| The Intermarket Report January 11, 2008 |
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| Written by Matt Caruso CMT | |
| Monday, 14 January 2008 | |
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The Futures / Inter Market Report Trading the World's Markets January 11, 2007 Matthew Caruso, CMT If you have any questions, send them to: e-mail: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Cotton approaching top – Copper in rally mode This week we’ll be taking a look at cotton and copper. There are several bearish factors that are now present in the cotton market. These will be discussed in detail. As well, I called for a major bottom in copper back on November 23rd (http://tradesystemguru.com/content/view/120/58/). A follow up on that market will follow. When looking at markets it is best to start from a long range view in order get have an understanding of the longer term direction of the market. By looking at various cycles in the cotton market I have found a strong 40 month cycle that is present in cotton prices. I have plotted equidistant lines in figure 1 to show how there is approximately 40 months between major tops in cotton. It is important to know how to use a cycle of this length. As with any tool there is a margin of error. By this I mean that a top may not occur exactly 40 months after a previous top but it may occur 38 or 44 months after a previous top. Therefore, this 40 month cycle will not tell us exactly when to go short but it does inform us that there should be a significant sell off in cotton process this year.
Figure 1 chart by metastock In order to know when a better time to enter the market short would be, we need to look at shorter time intervals such as the weekly chart in figure 2. In this chart I would like to bring to your attention our 3 other tools, commercials, seasonality and sentiment. We can see that commercial traders (smart money) are the most short they have been for years. As well, sentiment shows that people are overly optimistic in this market which is a bearish indication. Cotton usually sells off in March as shown in figure 2, and therefore that would be the optimal time to enter short. However, if the uptrend line were to be broken that would most likely indicate that the sell off in cotton is occurring.  Figure 2 chart by genesisft.com Lastly we will revisit the copper market which we last spoke about November 23rd (http://tradesystemguru.com/content/view/120/58/). On that date prices were trading at $2.99 and have already leaped to $3.30 since then – approximately 10%. On that day I mentioned that a break of the down trendline and/or a higher low would be an optimal entry time. As you can see price leaped after breaking above the down trendline and formed a higher low before climbing even higher. It is likely that copper prices will climb higher. The trend is intact and momentum is strong. We are slightly overbought at these levels and that may lead to a small pullback where purchases will likely lead to higher prices.
Figure 3 chart by genesisft.com ------------------------------------------------------------------------------------------------------------ DisclaimerTradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Sunday, 20 January 2008 ) |
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