Don’t you just love this time of the year? I sure do. Summer is definitely my favourite time of year. The long warm days, endless barbeques, and of course lots of golf. Who could ask for more?

I know summer officially started on June 21st, but for me summer doesn’t really start until after the holiday weekend. July 1st (Canada Day) and July 4th (Independence Day) with their fireworks and parades just seem to kick start the summer.

The weather isn’t the only thing heating up however; many of the commodity markets are beginning to heat up as well. The markets always seem a little more active at this time of the year as volatility in many of the markets peaks. This unpredictability can make for some pretty interesting trades.

You will also notice that there is a small change in the selection of markets we analyze. In response to your input from last week we will no longer be following the Swiss Franc but will substitute the Canadian Dollar instead.

Many of you found the higher margin and the big daily price swings of the Swiss Franc too large and too dangerous to trade with your accounts. Like the Franc, the Canadian Dollar is a good trending market; however the smaller margin requirements make it an easier market to follow with a small trading account.

Now if I could only get this barbeque sauce off my keyboard…

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 prices continued to slide without giving us the pullback we were looking for. Prices continued lower to our next target before finding support. Prices have come down quite quickly and volume has been dipping along with prices suggesting that we could see our pullback in prices this week instead.

This Week:

I would look for prices to rally early this week to resistance around 232 ¼. Given the high volatility of the market right now prices could push through to resistance at 235, but I would not expect them to get much higher than that at this time.

While not a super-profitable trade, you could trade the pending pullback by entering long above Friday’s high with exit stops below the low for about $150 risk. The profit potential if the market trades to 232 is about $400 or a 2 ½:1 risk/reward.

The greater opportunity seems to be in shorting the market however, so I would be inclined to wait for the pullback before re-entering the market short. If we get a pullback this week look for shorting opportunities as the market approaches 232 or 235. Once the pullback is complete prices should resume the downtrend to the next weekly support target at 215.

Using the resistance at 237 ¼ to hide exit stops would have about $225 at risk. The downside profit potential if the market makes it to 215 would be approximately $880, for a risk/reward ratio of 3 ½:1.

Be cautious about holding any open positions by this coming Friday however as the WASDE crop production report is due. This report is one to be aware of as it could have a significant effect on market direction.

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 made an unexpected move as prices broke through the resistance at 5960 before continuing higher. Although this is normally a bearish time of year for this commodity, cotton prices have been spurred on by increased demand. This combined with supply pressures have seen cotton prices remain quite strong.

Technically speaking the market is at the neckline of a rounded bottom formation and trading near the contract highs. There is some price resistance in the area which may serve to keep prices down. So while the market is in an uptrend at the moment we may see prices bounce early next week before continuing higher.

This Week:

There is some matching resistance on Thursday’s high of 6215 as well as some close resistance at 6195 and 6200. There are two prices higher than 6215 at 6275 and 6260, however these are not close enough to be considered resistance; therefore the resistance at 6215 is the contract high resistance.

If you use the manual to weight the resistance in this area (page 15) you should get a resistance level that is approximately equal to 8 hits on the current level. This is fairly significant. Is it enough to turn the market around? Maybe not, but it should be enough to cause it to pullback this week.

If the resistance holds, look for prices to fall back to support at 5935. Given the very bullish day last Friday however, I would not short the market until it broke below the low of 6140. With exit stops above the 6215 resistance you would have about $350 at risk.

The first downside target would be support at 5935 for a potential profit of just over $1000 or nearly a 3:1 risk/reward ratio. While prices may push a little lower to support at 5850 I would not push the trade too hard at this time as it seems that the current trend is up, not down.

As such, you should be prepared in case the market continues higher through the resistance. If the market manages to exceed the resistance at 6215 it should be able to continue through the current contract high to the next weekly resistance level at 6405 before pausing.

Placing exit stops below the mild support on Friday’s low of 6140 would again see approximately $350 at risk. If the market should trade to 6405 it would have a potential profit of just over $900 for a 2 ½:1 risk/reward ratio.

Ideally I would like to see the market pullback early next week off of the 6215 resistance; however given the strong close on Friday it is entirely possible that prices will continue a little higher still before pulling back.

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

While weather is becoming less of a factor in the grain markets volatility is nonetheless quite high which will serve to keep things interesting for the next few weeks. While all the grain markets can be volatile, beans can be ESPECIALLY volatile and as such we need to be pretty careful with this market.

This Week:

Beans are showing some mild support on the current lows at 546. While I do believe we will see a rally in prices shortly I don’t think we will see prices rally from here, rather I think we will see prices find support around the weekly support at 541. It is possible however, that given the volatile nature of the market prices may not respect the support level exactly and could slip a little further to daily support at 535 before levelling off.

If you wanted to enter the market early, in anticipation of prices finding support, you could enter long as the market approached 541 with exit stops below the 535 support. This would have a risk exposure of approximately $300.

The first target for the bullish rally would be resistance at 563. There is quite a bit of resistance in this area so it is probably a good idea to take profits here and see how the market reacts to the resistance. Using this as a profit target would have a potential profit of $1100 or about 3 ½:1 risk/reward.

As with corn, you might want to consider exiting your position toward the end of the week as there is a big agricultural report due and this will undoubtedly affect the markets. If you do decide to hold your position on Friday make certain that you have your stop loss exit order reasonably close in case the market moves against you.

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

Cattle responded very nicely last week. Early in the week prices pulled back to support at 6920 allowing us to long the market. Prices rallied to resistance at 7100, just shy of our target at the contract high of 7150.

The very bearish day on Friday is hinting that this resistance level will hold, at least for the short term, and we will probably see lower prices this week.

This Week:

While I would expect to see prices slide lower this week I don’t believe that those lows will hold. The market has been trapped between the weekly 50% and 62% retracement levels for the last few weeks and is looking for a breakout to either side.

Ideally I would like to see the market pull back to support at 6920 or 6870 and post another rally from there. This would essentially be an instant replay of the trade from last week.

Look for buying opportunities as the market approaches 6920 with exit stops below support at 6870. This would have a risk exposure of approximately $250. Assuming the market finds support here and resumes the bull trend, the upside target continues to be the resistance on the contract highs at 7150 for a potential profit of $900 or slightly better than 3:1 risk/reward.

At this time the long term outlook for cattle remains bullish with a possible target at the weekly resistance at 7300.

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

As expected, cocoa prices struggled to get higher last week. The market traded in a smallish range for most of the week without moving significantly one way or the other.

The resistance we identified at 1690 still holds the key to whether prices will continue higher or if we will see lower prices ensue. In fact the way we are dealing with this market has not changed too much since last week.

This Week:

If the market manages to break through the resistance at 1690 then prices should continue to rally higher to resistance at 1794. This would yield just under $1000 profit. The correct place to put the exit stops would be below the support at 1602; however this would leave too much at risk to make the trade worthwhile.

You could lessen the risk exposure by placing exit stops below the mild support at 1655. While this is not ideal it does lessen the risk to about $400. If the market manages the momentum to break the 1690 resistance then this support level might prove to be far enough away. Risk/reward ratio for this trade is 2 ½:1.

While we may see prices continue higher the current trend does seem to be faltering. Volume has been declining as prices have been advancing suggesting that the bullish rally is more of a pullback move than a change in trend. The daily and weekly charts also show the market to be trading in a definite downtrend and RSI shows the market mildly overbought.

If 1690 proves to be too much for the bulls then you will probably see the downtrend continue from here. There is more room on the downside; therefore you could wait until the prices take out the support at 1626 before shorting the market.

Once short, you could use the mild resistance at 1655 to minimize your risk exposure to about $420. The short term downside target looks to be support at 1490. This would have a possible profit potential of about $1400 or a 3:1 risk/reward ratio.

If the downtrend continues the long term target would be support at 1347 before the market would likely find its footing again.

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

Could sugar finally have found a bottom? Last Thursday the market finally showed signs that it may have bottomed out when prices rallied and closed fairly strong. Then on Friday the market look indecisive (again), as prices contended with resistance at 649.

While I remain cautiously bullish on sugar based on the seasonal tendency of this market, sugar is nevertheless in a downtrend on the daily and long term charts as well. Therefore any bullish rally should be treated as a pullback until the market proves otherwise.

This Week:

Okay, so what is to become of sugar?

I think that if we can see the market break the resistance at 649 then prices should continue to resistance at 675 before stalling again. While we might see a small bounce off this resistance I don’t think it will be enough to resume the downtrend and we should see prices continue to the resistance at 697.

Entering above the 649 resistance with stops below the support at 633 would have approximately $180 at risk. The upside target at 697 should yield a potential profit of approximately $530 per contract for a risk/reward ratio of almost 3:1.

Once the market is trading at this level we will need to reassess whether the trend has changed or if the downtrend will continue.

Click here for the Market Minutes Audio Commentary on Sugar

• FND 09/16/03
• LTD 09/16/03
• Option Expire 09/05/03
• Contract Size 100,000 CD
• 1 point = $10
• Exchange: CME

The Canadian Dollar chart is very interesting. While the market is in a strong uptrend, it has formed a double top formation and is trading right on the neckline. Some may also view the current formation as a head and shoulders top formation with the market just completing the top of the second shoulder last week.

Regardless of how you view it the market is at an important intersection. If the bull trend is to continue it will need to overcome the current resistance on the neckline at 7456, 7457 and 7458. While this is not insurmountable resistance it is nonetheless significant enough to require attention.

This Week:

While the market gave a strong closing last week I think the current highs will hold and we could see prices retreat this week.

Not only is the market trading at the neckline of a rounded bottom/double top/head and shoulders formation, but it is also showing slight resistance to the monthly 50% retracement level and RSI is showing divergence as well. All this could add up to lower prices in the near future.

If the resistance holds, look for prices to continue to the support at 7225 as a short term target. There is daily and weekly support here so we will likely see a bounce in prices.

While the safe money would wait until the market broke below the low at 7407 before shorting the market, you could enter early by shorting below Friday’s closing price. While it is riskier and assumes that you will get filled near here, it considerably improves the risk/reward ratio of the trade.

The high closing price last Friday suggests that the market may test the resistance at 7457 before possibly backing off. With stop loss orders above the high, you could enter a short trade for approximately $220 risk.

A reasonable downside target would be support at 7225 for a profit potential of about $2100, or about 9 ½:1 risk/reward. Watch out for the support at 7294 however, as it could cause some problems. Exiting here would still yield about $1400 in profit, or a risk/reward ratio of about 6:1.

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

I am very pleased with the way the silver trade is working out. The market responded beautifully by breaking out above the 460 resistance and not looking back. Notice how the market hung up on the resistance at 472 by the end of the week? Don’t you just love knowing how support and resistance works? ;-)

This Week:

The plan for silver remains the same as for last week. The market posted a strong close on Friday which is encouraging. Once the market is above the 472 resistance the target remains the resistance at 482.

I would not be tempted to push the trade too far beyond this however as there is a whack of resistance around the 484 – 485 area which will probably turn the market around again. In fact you might want to be on the lookout for shorting opportunities as the market gets to the 482 – 485 area.

While it is a little premature to be speculating on a short position at this time, right now it looks as though you could short the market around 482 with stops above the resistance at 485. This would have a risk exposure of about $225.

The first downside target would be support at 465 for a profit potential of almost $800, or better than a 3:1 risk/reward ratio.

Click here for the Market Minutes Audio Commentary on Silver

Always remember: if the market is not performing as you had hoped, get out! Everybody is wrong at one time or another and in trading it is not uncommon to be wrong more than you are right. Just be sure that your mistakes don’t cost you too much money and you’ll be fine in the long run.

There are a couple of good opportunities this week in the grains as well as cotton and the Canadian Dollar; however I like the way the cocoa trade is setting up. Cocoa’s current situation would allow us to trade the market either long or short depending on which way it wants to go.

Long Scenario:

• Entry: long above 1690
• Stop Loss Exit: 1655
• Risk: $350
• Profit Target: 1794
• Potential Profit: $1070
• Risk/Reward Ratio: 3:1
• Degree of Risk: Moderate to High

Short Scenario:

• Entry: short below 1626
• Stop Loss Exit: 1656
• Risk: $300
• Profit Target: 1490
• Potential Profit: $1360
• Risk/Reward: 4:1
• 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.

Answer:
A few of you have written me about this so I thought I’d better take the time to address it.

Some markets are traded outside of “regular” business hours. Many of the currencies and grains have day sessions and night sessions. Naturally the day session chart (regular business hours) would contain the data from that period only; whereas the full session chart would contain the data from all the trading that occurred that day.

In most cases there is not too much of a difference between the full session and the day session charts. While the night session usually has fewer participants they do not normally have the ability to move the market very far on their own. Their trading is usually confined to the significant support and resistance levels that restrict the day session traders as well.

Most traders are interested in trading the day session; therefore this is where your focus should be. Using the day session charts also helps you focus in on the important support and resistance prices as they are less likely to be “fudged” by including the night session as the full session charts do.

The reason I used the full session charts in the past was primarily because I was writing for such a diverse audience of traders. I did not know if your trading style included support and resistance or if you traded using Gann lines or Elliot waves. As a result I tried to cover as many trading styles as possible with my analysis so that it would be helpful to as many people as possible.

However, now I know that everyone reading is interested in trading support and resistance and I can focus on examining the trades solely from that point of view. Therefore we have changed the charts to include the day sessions where appropriate …just so things don’t get too confusing.