| The Intermarket Report May 23, 2008 |
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| Written by Matt Caruso CMT | |
| Sunday, 25 May 2008 | |
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The Futures / Inter Market ReportTrading the World’s MarketsMay 23, 2008 Heating oil/Crude oil parabolic & due for major correction – Updates 1&2The past few years have been an exciting time for any futures trader. Markets have had well defined trends and some incredible moves have taken place. However, commodity markets are not immune from bubbles and blow offs seen only a few years ago in the stock market. Soybeans several months ago and rice several weeks ago experienced extreme parabolic blow off moves which ended as they all do with a rush to the exits and an even quicker fall in prices than the former rise in prices. They were both written about here prior to their tops- Soybeans http://tradesystemguru.com/content/view/158/58/ , Rice http://tradesystemguru.com/content/view/176/58/. Recently the commodity taking all the media attention and experiencing the most powerful climb is heating/crude oil. Anyone gassing up their car can attest to the sharp increase in prices even if they do not follow the commodity market directly. Prices can climb to record highs and remain bullish. New highs are typically positive, not negative. However, it is when prices begin to make new highs with increasing range expansion and without interruption that a bearish condition develops. When traders need to buy it now because they fear that it will be higher the next day they are no longer thinking rationally and are succumbing to the euphoria of the price climb. That is exactly what we are now seeing in the energy markets. As well, another added bearish factor is all the media attention and political attention given to the energy market these days as well. It only stands to reason that by the time the local news & politicians talk abut a market, the move is over because everyone is aware of the money making opportunity. We have seen this phenomenon several times over the past year and I have tried to bring it to your attention every time I have witnessed it. Let’s first take a look at the drivers of the market; commercials & small speculators positions and advisory sentiment. We will then take a look at the parabolic nature of the current market. First I want to draw your attention to the advisory sentiment and my sentiment in the bottom panel of figure 1. Although bullish sentiment can persist in an uptrend and prices can still climb, such bullish sentiment in a parabolic rise is unsustainable and helps to reveal the complete bullish bias speculators and advisors are experiencing. As well, commercial traders are beginning to unwind their position and although they are not at their most bearish level, they are definitely far from their bullish peak at the beginning of ’07. As well, small speculators who typically have the their largest long positions as tops have been accumulating heating oil in the past several weeks and are near the upper range of where they have been in the past several years in regards to their long position. This is typical of tops, not bottoms.
Figure 1 chart by genesisft.com Despite all we have looked at, the most important element is trend. The trend is now more important than usual because prices are now almost entirely moving on momentum. This is evident through the market not taking any time to pause and build any new meaningful bases or consolidations. As well, one very important factor is the large increase in oil’s weekly range this past week as can be seen in figure 2. This is almost exactly what we saw in soybeans and rice recently. If momentum fails to continue and the past week is reversed, expect a fast and furious move lower similar to what you saw in soy and rice.
Figure 2 chart by genesisft.com Update 1 -GoldGold was mentioned here 2 weeks ago (http://tradesystemguru.com/content/view/181/58/) and was described as being set up for another big move up if it could break out of its down channel. As you can see in figure3, it has broken out and turned up its trend.
Figure 3 chart by genesisft.com Update 2 – Swiss FrancThe Swiss franc was mentioned here just last week and a potential double bottom was discussed and the potential for a strong up move was presented. Figure 4 shows the strong breakout this past week.
Figure 4 chart by genesisft.com --------------------------------------------------------------------------------------------------------------------------------- Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Sunday, 01 June 2008 ) |
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