Factor Update July 22, 2012

July 22, 2012 Note: My last three weeks have been crazy.
I am finally back in the office and hopefully I can get caught up next week. That involves getting on top of the PFG situation as well as reengaging with the markets.
Preface I will start this weeks edition by addressing the grain markets. The grains are in the midst of an historic bull move due to the extremely dry and hot conditions throughout the Midwest growing region. This drought is occurring with the backdrop of other constructive factors such as the offtake of Corn for ethanol and the growing demand for meat protein in Asia. There is no way to know where and when the top will occur. But it will occur and it will be followed by a price collapse. Corn, Wheat and Soybeans are COMMODITIES and commodities are subject to boom and bust market cycles. The following chart of Cotton will eventually be replicated in the feed grains. Note that the bull market in Cotton lasted two years with the final acceleration lasting eight months.
Ongoing moves Ongoing special situation moves include: Soybean Meal Canadian Dollar futures Natural Gas T-Bonds Wheat
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Wheat It is tough buying Wheat after a four week rally of $3 per bushel. Yet, I believe the close above $9 on Wednesday (nearby contract) was a very important technical event as shown on the monthly graph. I missed this breakout in real time, but would be willing to buy a 45 cent break in the December contract (lower chart), risking to a close below 878. Trading grain at the present time is a dangerous endeavor. We are in a weather market and sharp breaks can occur at any time. Yet, I believe that Wheat will test its all-time high around $12.
Soybean Meal Meal has met its initial objective (August contract) of 484.8 on the daily chart. However, as I have comments in recent weeks and months, the Meal market is undergoing an historic bull trend from the completed a 4-year ascending triangle on the monthly graph. The target of 620 could be easily exceeded.
Canadian Dollar (futures) The sell signal from the 7+ month rising wedge completed in mid May remains in force. While the rally during the past two months has tested the patience of the shorts, a close above par (1.002) is needed to negate the earlier sell signal. The daily graph displays a possible 2-month bear flag. If this interpretation is correct a completion of the flag would be a tradable event. I will be watching for a close below the mid July low. The target on the daily graph is the early October low around .9400.. I must point out the potential for the massive nearly 3-year H&S top pattern on the weekly graph. If this pattern has been correctly identified, the target would be the 2009 low under 77 cents.
Natural Gas The markets strength on Wednesday and Friday (continuation chart) confirmed the 6-month H&S bottom. Part of this strength on the continuation chart is due to the roll. The target of this market is around 3.90. One problem is that the market is in a severe carrying charge. For example, the March 2013 futures contract is already at 3.60. Yet, believe this bottom will mark a long-term turn in Nat Gas prices.
U.S. 30-Yr. T Bonds The dominant chart development is the completion in May of an 8+ month rectangle on the weekly chart. The market has drifted sideways for the past seven weeks. The advance on the daily chart on July 9 completed a 5-week triangle that served as the retest of the rectangle breakout. The target of the rectangle is in the 159-00 area.
Pending Factor moves
Gold Gold continues to form a potential top of major significance. The market seems to be buying time after the May breakout of a 4-year trendline (red line). The daily chart exhibits a 10-week triangle that could be the last element of a 10-month descending triangle. I will have no hesitation shorting the closing-price completion of this triangle. I have no interest in getting trapped by shorting an intra-day breakout that proves to be a false or premature breakout.
Gold/Swiss Franc The key to trading Gold is the Gold/Swiss Franc spread or ratio, determined by dividing the value of the Swiss Franc (U.S. Dollars) into the price of Gold (in U.S. Dollars). The result is the price of Gold expressed in CHF. The long-term trend of GC/CHF is up as shown by the weekly chart (bottom). The period since September appears to be a continuation pattern, not a top. Closes above 1573 and then 1630 would be constructive toward the price of Gold.
Silver The $26 level can be seen as an important support line. A close below this line would be negative and could result in a move toward $20.
Platinum The decline in the precious metals from the 2011 top has been led by Platinum. As a general rule it is always best to be short the weakest member of a market category and long the strongest member of the category when taking a flat price position. Thus, I am willing to explore the short side of Platinum if it closes below 1380.
British Pound The weekly chart displays a 3-1/2 year symmetrical triangle. This pattern could serve as a continuation or reversal pattern. Note that the market has already challenged the lower boundary. A decisive close below 1.5250 on the daily graph would confirm the symmetrical triangle and penetrate a nearly 2-year support level.
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Cocoa I have not commented on or traded this market in ages. Yet, the market displays a potential bottoming pattern. A decisive close above 2370 to 2400 would complete this pattern and establish an up trend in Cocoa.
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Factor Update July 22, 2012

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Factor Update July 22, 2012

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July 22, 2012 Note: My last three weeks have been crazy.

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