Thursday, April 28, 2011

Futures levels

We’ve promised our readers to add some future levels to the newsletter as we’ve started trading them more this year.    We had always imagined commodities to be more “difficult” and thought of them as more “risky”.  The truth is that we have found them to be easier to trade than stocks this year.  It’s still early and we don’t want to mush things, but so far so good.   Yes, the leverage can be dangerous but we haven’t been in the business for 14 yrs without learning a few pointers about risk management.  Stops are stops.    We find commodities to be “cleaner” and technically easier to read.    So are we going to give up on stocks?  No.  Of course not.   Our modus operandi this year has been the following: when we have good set-ups in stocks, that’s our priority (for example tomorrow we finally have a few alerts that we really like and stocks will be our focus).   When we have no good alerts (like earlier this week) then our attention wanders off to futures.
Our field of opportunity has now increased, and that’s never a bad thing.   What we have always been very good/disciplined at is not trading unless there is something with an “edge” to trade.   If there’s no edge, we won’t be involved.  If we could ever point to a “secret” of being successful at daytrading,  that would be it.
Here are the futures that we currently have on our radar:

Copper is hanging on to the lows of the trend-line — not what you want to see if you’re a bull.  A break of the trend-line would be a decent opportunity for a short as most likely that area will be filled with stops.

Nothing in corn for us to do until a) gap fill near 693 and then support at 660

Crude too extended from any base for us to be involved long and no interest in shorting.

Gold too extended from base for us to be involved (even though we have been waiting patiently for junior gold miners to set up long for a while — much less extended there $GDXJ) and no interest in shorting.

Silver– as you know we were looking for a short in silver (and mentioned the symbolic 50 last weekend).  Silver retraced 10% from its highs and for us the short trade is over.   We never short the second test of a high so no interest there in shorting 50 either.   We would be interested in silver long if it can consolidate the recent move and set-up long under 50, but a base that would satisfy us would take weeks.  The silver trade is over for us for now.

Soybeans coming into a level of interest — through trend-line down could be a decent short (and then overshoot support long)

Wheat interests us on the trend-line as a long (first test).

$ES_F not extended enough for us to go outright short without a reason but if the dollar can pick up we’d be probably be involved dark.

Trading Hours:

Great Read

Thanks to Reformed Broker for his link to this very interesting interview with Peter Brandt
Read the whole interview as it has many interesting insights, but here’s a small excerpt which made us laugh and is uber- relevant to anyone who puts information out there on blogs, twitter, etc.

PETER BRANDT: I knew then that I wanted to start trading for myself. So I started dabbling a little bit, accumulating a little bit of money, starting in ’78, doing some trades… and I didn’t really know what I was doing.

One of the first trades I did came from my friend in Evanston who was the bean trader. I was just learning the business, and he had told me he was really bullish on soybeans: “Peter, I’m REALLY bullish on these beans.”
And so I watched them for a few days – I think they were around $5.50 or so – and I’d saved up a few thousand dollars to speculate. And they crept up like ten cents, and so I bought a contract, and they went up like five more cents – and then they went down twenty cents.
And so I got out with my loss, and eventually saw John again and said: “John, so what about those beans?” And he said “Yeah, was that a magnificent move or what?”

JACK SPARROW (laughing): Oh no…

PETER BRANDT: Yeah, and I said “What are you talking about?” And so it ends up that John is a scalper. He never takes a position home at night. He trades the beans for half a cent to a penny, and he had such a conviction on beans that he had a position he was willing to carry for three or four days. Well I find this out after the fact. He takes ten cents out of the bean market, which for him is a gigantic move, and I wasn’t even thinking that way!
And that was a good lesson. Traders at the Board of Trade would constantly say they were bullish or bearish, and it was a good lesson that the words “bullish” or “bearish” did not mean anything. I would have to ask, “What’s your timeframe? How long do you hold trades? How much money are you looking for in a trade? Where are you wrong – what will tell you that you’re wrong? Why are you bullish or bearish, what do you know?”
And so I learned really early on that bullish or bearish didn’t mean squat.

Wednesday, April 27, 2011

Newsletter excerpt Silver

Big move in silver today — it threatened to break 44.61 today but reversed sharply just before with the FOMC decision, and then went insane to the upside when Bernanke actually took the stage.  It stopped for the day right at resistance/R2.    Our “edge” here is gone for now, be it shorting against 49-50 or buying over 44.61.   We’ll probably leave this alone for tomorrow.  We won’t short against 50 as now it’s the second test and technically a buy.  However it’s too extended for us to go long through 50.   This means we’ll probably stay to the side-lines until we see a good risk-reward set-up in it form over the next few days.

The reason we’ve been so focused on silver lately is simply because that is where the best action (edge) has been.   Once this shifts back into stocks we’ll happily return our focus to equities.

Support being tested

Copper and Silver are close to testing short-term support levels — if those go it could accelerate selling.    $USDX has some early strength which of course is not helping the commodities.
Copper bounced right on our support line and “short-term bottom” call from last week — the more it tests it now the weaker it becomes.

Silver also threatening to break-down out of the 44.61 support.

Lots of Fed appearances today so as we wrote in our newsletter last night, not a bad time to step off the pedal and take it easy.

Update:  Ben, the dollar killer, out with FOMC decision and commodities catching a bid and USD resuming death spiral.   Next up press conference at 2:30 PM.

Tuesday, April 26, 2011

Daytrading Silver

We wrote last night ” note how trend-line broke and now has been regained.   For day-traders the low 44.61 now is the first floor.”      Today’s low was….wait for it…..wait for it…..    44.625.     As long as that holds now the bias is day-trade long.    Note how 60 min chart/20 EMA which had been resistance (boxes 1 and 2 which were great spots to short against) has now flattened out (3) and is turning the other way.   This is another argument for day-trade long bias.

Update: Already working, now through the 20EMA on 60 min chart:

Couple of points:
1) we’re only talking day-trades here.   No serious support on daily for a while.    If 44.61 goes then bias goes again short or at least neutral for us until next support areas on daily.
2) FOMC rate decision out at 12:30 PM tomorrow — if that somehow lights a fire under the moribund $USDX then expect pressure on all commodities.

Silver Road Map

We’ve been talking about shorting the silver top (and alluded to wanting 50 reversal on weekend) now in one post after another.   Last night silver traded up 7%, possibly at least partially on rumors that China would start dumping USD for hard assets.    Silver rallied to the very symbolic 50 level and reversed, now down 9% just from last night’s high.

If you want to buy the dip, here’s your road map.   In our experience it’s never a good idea to start picking at bottoms on the first day of a reversal.  The price-action is simply too heavy.
We wrote a few times about the change of angle of ascent — something that often precedes short-term tops.   Note now that silver is testing the steep trend-line.  We believe this will break soon.  The second line of defense is much sturdier, and it currently is around $40 on the $SI_F.    We’d be buyers on this secondary less steep trend-line.

What if you don’t trade futures?  Well, let’s take a look then at $SLV.   Instead of the 50 top we have here the $47 top.  Note how strongly it bounced today on the steep trend-line.  This most likely will break tomorrow.  Again, be careful going long on the steep trend-lines.  Risk/reward is often much better on the longer time-frame, milder ascent trend-line.
Secondary trend-line is currently also at $40.

If you want the silver miners there is a great spot coming up near 26.5 on $SIL

If you like the junior gold miners (plus a few silver) then $GDXJ has a nice support area near 36.

Monday, April 25, 2011

No more silver obsession from us

Silver 8% pull-back from last night’s highs for us constitutes the short-term top we were looking for and enough of a pull-back for us to stop our obsession.  If we can now enter a consolidation phase under 50 and let the SMAs catch up we would walk down to the bull camp.    Big IF of course, especially since USD still has not been able to find a bid in this reversal.
As an aside, it’s somewhat funny that silver would run up last night 7%, possibly at least on rumors that China would start shifting away from USD and into hard assets.  As we wrote last night, if this were true, why would China want to pre-announce this?  So everyone front runs them?  And they already have trillion dollars worth of US debt, not exactly in their best interest to make toilet paper out of the USD.   Could rumors from abroad about dumping USD scare the Fed away from QE3?      Interesting times indeed.
Here are all the relevant charts:

Silver reversed under the big symbolic 50, and now back at very steep trend-line.  We expect this to break and for silver to go into a consolidation phase.  We’re not interested in shorting it anymore.
We pointed out the silver miner/silver commodity divergence a while back — note how miners have not been able to find traction. We’re still interested in buying the trend-line test.