For the Week of December 10, 2012
The GBE Trade Spotlight advisory service applies the GBE trading methodology (buying or selling commodity contracts based on breakouts of chart formations and technical indicators) to identify one to two trade setups per week.
Highlighting This Week’s Potential Breakouts:
March 2013 E-Mini NASDAQ
The March 2013 E-Mini NASDAQ contract has formed an Inverted Head and Shoulders Formation. The Left Shoulder was formed by the low on October 26 at 2602.00. The market traded higher before once again selling off to create a lower low, and the Head of the formation, on November 16 at 2502.00. The market rallied to 2688.00 (12/03/12) creating a neckline along with the high of 2694.25 (11/02/12). The Right Shoulder was formed by the low on December 6 at 2616.50. A breakout above the neckline (which sets up as 2686.00 for Monday’s trading session) will trigger a long entry. For additional confirmation, wait for a break of the 2688.00 high (12/03/12). The Trend Seeker (a US Chart Company tool to help identify market trend) is Down but this is a trend reversal formation and I am anticipating the Trend Seeker to flip to Up on the breakout. The MACD indicator is already bullish, crossing over below the baseline. The Stochastic indicator appears bearish rolling over near the overbought level and ADX is just 18.53. Therefore I am only interested in the upside if momentum picks up and the recent highs are broken. I watch the volume levels at each segment of the formation typically but that’s not an option as I have moved out the March 2013 contract before rollover. Potential stop losses can go below the Right Shoulder. A upside target is 2774.00 by calculating the distance between the Head of the formation and the second high making up the Neckline, then adding that distance to the second high.
March 2013 Kansas City Wheat
The March 2013 Kansas City Wheat contract is range bound and prices are relatively flat. The range is between the high made on August 10 at 962’6 and the low made on July 24 at 879’4. This market has been in this range since the summer drought conditions rallied the contract $3. The midway point of the range is 921’2 and the market fell short by 11’2 at 909’6 on Friday (12/07/12). A 50 day Moving Average (914’3) and a 20 day expontential Moving Average (912’4) are convering near the current market price. The MACD and Stochastic indicators are also neutral. While this market does not look ready for a breakout it is a candidate for a Strangle Strategy. I will be seeking to sell or “write” options on either side of the range. I used this trading strategy in late September through the beginning of November with success. March options expire Februaury 22, leaving 74 days until expiration.
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
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