| The Intermarket Report February 8, 2008 |
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| Written by Matt Caruso CMT | |
| Sunday, 10 February 2008 | |
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The Futures / Inter Market ReportTrading the World’s MarketsFebruary 8, 2008 Triple digit crude to come again – Trading lessons 1 & 2When crude briefly (and I mean really briefly) spiked above $100 per barrel several weeks ago, it was widely talked about. I read or saw stories about it from nearly every news outlet. When you see your local nightly news discussing markets (as they did with crude at $100 and when markets where crashing 3 weeks ago) it is very likely that the move is over. I personally use that as an indicator in my trading, it isn’t present all the time but when it is it should be heeded. Well several weeks have passed since the $100 spike and once again crude has gone into obscurity. However, when looking at the charts it become apparent that we will soon be seeing the TV newscasters discussing $100 crude again. From its all time high crude has declined approximately 15%. This is a full sized correction by any standard. Four important elements are now present that support the idea of a continued climb higher; 1) an up trend that is still in tact, 2) excessive fear as measured by Larry Williams’ Vix indicator, 3) buying by commercial traders (smart money), 4) seasonal strength. I would like to turn your attention to figure 1. As you can see from this chart, the trend is up. You don’t need oscillators or trendline to tell you that, there is a clear pattern of higher highs and higher lows. As well, it seems that the recent 15% correction has created excessive fear as measured by Larry Williams’ vix index. To learn more on this indicator please see my “Stock market at MAJOR buying opportunity” article that was posted on January 18th, 2008 (http://tradesystemguru.com/content/view/142/58/) or Larry Williams’ article in the December issue of Active Trader magazine. As you can see, we now have readings of excessive volatility which is typical of major market bottoms. All other instances of these occurrences going back to 2002 are highlighted in yellow in figures 1 & 2. As you can see from this indicator alone it is time to stand up and pay attention to crude. Of course this tool as any other is most effective at calling bottoms in up trends (but good in downtrends too as seen in the stock market 3 weeks ago) and that is what we have right now – an oversold market in an uptrend.
Figure 1 chart by genesisft.com  Figure 2 chart by genesisft.com Although most people would be satisfied to buy crude with what we have seen so far, I like to see more than 2 indicators confirming. If you take a look to figure 3 you will see that the commercials are as bullish as they have been at all other bottoms for the past year. Every time commercial buying has reached this level in the past year, the market soon rocketed higher. As well, if you had to buy crude at only 1 time each year, you would want to buy it now. If you quickly glance at the seasonal chart (created by genesisft.com) at the bottom of figure 3 you will see that mid February is typically a very strong seasonal bottom. This time period has been marked off for the past 4 years and you can see the bullish bias from this date forward.
Figure 3 chart by genesisft.com Trading lesson 1Last week I presented the likely hood of a top in the oats market. Anyone watching this week would have seen I was dead wrong – or was I? The market needs to confirm any idea before it is safe to act on it. Follow through is an import part of that. Last week I mentioned the importance for prices to fall below the recent swing low at $3.1975 – they did not. Prices never followed through from the weak Friday close and instead immediately reversed higher telling you that the market was not ready to fall. Follow through is an essential part of trading and entering in anticipation of it often leads to losses as would have in this case.
Figure 4 chart by genesisft.com Trading lesson 2Two weeks ago on the 25th of January I presented the probability of a climb in Natural gas. Before trading any market you need to know its characteristics. Natural gas is notorious for its volatility, as former hedge fund managers whose funds went bust due to natural gas would tell you. The Monday after the Friday report price initially rallied only slam down to within 5 cents of the previous low, only to then rocket off to new higher highs several days later. That is natural gas volatility for you. This market is volatile and close stops will get hit. However, the uptrend and possibility for higher prices was not negated until the low of $7.529 was taken out – and that never happened. If you are truly right about an uptrend, then your stop below the last low will not get triggered, and in volatile markets such as natural gas, that is often the best place to keep them.
Figure 5 chart by genesisft.com --------------------------------------------------------------------------------------------------------------------------------- DisclaimerTradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Monday, 18 February 2008 ) |
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