Defining Bar: Doji at the end of a move lower. July Heating Oil has been the stronger of the two. Both markets are essentially in the same technical condition as the Crude and should look to be bought. Support for July Unleaded Gas is in the 1.3600 area and resistance is 1.5400. Support for July Heating Oil is 1.2800, not likely to be hit if our short-term forecast for a move higher is correct. Resistance is in the 1.5200 area.
Defining Bar: Doji in Congestion - Pennant. Silver presents what appears to be a good opportunity, and if it follows Gold's lead from last week, Silver should be a sell on a close under 6.85 or on any rally up to the 7.25 area. Assuming the break takes place, downside targets are 595 and 520 respectively. (See the July Silver futures chart below.)
Defining Bar: Doji after initiating breakout. June Gold initiated a new short position on a break under 424.0 last week. Initial risk is above 432.0 while downside targets are 404.0 and 378.0. (See June Gold futures chart below.)
Defining Bar: Doji after breakout gap. Last week the June Euro Currency broke out of a broad 4-month trading range and initiated new short positions on the move below 1.2750. As of this writing, the market is trading about 1.2650. Look to sell in the 1.2900 area with stops above 1.3000. Longer-term target is the low 1.2000 to high 1.1900 area. (See June Euro Currency futures chart below.)
Trades selected in Market Focus are done primarily through the application of Pattern Analysis using a long to short-term approach. This means that we start with a long-term perspective - bullish, bearish or neutral - and then adjust the trading approach to match market bias using short-term chart patterns and intraday support and resistance levels, which are produced on a daily basis for over 30 markets.
How to Use the 3 Market Study Sheets
We begin by identifying any of 6 short-term patterns that are of interest to us. Below is the list of patterns that are of interest.
Short-Term Chart Pattern Analysis - Definitions
WR4 & 7 = A day with the widest trading range of the last 4 and/or 7 trading days.
NR4 & 7 = A day with the narrowest trading range of the last 4 and/or 7 trading days.
ID = Inside Day
OD = Outside Day
Gap = Day where the trading range is completely outside previous day's trading range.
Filled Gap = Day when the Open is outside the previous day's trading range and the market Closes inside the previous day's trading range.
Failed Gap = Day when the Open is outside the previous day's trading range and the market Closes outside the previous day's trading range in the direction the OpeningGap occurred.
40-Day Avg. VAR = The % variance of the Closing price from the 40-day Simple Moving Average. Greater than 100 means the market is above the average, less than 100 the market is below the average.
% Range = Measures the current day's range in relation to the previous day. 100% equals the previous day, 50% means the current day is half of the previous day's trading range and 150% means the current day is one-and-half times the previous day's trading range.
Next, we want to determine if there are any unusual or mitigating circumstances of which we should be aware. This is done by looking at the Market Technicals Worksheet. Below is a list of the items covered:
Market Technicals & Closing Patterns - Definitions
5, 10 & 20 H = Highest highs of the last 5, 10 & 20-days.
5, 10 & 20 L = Lowest lows of the last 5, 10 & 20-days.
Concec. H, L & C = The number of consecutive Higher or Lower - Highs, Lows & Closes. A positive number reflects a higher move while a negative number reflects a lower move. For example, a "4" in the "Consec-H" column would mean there had been 4 consecutive higher Highs and a "-2" in the "Consec-C" column would indicate there have been 2 consecutive lower closes.
Avg. Rng = Average "Day Only" trading range of the last 4 trading days.
Top & Bot Rng = Identifies when the market closes in the top or bottom 25% of its trading range. Useful for identifying markets with Gap potential for the next trading day.
Pennant = Identifies potential pennant formations on charts.
5 - Day Closing Pattern = Identifies the last 5-day's closes. "+" is a Higher Close, "-" a Lower Close. Most recent close is listed on the far right.
Then, we take a look at the Intraday Support & Resistance sheet to determine target objectives for open positions and identify any price levels that may be of use for market entries.
The purpose of the 3 sheets is simply to highlight what otherwise may have been overlooked by using charts alone, as well as to save time during the analysis and trade setup identification process. Essentially, the process works like this: Once a market's daily trading range begins to contract we look for "breakout" opportunities, some directionally biased, some not. Depending on the overall circumstances, these trades may either be short-term in nature or for longer-term positions. If it's short-term trading, then the Intraday Support & Resistance numbers may come in to play. If a market daily trading range has been expanding, then the trading strategy often shifts from breakout to neutral (i.e. no trades under consideration). Or, it may be feasible to "fade" breakouts when they occur on a short-term basis.
Markets typically have a natural cycle where daily trading ranges oscillate between expansion and contraction, on which we look to capitalize. In essence, we attempt to identify current market conditions and anticipate the next change in behavior and trend. Then, we attempt to manage order entries and positions in an effort to take advantage of the changing market.
The information in this article includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
About the Author
Joe Bridges is a Senior Broker with Daniels Trading, in Chicago. Joe began trading Gold using a simple breakout strategy in the early 80's before moving to Chicago in late 1985. Joe has traded, brokered and provided analysis for both institutions and individuals for the last years. Familiar with Elliot Wave, market profile and a variety of technical analysis methods, indicators and oscillators, Joe prefers to make trading decisions based upon factually derived information from the study of price action and patterns.
PLEASE NOTE THAT THERE IS AN INHERENT RISK OF LOSS ASSOCIATED WITH OPTION CONTRACTS. OPTIONS TRADING IS NOT SUITABLE FOR ALL INVESTORS. OPTIONS CAN AND DO EXPIRE WORTHLESS. IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIMUM AND OF ALL TRANSACTION COSTS.
