April 14, 2010 - Issue #528

In This Issue

1. Hot Market Report: Gold Bulls Still Have Technical Power
2. Daytrading S&P Futures
3. Economic Calendar

1. Hot Market Report: Gold Bulls Still Have Technical Power

by Jim Wyckoff

June Comex gold futures bulls have recently gained fresh upside near-term technical momentum. Prices on Monday hit a fresh four-month high of $1,170.00 an ounce. Prices are also in a nine-week-old uptrend on the daily bar chart. For June gold, shorter-term technical resistance is seen at Wednesday's high of $1,162.80, at this week's high of $1,170.70 and then at $1,175.00. Major psychological resistance is located at the $1,200.00 level. Shorter-term technical support is located at Wednesday's low of $1,151.00, at $1,146.60, at this week's low of $1,145.40 and then at $1,140.00. From a longer-term perspective, an examination of the monthly continuation chart for nearby Comex gold futures shows a solid longer-term price uptrend remains firmly in place, which suggests that in the coming months, the path of least resistance for the precious yellow metal will remain sideways to higher.

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

2. Daytrading S&P Futures

by Linda Bradford Raschke

Note: This article was written a few years back but the concepts are still valid today, especially if volatility starts picking up. While the reference is to S&P futures, most traders now days trade the Mini SP futures ( which are traded electronically) as well as other electronic indices like mini Dow, Mini Nasdaq, Mini Russell).

The S&P market is a trading arena unto itself, which can accommodate many different trading styles. Not only does this market display a different daily profile than the other futures markets, but it has a much longer "length of line" (intraday swings), which offers more trading opportunities. Additionally, there is a wealth of information provided by many internal indicators on the equities market that some professionals like to monitor. In this article, I would like to share some observations, pointers, and favorite trading patterns. However, let me also say that the majority of the professional S&P daytraders I know tend to specialize in just one pattern or trade just one style. This is definitely a market where overtrading can be a temptation.

Swing Trading Concepts

The principles of "swing-trading" are nothing more than applying basic technical analysis to the secondary fluctuation which occur in a market. We can apply these principles to all time frames and all markets, but they work particularly well with the S&P's, so a brief summary is first in order.

Swing trading is following the price action and learning to anticipate the market's most probable course of action. We learn to determine the immediate trend by observing whether upswings are greater or lesser than downswings. In a simplified model, we look to enter on retracements in the direction of the trend. An early sign of a trend reversal is a "test" of a most recent extreme price level which usually forms a higher low (or lower high). A trend reversal is confirmed when the upswing leg exceeds the length of the downswing (or vice versa). If a trader enters a position on a "test" looking for a trend reversal, but does not get this confirmation, he should exit the trade or pull his stop up close to his entry price.

There are also periods of market rest, consolidation, or low volatility range contractions. These patterns provide an opportunity for traders who like to trade "volatility breakouts" - a methodology in which one waits for the market to tip its hand with a powerful thrust and then jumps on board in the direction of the movement. This too, can be a form of swing trading, as we are playing only for the market's next immediate move and not making any longer-term valuation judgments.

When a trader practices the principles of swing trading, he learns to develop a conceptual roadmap in his head. In the S&P market, it is particularly important to learn to think in terms of concepts because there can be so much distracting intraday "noise". Some more examples of concepts are: mid-morning trends tend to carry into 12:00(EDT) +/- 15 minutes. The best average intraday trends tend to last 45 to 90 minutes before having a countertrend reaction. The earlier a trend starts, the earlier it peters out. There is often an opportunity to play off a reversal of the move into 10:00 (EDT) +/- 15 minutes. The markets tend to be more emotional at the beginning of the day when a good move counter to the initial opening swing can occur. If you learn to think in terms of concepts, you can master the markets instead of becoming a slave to the charts.

Time-of-Day Tips

On average there are only 2-3 great S&P intraday "legs" or swings. Most professionals catch only 3-4 really great trades a week, if that! (Most trades will often be very small wins and losses). So don't be too harsh on yourself if you feel that you are missing the majority of the movement. Overtrading suckers one into seeing only the trees and missing the forest.

Continued...

THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING: IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF ALL TRANSACTION COSTS. IF YOU PURCHASE OR SELL A COMMODITY FUTURE OR SELL A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AS WELL AS FUNDS IN EXCESS OF YOUR ORIGINAL DEPOSIT.. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUESTED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT. UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A "LIMIT MOVE." THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR BROKER, SUCH AS A "STOP-LOSS" OR "STOP-LIMIT" ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS. A "SPREAD" POSITION MAY NOT BE LESS RISKY THAN A SIMPLE "LONG" OR "SHORT" POSITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. YOU SHOULD THEREFORE CAREFULLY CONSIDER IF COMMODITY TRADING IS SUITABLE FOR YOU BEFORE YOU TRADE.

3. Economic Calendar

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!