For the Week of February 18, 2013
The 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:
Let’s focus on one trading pattern and a contract that could possibly breakout of that formation.
The May 2014 Sugar contract has formed a 1-2-3 Bottom Formation and is setup to potentially breakout to the upside. The 1-2-3 Bottom Formation is a trend reversal formation. The formation is created when a twelve-month contract low is established along with a spike in trading volume. From there, the contract rallies setting up a short-term contract high. If the contract then sells-off, that high becomes the second point of the formation and the breakout target price. The price must not trade lower than the twelve-month contract low on the sell-off. There is a spike in trading volume again. If after the retracement, the contract price increases, the low established on that move becomes the number three point of the formation. A trade opportunity to the upside is a breakout of the number two point. It is not important that the trend indicators display a bullish market but the the leading indicators, such as Momentum, should display bullish tendencies.
Turning to the May 2014 Sugar contract, the number one point is the twelve-month contract low of 14.92 (1/28/14). The number two point is the February contract high of 16.58 (2/04/14). The contract retraced to 15.57 (2/12/14). A breakthrough of the number two point triggers an entry opportunity to the upside. The MACD, a trend indicator, is bullish below the baseline. Stochastics, a Momentum indicator, is bullish below the “over bought” territory. A 20-day Exponential Moving Average and 50-day Exponential Moving Average are angling upward, with the 20-day setup to cross over the 50-day. The Trend Seeker (a US Chart Company tool to help identify market trend) is already Up. A potential stop loss may be placed below recent lows near 15.87. An upside target is the high of 19.67 (10/18/13).
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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