The Insights of Swing Trading
by Scott Hoffman, Senior Broker & CTA
This week will see some pickup in economic news, most notably moving into earnings reporting season for stocks. We also have CPI on Wednesday and housing starts on Thursday. Past this week, the focus will turn to the FOMC meeting on January 31st, as traders will look for signs from the Fed that they may be done raising interest rates.
S&P
The "Santa Claus" rally continued early this week as S&Ps pushed over 1300 last Wednesday. The impetus was the two bar correction pattern on Monday and Tuesday. When the market cleared Tuesday's high on Wednesday it gave the springboard to extend the rally. Last Thursday's inability to regain 1300 set the stage for a selloff that tested 1290 on Friday. Holding over 1290 keeps the S&Ps in good shape, with 1295 and 1300 as resistance.
Bonds
Thursday and Friday saw a rally in bonds, as investors appeared to be rotating out of stocks and into bonds. Bonds gained strength in thin trading on Friday off a weak retail sales report. Bonds should run into resistance next week at the 2006 high of 11425 and trendline resistance around 11427. Past this week, the Treasury market is looking toward the FOMC meeting at the end of the month to see if the Fed indicates it is done raising interest rates.
Yen
Following a breakout selloff on Tuesday, the Yen recovered on Thursday and Friday. I'm bearish on the Yen and would be looking to sell a rally back toward 8800 as growth and interest rate differentials continue to favor the dollar.
British Pound
Friday was the notable day for the Pound, which rallied to a new year high off the weak US retail sales report. Look for resistance at the December high around 178. The triangle from the beginning of the year has an objective of 17870.
Canadian Dollar
The Canadian Dollar gained strength over the week on the back of higher commodity prices. Friday's inside/narrow range day sets the market up for a breakout move on Tuesday.
Gold
After forming a triangle this week, gold blasted into a new contract high on Friday, breaking above the old high at $551.40. Friday's rally was aided by the selloff in the Dollar and concerns over Iran's nuclear program. I expect these factors to continue to support gold; support is now at $550. I don't yet have any upside objectives, although $600 will likely be a psychological target.
Silver
Silver formed a triangle last week; culminating in Friday's breakout of an inside/narrow range day pattern on Thursday. By the close, prices had retreated from a test of the contract high at 929.50. Silver should see more upside, although I continue to advocate buying gold over silver, as the strongest market in a sector tends to remain the strongest.
Copper
Copper had a strong rally on Friday, following the other metals higher and testing the contract high at 212.00. I'm looking to buy a move above the contract high. In spite of the high price, MACD is actually close to a bullish crossover, which would reinforce higher prices.
Cocoa
Cocoa is another market that has formed a triangle over the past week, as the market trades inside the two wide range bars of 1/06 and 1/09. I was looking to take a breakout of this triangle on Tuesday; although the bearish MACD crossover has me interested in a downside breakout (especially if the market moves under the 1/06 low of 1500). You should keep an open mind when a triangle forms because the breakout can go in either direction.
Sugar
Sugar's triangle of the past week (yes another one!) led to a sharply higher opening on Friday as the market opened above double top resistance at 1495 and rallied into a new contract and 11 year high. Strong physical demand continues to underpin sugar, as does the expansion of ethanol production for fuel. Maintaining closes above 1500 should help keep the sugar rally going.
Cotton
Cotton continues to advance, following a months old uptrend line higher. Cotton is finding strength from both relatively tight stocks and projections for robust worldwide demand. 5600 is the recent high for March, with a rally to 5630 filling in a gap from late October.
Crude Oil
Energy trading has been a two-way affair lately - the warm US weather is depressing demand for heating oil and natural gas and Mideast geopolitical fears are keeping a floor in the market. Pending resolution of the Nigerian unrest and the Iranian nuclear issue, I expect to continue to see choppy trading in the near term, with a spring rally as we move toward the summer driving season. I'd expect $60 to be a good floor for crude oil, with resistance at $66.50.
Cattle
Cattle had a volatile week last week, as an upside breakout on Monday/Tuesday turned into a rout on Wednesday. The narrow range we had on Tuesday was a tip off that buyers weren't strongly committed to chasing higher prices; as Wednesday's selloff continued, it gained strength as it broke through the recent up trendline and then under last week's low at 9410 basis April. The recovery seen on Thursday and Friday should run into trouble as it approaches the apex of the old triangle around 9475.
Hogs
As with cattle, an attempted breakout early in the week saw a violent reversal midweek, as last Tuesday saw hogs drop back below the recent up trendline (see chart) and close on a supporting trendline. Wednesday gapped open below this trendline and dropped to three month lows. This selloff is not yet really showing signs of being overdone.
Soybeans
We came into the week short beans, as the bearish MACD crossover and breach of December's up trendline gave a good sell signal. Tuesday and Wednesday saw a continuation of the selloff as beans fell through the 40 day moving average. Although Thursday's report from the USDA was bearish, the selloff seen before the report set up a "sell the rumor, buy the fact" trade, and beans saw no real follow-through selling Thursday, and staged a minor recovery on Friday. I'm still bearish on beans, but I'm not in a hurry to sell at current price levels. I would be interested in selling a rally toward $5.90 with the expectation of a pre-planting break later this winter/early spring.
Wheat
Wheat started out the week on the ropes, trading to the 40 day moving average on Monday following the previous week's collapse. The remainder of the week saw wheat rally, with a big up day on Thursday following the report from the USDA. Friday's inside/narrow range day pattern sets the market up for a breakout move on Monday. Resistance is at a Fibonacci retracement level at 335.25.
Corn
The corn market was a frustrating affair this week, contained by resistance at 2.15 and support at the double bottom around 209.50. I'd be interested in selling a break under 209.50, which I think would lead to a selloff with an objective of 2.00 to 1.90 before spring.
Soymeal
I've been bearish on the bean complex for the past weeks, as the market remains burdened by big carryovers from this year's US crop. This week's trade was follow-through of last week's collapse, which gained strength with the breach of the 40 day moving average. Friday's gap lower opening saw a recovery, "Oops" rally, which may see a bit more recovery next week. I'm standing aside for now but am interested in selling meal on a rally.
About the Author
Scott Hoffman is a Senior Broker and CTA with Daniels Trading. After graduating from the University of Chicago in 1986 with a degree in Economics, Scott worked on the floor of the Chicago Mercantile Exchange. Following his time at the CME, Scott went to work off the floor, serving as the personal broker to a former chairman of the Chicago Board of Trade. Here Scott learned the trading and brokering business, a process that he continues to expand and refine.
Scott is the publisher of Swing Trader’s Insight, a comprehensive swing trading advisory service covering all of the major futures markets. In addition to a nightly newsletter, Swing Trader’s Insight provides in-depth client education complete with specific trade recommendations and market analysis, including an S&P Morning Insight commentary, Midday Updates and Trade Management Updates. Although Scott specializes in swing trading, he has years of brokerage experience that is available to all of his clients, regardless of their individual trading styles.
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