In This Issue

Top Ten Trading Rules

Crop Roundup

Reports and Expiration Notices

July 19th, 2006 — Issue #336

Jim Wyckoff's Top Ten Trading Rules

Courtesy of JimWyckoff.com

1. Are shorter-term and longer-term bar charts in agreement on price trend? I've told readers for years that this is my No. 1 trading rule. If the weekly, monthly and daily (and sometimes hourly) bar charts are not in agreement, I'll likely pass on a trade. I'm usually a trend trader, and the "trend must be my friend" before I make a trade.


2. Is this potential trade within my financial risk tolerance? To be a successful trader, I not only have to have winning trades, but I must survive the more numerous losing trades I am likely to encounter. If I see a potentially profitable trading "set-up," but the market is too volatile, I'll likely pass on the trade because of the potential for a big drawdown or even a margin call from my broker. One example is the energy markets, which have been highly volatile for much of the year 2000. Certainly, there have been some big moves (and trading opportunities for some) in the energies--both up and down, in the year 2000. However, when a 75-cent daily move in crude oil is a "routine" trading session, that market is too volatile for my risk tolerance--at least when trading straight futures.


3. What is the potential risk-reward ratio of the trade? My risk-reward ratio in a futures trade should be at least three to one. In other words, if my risk of loss is $1,000, my profit potential should be at least $3,000. Anything less is not worth making the trade.

Click here to read the entire top ten list.

Jim has an excellent daily newsletter where he reviews different markets, alerts you for potential trades and much more. Included is his great bi-weekly newsletter with charts and a little longer term outlook. We recommend checking out his website, educational CDROM, and services at Jim Wyckoff

Crop Roundup

Summary & Highlights of MGR 7/18/06 Crop Roundup by Rich Feltes, Man Global Research

Row crop yield potential: Crop scout ratings on '06 US corn yield potential generally better than market expectations. MN reporter is confident that USDA weekly crop ratings are too pessimistic. IL reporters indicated that northern and eastern areas have record yield potential given timely August rains and that east central IL needs only 2 more good rains to post record yields. KS corn yield still above trend despite recent heat while NB could post above trend yield potential if August weather normalizes. Still too early to confidently predict soybean yield but Midwest reporters generally noted above average stands (except in IN/OH)which will lay base for trend or higher '06 US soybean yields given timely August rainfall. Delta reporter confident that mid south soybean yields will be 2-3 BPA below last year. Yields on early Delta soybean varieties cut this week running only 6-10 BPA.

Marketing's: Reporters indicated surge in corn sales last week on rally thus pipeline full with more to come as pressure to clear space for next harvest intensifies. IA reporter believes producers have done a better job of moving old crop corn than last year while MN/NB contributors noted that large amounts of old crop corn and soybeans will be hitting pipeline over next 10 weeks. One prominent farm adviser noting 16 cent cash carry from July to Sept thus peak in pre harvest corn movement may delay summer cash glut until FH Sept. Row crop basis levels already extraordinarily wide in western Midwest with large cash supplies yet to digest in weeks ahead. Much larger than normal sales of new crop wheat setting stage for gains in '07 US wheat acreage—especially in Delta, Dakotas and central corn belt making needed 4-5 mil acre gain in '07 US corn area more difficult to achieve. One large southeast NB row crop farmer will be switching entirely to wheat next year. More new crop corn sold ahead than soybeans although many producers in year ahead looking for stronger local basis as more ethanol plants come on-line. Absence of strong rally in soybean board has reduced new crop sales suggesting greater than normal fall movement—especially if timely August rains prompt above trend '06 yields. Typically bullish farmer bias to board prices was tempered appreciably in last 10 days in those portions of Midwest benefiting from timely rains at or ahead of pollination. Most of '06 Midwest SRW sold at harvest amid high prices and producer desire to free space for combined '06 CN/BN harvest that will match last year's high demand for storage. Building boom in on farm storage continues, however, as farmers recognize gains from capturing board carry and role they will play in warehousing corn for new ethanol plants largely devoid of large bulk corn storage.

Hard wheat update: Two reporters expressed view that US HRS crop still shrinking although early HRS yields in SD exceeding expectations along with winter wheat yields in ND. Mills reportedly are covered near-by which along with absence of export program for HRW exerting almost daily downside pressure on KC basis. Thus with hard wheat pipeline relatively well supplied, approach of HRS harvest and aging of large fund long in KC, prospects for new highs in KC & MLS look bleak until export demand accelerates and/or HRS harvest indicates much lower than expected yields.

What's ahead on crop ratings? OH/IN reporters look for steady to higher ratings over the next 2 weeks, IL at least steady while NB/KS/Delta/Dakotas post further deterioration. IA a tough call given 33 counties with 80% or less of normal spring/summer rainfall although corn/soybean stands are generally good statewide with less severe weather/insect damage to date noted than normal. Nationally, row crop ratings may erode nominally but not enough to draw attention of bulls or to preclude attainment of trend or slightly higher final CN/BN yields assuming non-threatening August weather. Reporters also indicated generally advanced stage of row crop development vs. normal in wake of 2nd warmest June ever nationally which we would generally interpret as a positive for final yields as long as August rainfall/temperatures normalize.

Wrap Up: Reporter's depiction of '06 US row crop yield potential higher than we imagined. Bearish overhang from large old crop stocks, which has not been seriously addressed as yet, will be increasingly felt via widening basis levels which are rarely supportive to Chicago board prices. History says that it's difficult to rally corn following pollination if crop ratings are near normal and trending only gradually lower within historical parameters. USDA has consistently underestimated final US corn yield on the August crop report in each of the last 5 years. We don't see need for CZ to revisit autumn '05 fall lows below $2.10 but its increasingly clear that a continuation of current weather pattern suggests that rallies are more likely to be sold in the weeks leading up to the August 12th crop report. Remember that years with low new crop corn stocks typically post early summer/fall lows and that everyone from ethanol plants to index funds will be looking to build longs in '07 contracts when CZ '06 approaches $2.40 area.

Disclaimer:

Trading commodity futures and options involves substantial risk of loss. The recommendations contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results. This is not a solicitation of any order to buy or sell, but a current futures market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!

Economic Reports and Expiration Notices

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!