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A Longer-Term Perspective on Key Markets
Dear Fast Break Reader: Hello again from Jim Wyckoff! It's been a while since I've last authored a Fast Break feature, and I am very happy to again be invited to provide you with some of my latest work. I'm also delighted to tell you that I have recently become associated with Market Technologies, LLC (http://www.TraderTech.com). Market Technologies, founded by the respected industry professional, Louis B. Mendelsohn, is the home of VantagePoint Intermarket Analysis Software. In this issue, I will provide you with my longer-term perspective on selected key markets. Remember that it's important for traders of all trading timeframes (from intra-day to longer-term position trader) to examine longer-term price charts to gain that important bigger-picture price perspective on markets. Longer-term price charts reveal major technical support and resistance price benchmarks that can help all traders evaluate where a market may be going. Let's get right at it. Copper: Futures on the Comex division of the New York Mercantile Exchange this month have surged to record highs. Looking at the monthly continuation chart (Figure 1) for nearby copper futures, prices are streaking into uncharted territory and are poised to challenge $2.00 a pound. The previous high-water mark for nearby copper futures was scored in January of 1989, at $1.6200. It's certainly not a technical improbability that nearby copper futures will hit the $2.00 mark, or above, in the coming weeks or few months. The 14-period Directional Movement Index overlaid on the monthly chart for nearby copper futures reveals that the ADX line has soared to a reading of 58.76. Any ADX line reading above 30.00 does suggest the price trend in a market is a strong one. Indeed, the uptrend in copper futures is extremely strong, as evidenced by the ADX line on the monthly chart. In fact, the ADX reading on the monthly chart is presently the highest in the history of copper futures trading in New York. One longer-term technical warning signal that the market is topping out on a longer-term basis would be to see the ADX line start to "roll over" or turn down.
Orange Juice: While the near-term technical picture has been favoring the frozen concentrated orange juice (FCOJ) bears, the longer-term charts do suggest some better times ahead for the OJ bulls. The monthly continuation chart for nearby FCOJ futures shows that a big and bullish falling wedge pattern developed on the chart during the past 25 years. In early 2005, prices saw a bullish upside "breakout" from that pattern and went on to post a high for the year of $1.0650, basis nearby futures. From a longer-term technical basis, the FCOJ bulls can argue that the recent pullback in prices is just a minor downside correction (Figure 2 below). But the $1.0600 to $1.0650 area is very strong longer-term technical resistance. The 2002 rally in nearby FCOJ prices was halted at the $1.0600 level and prices then proceeded to back off to a low of 54.20 cents, which was a 27-year low. Bulls can also argue that from a historical perspective, FCOJ prices, even at $1.00 a pound, should not be considered "high." Going back to 1977, FCOJ prices have traded above the $1.00 level the majority of the time since. For perspective, in 1998, nearby FCOJ prices hit a high of $1.3025. In 1996, prices hit a high of $1.3875. In 1991, nearby FCOJ prices hit a high of $1.7425. In 1990, prices hit a high of $2.0650. In 1988, prices scored a high of $204.25. The all-time high in nearby FCOJ futures was scored in 1977, at $2.20 a pound. Bulls can also look forward to the fact that traders at some point soon will start to build into the market a "frost" premium heading into the winter months in the U.S. FCOJ prices can become "jumpy" to the upside on any weather forecasts calling for colder-than-normal winter weather in the southeastern U.S. citrus-growing regions. Also, with the present hurricane season in the Caribbean Sea expected to produce many more storms than normal, FCOJ traders will monitor the hurricane forecasts very closely.
Gold: The longer-term monthly continuation chart for nearby Comex gold futures shows prices are still in a longer-term uptrend, even though price action of the past few months has been more choppy and sideways at higher price levels (Figure 3 below). It would take a push in nearby gold futures above strong technical resistance at the 2005 high of $456.50 to provide the bulls with a boost of longer-term technical power. However, for any serious longer-term chart damage to be produced, nearby gold futures prices would have to drop below major psychological support at $400.00 an ounce. Gold bulls could even argue that nearby gold futures prices would have to drop below the last significant "reaction low" on the monthly chart, at the $375.00 area, to produce some serious longer-term technical damage. The next major longer-term upside price objective for the gold bulls is major psychological resistance at $500.00 an ounce, basis nearby futures. Keep in mind that recent history shows that gold prices trading at $500.00 an ounce is not a "stratospheric" price level. In 1980, nearby gold futures hit a record high of $873.00 an ounce. Over the past 25 years, gold futures prices have probed above $500.00 on two occasions: in 1987 the high was $502.30 and in 1983 the high reached $514.00 an ounce, basis nearby futures.
U.S. Treasury Bonds: The longer-term monthly continuation chart for nearby U.S. T-Bond futures shows that the bulls are enjoying the advantage--and have been doing so for many years. The monthly chart shows that an uptrend line has been in place since 1981. That's a 24-year-old uptrend! The longer-term monthly chart also reveals that over the past seven years a potentially bullish symmetrical triangle pattern has formed. Symmetrical triangles are usually continuation patterns, according to classic technical analysis. Given that the trend in T-Bond prices has been up for over 20 years, according to the monthly chart, then technical odds do favor a bullish upside "breakout" from the symmetrical triangle pattern at some point in the not-too-distant future (Figure 4 below). Investors could even take the longer-term chart on Treasury bonds a step further to extrapolate that U.S. interest rates are not likely to rise to problematic levels anytime soon. To deduce even further, one could argue that this T-Bond chart suggests the real estate boom is not in danger of a "bust" anytime soon.
U.S. Dollar Index: The U.S. Dollar Index futures are traded on the New York Board of Trade. This index is an excellent barometer of the overall health of the "greenback" and also the U.S. economy and the U.S. stock market. It is also prudent for FOREX traders to keep an eye on the Dollar Index, and prudent for all traders to examine longer-term price charts for their favorite markets, in order to gain that important bigger-picture price perspective. The weekly continuation chart for nearby U.S. Dollar Index futures that a fledgling uptrend line has been negated as the bulls are losing technical momentum (Figure 5 below). The Moving Average Convergence Divergence (MACD) indicator overlaid on the weekly chart has recently produced a bearish line crossover signal, whereby the MACD line crossed below the "trigger" line. This is the first bearish line crossover produced on the weekly chart since October of 2004. At the time of the October MACD line crossover signal, nearby U.S. Dollar Index futures were trading around 88.70. Prices then proceed to move to a low of 80.48 in December of 2004. For the bulls to regain some good longer-term technical power, they will have to push nearby U.S. Dollar Index futures back above the 2004 "reaction high" of 92.50.
S&P 500 Index: There are some near-term warning signals that there could be some rough waters just ahead for the U.S. stock index bulls. The months of September and October have been historically unkind to the U.S. stock market bulls. However, the monthly continuation chart for nearby S&P 500 futures shows that prices are still trending gradually higher from the October 2002 low of 767.50. In fact prices in July hit a fresh four-year high, basis nearby S&P 500 stock index futures (Figure 6 below). Importantly, the monthly S&P chart shows that prices recently pushed above some key Fibonacci resistance levels--the 38.2% and 50% retracement levels from the March 2000 high of 1,574 to the October 2002 low of 767.50. The move above these levels is significantly long-term bullish. However, the monthly chart also reveals that prices are challenging the 61.8% Fibonacci retracement level of the aforementioned price move. A move above that price level of 1,265.00, basis nearby S&P 500 futures, would provide the bulls with another longer-term technical boost and would suggest the uptrend in prices would be significantly extended. A drop in prices back below the 50% Fibonacci retracement level would be a significantly bearish longer-term chart signal.
Corn: The weekly continuation chart for nearby Chicago Board of Trade corn futures shows some sloppiness the past several weeks, which is indicative of and typical for price action during a serious weather market in the grains. As the weather market in the U.S. Corn Belt winds down, look for less volatile price action, meaning cleaner-looking daily and weekly price charts. On the weekly corn chart, in July nearby corn futures pushed right up to the 50% Fibonacci retracement level of the price move from the March 2004 high of $3.35 1/4 to the December 2004 low of $1.91--and then promptly backed right down (Figure 7 below). For the corn futures bulls to regain some longer-term technical strength, they would have to push prices above longer-term resistance at the $2.31 level, basis nearby futures.
Soybeans: The weekly continuation chart for nearby soybean futures at the Chicago Board of Trade shows that some longer-term technical deterioration has occurred (Figure 8 below). An uptrend line drawn off the February 2005 low has been penetrated on the downside and negated during the past few weeks. Nearby futures prices have also fallen below major psychological support at $6.00 a bushel. The Moving Average Convergence Divergence (MACD) indicator overlaid on the weekly soybean chart has just recently produced a bearish line crossover signal, whereby the MACD line crossed below the "trigger" line of the indicator. This was the first bearish line crossover signal since May of 2004. At the time of that bearish MACD line crossover, nearby soybean futures prices traded at a high of $10.63. Following that, prices moved to a low of $4.98 1/2 in February of this year.
Wheat: The weekly continuation chart for nearby Chicago soft red winter wheat futures reveals that an uptrend line is in place from the December 2004 low. However, that uptrend line has combined with a downtrend line drawn from the March high to form a potentially bearish symmetrical triangle pattern. Symmetrical triangles are continuation patterns. Given that the most recent major trend on the weekly wheat chart was down (Figure 9 below), technical odds do favor a downside "breakout" from this chart pattern.
Remember that many industry professionals, including myself, place much emphasis on the basic chart patterns and trend lines. I call trend lines and chart patterns my "primary" technical trading tools. The computer-generated technical indicators, such as moving averages and stochastics, are termed my "secondary" technical indicators. About the Author
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