Week Oct 24th Wednesday Update

Mkt did rally several times getting up to 204.60, but has stalled a little.  Having said that, the pattern is corrective and am still looking at the possibility that this is an irregular (expanded) or running flat - two three wave corrections with a final five wave down (this is where we may be).  Because of this and the fact that we closed at the lower channel line, I am putting in stops @ 198.65 on some of the position and below 194.20. If the market moves farther than this, then I am back to the original correction targeting the 165/150 area. Note: Brazilian Real back to 172.10 and breaking through some short term resistance (need to watch this over the next few days - it may not get to the 160 target).

Tradeflow graph: post option pit market tested lower channel line and 62 % retracement.  As evident by the dominance of red bars, sellers were the aggressors over the last 2 hours of the market.  You could buy this with a stop only a few dozen pts away - very high reward/risk and decent probability that it will pay out.

Week Oct 24th

Quick summary

·        Oct 11^th – had expected mkt to fall, but did not expect it to recover above 180 and thus moved my corrective target to 195 from which I expected the market to correct back down again targeting 160/165.  It did not.

·        Oct 18^th – Was still expecting the move to 195 (bull pennant tgt), but again did not believe we would take out the new high.  It did. Taking the conservative sell (break below 182.95) would have kept you out of the short.

General:  I think the biggest lesson here is that if it walks like a duck, quacks like a duck, and looks like a duck, it must be a duck. That is, I was looking at the move off the 198 high as corrective, but I wanted it to take longer and be more complex (note to self: let the market determine its pattern and don’t try and project). The overall trend remains definitively up. That does not preclude a sharp correction, but for the time being the trend has resumed.  The only possibility would be an irregular flat; not impossible, but it seems this week will continue up. Several short and long term targets looking at the 210/215 area.  Friday took form of yet another bull pennant – this point to ard 215. In summary, I have discarded the correction in the near term and looking for at least 212. Invalidation of this would be below 194.90 (intraday should be enough).

Trade: Aggressive - buy on the open.  Slightly conservative - buy stop above 200.65 (see TradeFlow graph).  Stop @ 194.90.

Open Interest -  previous indicators turning bullish again. 

Graphs

60 Min - nice clean impulsive move up.  Had broken trend, but was nearly a textbook ABC correction where A = C.

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Tradeflow - nice visisble resistance at the close, but a move above that should set the stage for a nice next leg rally - buy stop above that resistance would work well.

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Weekly - was looking for that question at 160/165.  It still may come, but probably not until we see a good new high (215/220).   If the rally fails now, then Ill start looking at this as an irregular flat which which would bring us back to the 160 area.

Obviously lots of upside potential still.  This is either a 5th or the middle of a big III - both point up in the medium term. 

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Week Oct 18th

Not much has changed since Tuesday's update: expecting market to correct down.

Mkt did make an attempt above 190 but was held back. However, it held the 182.95 breakout point.  I still see the odds of breaking 198/200 this year as only 20 %, but I do expect one more attempt up this week - some short-term indicators pointing at 194/195.

Recommendation is still to step in (tip toe in) on the short side with a stop above the 198 high.  If not, be prudent and look to sell/add with a break below 182.95.

The overall context in which I am trading is that we are in a bull market and that this is either the 5th wave eventually pointing to above 220 or that this is only wave III of a much larger bull market - either way, it's up.  The intermediate trend is an ending third wave which should correct back no further than 150.
This is a weekly graph illustrating the overall picture.  Still quite a bit of upside, but likely to get in at a much better level.  Breaking 198 would negate this short-term perspective and thus would be looking for 220 next, then the correction.

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Again, looking at the 60 minute, mkt held nicely the 182.95 breakout and is putting in a correct flag pattern targeting 194/195.

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My cautionary note is that the fall from 198 to 172 was text book correction and therefor might suggest the rally continues above 198 shortly.  As I have stated, I recognize this potential, but think enough other factors (open interest, willingness of Brazilian farmer to sell at these levels (considerable coffee was sold Thursday/Friday at these levels) and other technical factors suggesting market needs to consolidate more, before next leg up.

Fund net position:  they had been liquidating as evident by this graph, however, have bought again.  The pattern suggests they will liquidate a little more.

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Producer - producer position tends to move counter to the market.

Week Oct 11th - Tuesday

Well...back to the drawing boards? Maybe.  Stops taken out at 182.95 and 185.00 (most of the volume was concentrated here) in a very thin market due mainly to Brazil being a 4 day weekend/holiday and thus no selling pressure.  Open interest also suggested that there were more shorts that could be forced to cover - easy targets in a thin market. Still, this only changes my probabilities for the market breaking 200 this year vs next.  I'd put them at 60,30,10 (Range between 150/195, above 200 and below 150, respectively). I still feel that we will see substantial selling pressure as the market approaches the 198.65 high and that, again, funds have gotten "top heavy". As I mentioned in the last post, the move off the high has seemed very corrective in nature.  So, why wouldn't I argue for a buy if I thought it was corrective?  Basically, for the likely, anticipated selling and the fact that it would have to be very, very bullish.  The very, very bullish argument would call this the beginning of a wave 3 pointing to an initial target of 220/225.  While I do see us there next year, I do not see us there now.  Therefor, I still think we will consolidate in the wide range and that you can step in on the short side with a small position.  Or be patient and look to buy lower, or if it is truly bullish now, then buy a break above the high.

Attached is the 60 minute graph again.  It is pointing to at least further gains tomorrow. It bounced of the 62 % retracement (green bar at todays high), but it has momentum and a short term bullish 5 wave pattern unfolding pointing to at least 190 again.

Will be interesting tomorrow as Brazilians return to work to see if they start out selling.  Given that they have sold well and are well capitalized, my guess they will take a wait and see approach - should provide for some more upside.

60 min:

Week Oct 11th

General:Last week's recommendation to sell into any rally would have worked, but I admit, I was not expecting Friday's counter rally above 180. Still, the down trend (correction) remains in place and today's fall off helps, but does not guarantee further decline. To clean up the overall picture I have attached a point of figure chart.  The choppy action off the high strengthens the correction argument.  The fact that it has held the 45 degree downtrend line helps. The second leg of the correction is an exact 1:1 multiple of the first leg (tgt was 171.60).  The entire move is contained by the channel line (see 60 minute chart).  Barring a close above 186.5, I would expect further declines of the next few weeks. Expectation is that we are range bound between 150 and 195 for some time ( I know, lots of room for error..but I do think it will touch those points).  How certain? 70 % range bound, 10 % we break above 200 this year and 20 % we break below 150.  Long term, expecting to see substantial new highs next year.

Trade:  Sell any rally with a stop above Friday's high (182.95). Or more aggressive, 186.50.   However, I would still be looking to buy this below 170.

Key technicals: Broken uptrend, Weekly sell on the slow stochastic.  Daily slow stochastic, however, nearly issuing a sell ...nearly.

Outside Mkts:  Real below 1.67 and pushing towards 1.66 - bullish/supportive coffee.  Commodities in general rallying. US dollar weak in general allowing for more risk-trade.

Open interest: generally bearish, despite large fund liquidation.

Point and figure chart: Critical point - trapped between several support and resistance areas.

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60 Min - uptrend broken and unable to re-enter, as of yet.

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Fund net Open Interest position: they spent a long time without increasing their position.  I think fatigue set in and we will see further liquidation.

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Open interest - one of my crazier proprietary graphs, but it tends to capture general moves.  Pointing down for the time being.

Week 4th of Oct - Monday

Today's market was worthy of an update.  Mkt pushed through 180 and 177.9 then dropped like a rock.
It would now seem that the medium-term uptrend is over and we are entering a corrective phase.  It should be choppy, but fun to trade.  Mkt found support at several fibonacci targets, but would expect these to only offer a bounce.  Next target should be 165 and therefore, I'd sell any rally and buy scale into that (or wait to see if it holds).  Either way, mkt has changed and I'd be looking for a cheap opportunity to get in.  This should take a while to determine.

Attached is the weekly graph showing the overall picture.  Would be difficult to get throug the 149/150 mkt.

Week Oct 4th