry out this trade you could tighten your stops the next day to reflect a more suitable ratio.

Remember the key to this trade is to see the market trading above 1600 before committing to a position.

Click here for the Market Minutes Audio Commentary on Cocoa

• Exchange: NYBOT
• FND 10/01/03
• LTD 9/30/03
• Option Expire 9/12/03
• Contract Size: 112,000 lbs
• Point Value: 1 point = $11.20

Sugar finally looks as though it has found its bottom and higher prices may continue this week as well. After breaking through the resistance at 641, the market once more returned to support at 626 before turning again and heading higher.

This Week:

Now that the market is looking more bullish it appears that the first target will be resistance at 675. You could expect the market to bounce here so it might be a good place to exit with profits or tighten stops; however it should not be enough to turn the market bearish again.

On the contrary look for a rebound off 675 as an opportunity to buy into the market again, after it finds support.

Immediate short term target for the bulls is resistance at 684; however the long term seems to have much better potential than that.

Above 684 the market will continue to resistance at 720, which is also a significant resistance level on the weekly charts.

Monday may see a slight dip in prices which could allow you to enter the market long above the 641 resistance with stops below the 625 support, or a risk exposure of approximately $160.

Trading the market back to resistance at 675 would yield about $380 profit (2:1 risk/reward) whereas using 684 as a target would earn about $480 profit (3:1 risk/reward).

Click here for the Market Minutes Audio Commentary on Sugar

• Exchange: CME
• FND 09/15/03
• LTD 09/15/03
• Option Expire 09/05/03
• Contract Size: 125,000 SF
• Point Value: 1 point = $12.50

The bearish trend in the Franc continued last week as expected. The market even managed to retrace to the 50% level of the recent uptrend before finding mild support around 7480.

The strengthening US economy is causing many of the foreign currencies to top out and begin declining and there is no reason to assume that this week should be any different.

This Week:

We could see prices rally slightly this week as the market reacts to the support at 7480 – 7490 and the 50% level. I would not expect prices to rally too far at this time however and would think that resistance at 7650 might serve to keep prices down.

Look for opportunities to short the market from here if it manages to test the resistance level.

Once the market is below the 7480 support look for prices decline to support found at 7430. This is not the final stop for the falling market however, as weekly support at 7400 looks like a more likely target at this time.

The large ranges the market has been making makes it difficult to put together a reasonable risk trade by entering on a breach below 7480. The best plan would be to hope for a test of the 7650 resistance which would allow you to enter near here with stops above the resistance.

Risk exposure would depend on your entry, but entering above Friday’s high of 7622 with stops above 7650 seems like a reasonable plan. Structuring the trade this way would have about $425 at risk, with a potential profit of $2375 if the market traded back to the first support target of 7430, or a 5 ½:1 risk/reward ratio.

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

• Exchange: COMEX
• FND 11/28/03
• LTD 12/29/03
• Option Expire 11/24/03
• Contract Size: 5000 Troy oz
• Point Value: 1 cent = $50

A couple of weeks ago silver was looking quite bullish and it appeared that the market might try to post another rally. At the time we identified the resistance at 470 as a possible stumbling block and now this seems to be the case.

The market has retreated from the 470 resistance and does not seem to be in a position to continue the rally at this point in time; therefore we will likely see silver prices continue to slip into this week.

The question then is how best to trade the market at this time. There are two possible scenarios which could work.

This Week:

A break below Thursday’s low of 454.50 would confirm that lower prices should continue. The likely short term target for the falling prices would be daily support at 441, a profit potential of $685.

By placing a stop loss order above the 5 day moving average you could have about $200 at risk. This would provide you with slightly better than a 3:1 risk/reward ratio.

Keep in mind however, that while placing the stops within Friday’s range will help minimize the risk exposure, it also raises the possibility of being whipsawed even though you are making the market come to you before entering a position.

An alternative strategy is to use the resistance at 462 as a hiding spot for your stop loss order and enter the market below the 5 day moving average, probably somewhere around 457. This plan is a little riskier than the previous scenario since you are entering the market before it proves it can surpass the 454.50 resistance; however the upside is a greater profit potential.

Still using 441 as a profit target would have a potential profit of $825. With stops above the 462 resistance you would have about $230 at risk for a tempting 3 ½:1 risk/reward.

One trade scenario is not really better than the other. If you choose to trade this market you can follow the plan which is more comfortable to you.

Click here for the Market Minutes Audio Commentary on Silver

Unfortunately for me, I entered on a breach of support and ended up getting whipped.
:-(  Oh well, it happens. The important thing is to recognize when the market is not acting as you hoped it would and exit as quickly as possible…which is what I did.

While I still like cotton short, it is acting a little too unpredictably for me at this point so I’ll look elsewhere for a market this week.

Actually, many of the markets are in transition stages which could make trading difficult; however I think we will try a trade with the Swiss Franc this week.

This trade will require a little more risk exposure than I like to do with a small account, but the potential reward is very tempting. The market will need to come to us a little before engaging the short order so it may not get filled at all, but we’ll see what happens.

• Entry: Short 7622
• Stop Loss Exit: 7656
• Risk Exposure: $425
• Profit Target: 7438
• Potential Profit: $2300
• Risk/Reward Ratio: 5:1
• Degree of Risk: 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.

Week's Question:
What do you think about electronic trading and can you recommend a good brokerage?

Answer:
Electronic trading, where you place your own orders through the computer, has its fans but I’m afraid I’m not one of them.

For some traders, like day traders, electronic trading has enabled them to get better fills and exits and is an essential part of their trading style. For other traders, like the short term position trader, electronic trading is like playing with fire.

The problem I have with electronic trading is an overwhelming fear of placing a wrong order. You know, placing an order to go long when I actually wanted to go short, or having an open position but not having a stop loss in place, etc.

Sure electronic trading is cheaper and those commissions from dealing directly with a broker can add up, but in my mind the savings are not enough to offset the losses that could be incurred by placing an incorrect order. Heck, I screw up the orders when I’m playing with Track ‘n Trade Pro’s buy/sell features and that doesn’t cost any real money!

I’ve heard too many horror stories about traders wiping out their accounts in a single afternoon as a result of electronic trading to attempt it myself; although I have to admit I have been tempted.

Before you open an electronic trading account ask yourself this: who has the most to benefit from the electronic trading platform? The trader? Sure, but the brokerage is gaining more.

Consider the fact that the brokerage no longer needs to pay the broker a share of the commission for placing your order. Through electronic trading they now get to keep the whole amount (most of it anyway). Consider as well that the brokerage is no longer on the hook for any orders that might have been placed incorrectly (yes, it can happen to the pro’s too) since you are totally responsible for placing your own orders.

The brokerage has much more to gain from the promotion of the electronic trading platform that you do. Why do you think all the brokerages promote it so much?

As I said at the outset, electronic trading is a fact of life for day-traders, but unless you are day trading I would strongly advise against it, especially if you are just starting out.

Besides, it’s a lot more fun to yell at your broker when your trades don’t work out than at your computer. I’m just kidding of course; please don’t tell your broker I said you could yell at him, well on second thought… ;-)

If you want to find a broker who actually cares about you and not just your trading account, please take a moment to contact any of the brokers in the recommended broker section of the newsletter. Tell them Erich sent you.

Erich