Commodity Chart Book

Transcription

1 Commodity Chart Book

2 Cents / Bushel Corn CORN - CBOT MONTHLY SELECTED FUTURES Chart Chart High: on 08/10/2012 Chart Low on 02/17/1987 Chart Low: on 02/17/1987 Cents / Bushel

3 Technical Commentary Corn Between 2007 and 2014 there were five instances when futures declined to the floor area of 2.90 to 3.18 but could not fall any further. Each test of this long term support area was followed by price gains, with some of them being substantial. The most extreme example of this took place in 2009, when prices advanced from the 2.97 area to a high price of almost 8.00 in 2011, before any meaningful setback took place. The rule of thumb is always look for areas of previous support as potential areas to buy on a return test. When a major chart buy signal fails to follow through on the upside, it is often a technical sign of weakness. A perfect example of this took place in An uptrend line that can be drawn from the highs that were made in 2008 and 2011 was penetrated on the upside in July There was follow-through for only one more month before prices rolled down to below the upside breakout line, which was a clear sign of weakness. The bull market that began in 2010 continued into 2011, topping at just under the 8.00 level in June. Although this high price was unprecedented, the trend of lighter volume on each subsequent advance was an indication that the gains would not be sustained. From the near 8.00 level, futures quickly dropped to In a classic bull market, volume should be increasing on an advance. In this case, the new high was met with lighter volume, which was a warning that the bull market was about to come to an end. In 2010, after a sideways to lower trade through June, prices exploded to the upside for the rest of the year. Beginning in July, every month showed a pattern of higher highs and higher lows. Once a steep downtrend line was taken out at midyear, volume and open interest increased at an accelerating rate on the advance. The increasing volume and advancing open interest on a price advance is considered to be an indication that the chart breakout to the upside is valid and is a clear sign of further price gains. It is often the case that rising volume and open interest levels take place in advance of and during a bull market. Another example of how volume and open interest rules can be applied is illustrated in the period that started in the middle of 2005 and continued to the summer of At this time, we can see volume and open interest increasing in conjunction with rising prices. When open interest is increasing, it usually means that new positions are being established. When the increase in open interest is greater than the seasonal norm and is accompanied by higher prices, it often means that the buyers are becoming more aggressive. The longs are willing to continue to pay higher prices, and this can be a clue to follow-through gains. An indication that a market may be topping is when prices are still advancing, but open interest begins to decline. This is exactly what happened during the 4.75 decline that took place in the last half of The falling open interest at that time was an indication that new buying was limited and that the buying that was being done was mainly short covering. The decline in open interest could also have been a sign that the traders who were holding long positions were taking profits by liquidating those positions.

4 Cents / Bushel Soybeans SOYBEANS - CBOT MONTHLY NEAREST FUTURES Chart Chart High: on 09/04/2012 Chart Low on 07/09/1999 Chart Low: on 07/09/1999 Cents / Bushel

5 Technical Commentary Soybeans Any time a market makes new historical highs, follow-through to the upside can be expected. This was the case in 2012, with futures advancing above the 2008 high of and continuing to ¾ in September The logic behind this is that if the fundamentals are strong enough to take a market to new historical highs, they are probably powerful enough to continue for a while longer and push prices even higher. A large congestion pattern was formed during much of 2011, with prices ranging between and Prices broke out to the downside in September. One indication that there would be further declines was the dramatic increase in volume that accompanied the move to the downside. Futures eventually found support near the area. The chart pattern in soybeans in 2010 was similar to the pattern that was evident in the corn futures chart. After a period of narrow trading ranges in the first six months of the year, prices exploded to the upside. As like the corn, rising volume and open interest trends for soybeans signaled likely followthrough gains.

6 Cents / Bushel Wheat, Chicago WHEAT, CHICAGO - CBOT MONTHLY NEAREST FUTURES Chart Chart High: on 02/27/2008 Chart Low on 12/13/1999 Chart Low: on 12/13/1999 Cents / Bushel

7 Technical Commentary Wheat, Chicago There is an important rule of thumb that double bottoms and double tops seldom hold. This is an axiom that is as old as the hills but still holds great truth today. However, occasionally, there are exceptions to this rule of thumb. One of those exceptions, which was a sign of strength, took place when the September June 2010 double bottom at the 4.25 area actually did hold. When it appeared to traders that the double bottom could not be penetrated, prices quickly advanced, followed by an upside breakout above a very steep downtrend line. Sometimes a double bottom pattern can hold for a long period of time before it is ultimately broken. The double bottom that was formed at the 1986 low of 2.38 and the late 1990 low of 2.38 is a perfect example of this important rule of thumb. It took nine years before this double bottom was tested and ultimately broken in late A second lesson to be learned here is that any time there is an obvious chart sell signal, such as this double bottom breakout, after a long decline with limited follow-through, the chart sell signal can actually be construed as a chart buy signal. This indicator worked well in this case, since prices were able to substantially advance after the double bottom false sell signal was generated. Live Cattle There will probably be follow-through to the upside any time a market makes new historical highs. This was the case in 2011, 2012, 2013 and When studying the characteristics of a classic bull market, it is extremely important to be aware of open interest and volume rules. This chart shows several major periods of rising prices that were accompanied by increasing open interest and volume. One of these periods took place in June 2006 when price, volume and open interest rules gave bullish indications, as prices increased from the level to

8 Cents / lb Live Cattle CATTLE, LIVE - CME MONTHLY SELECTED FUTURES Chart Chart High: on 10/31/2014 Chart Low on 07/29/1985 Chart Low: on 07/29/1985 Cents / lb

9 Cents / lb Lean Hogs HOGS, LEAN - CME MONTHLY NEAREST FUTURES Chart Chart High: on 07/15/2014 Chart Low on 12/11/1998 Chart Low: on 12/11/1998 Cents / lb

10 Technical Commentary Lean Hogs Often after a price advance, there can be a correction that retraces approximately halfway back from the advance. One of the best examples of the halfway back rule took place in From when the lows were made in August 2009 at 43.05, prices advanced to in May During the next seven months, prices declined to the level, which is close to the halfway back point of Once prices bottomed at the 50% retracement area, futures rallied almost points to in August The tops for all of the bull markets that took place from between 1982 through 2010 have been in the to the area. In this period there were six times that these resistance areas halted an advance. Instances took place in 1982, twice in 1986, in 1990, 1996 and Soon after the highs for the move were established, volume and open interest tended to fall. One of the best examples of this took place in 2008, when futures tested the area. The rule of thumb to be learned here is that whenever prices are moving close to a major resistance area, a close monitoring of open interest and volume trends can an indication of a possible major reversal in price. Cotton It is a technical sign of strength when a major chart sell signal fails to follow through on the downside. A clear-cut example of this took place when major lows that were made in 2004 through 2006 were penetrated, with prices finally bottoming at in November It was a sign of strength when there was no follow-through on the downside and prices advanced to above the highest of the three major previous bottoms. There was a massive rally after the false sell signal low price of to the March 2011 high of Another example of this situation took place in When the 1986 low of was finally taken out in 2001, after a relentless point drop from down to the area, it would appear logical that the last of the longs would have probably given up when the fifteen-year-old low price could not hold. This demoralizing drop to at least twenty-six-year lows had to be an additional reason for the last of the stubborn longs to finally give up and liquidate. However, once the sell stops under the 1986 lows were taken out, there was no follow-through. In addition, the break to new lows took place on very light volume. This suggests that the pressure was mainly due to long liquidation and not new selling. Because of the lack of heavy volume into new low ground and the lack of follow-through to the downside, what at first appeared to be a sell signal was actually a buy indicator. Within only a few years, prices had substantially advanced to the level.

11 Cents / lb Cotton COTTON #2 - ICE-US MONTHLY SELECTED FUTURES Chart Chart High: on 03/07/2011 Chart Low on 10/26/2001 Chart Low: on 10/26/2001 Cents / lb

12 Cents / lb Sugar SUGAR #11 - ICE-US MONTHLY SELECTED FUTURES Chart High: on 02/02/2011 Chart Low 2.30 on 06/28/1985 Chart Low: 2.30 on 06/28/1985 Cents / lb

13 Technical Commentary Sugar Prices gapped to the upside on heavy volume in October There is an old axiom that all gaps are eventually filled. Some traders rely on this and are reluctant to cover a position until the gap is filled, or at least tested. This is a dangerous strategy since, in some instances, it may take a long time for the gap to be filled, especially for breakaway gaps. That was the case in late 2008, when futures gapped above the area. This breakaway gap was eventually filled, but not before prices more than doubled to over In spite of the history of extreme volatility for this market, there appears to be one almost constant. Since 1998, it has been apparent that prices have found a bottom in the 4.20 to the 5.50 range. Each time the 4.20 to the 5.50 area of support was tested, a substantial rally followed. The best example of this was when futures advanced from the low in early 2004 to the high in 2006 at the area. Cocoa The double top and triple top upside breakout is one of the most reliable technical signs of strength. This is another example of the rule of thumb that double tops seldom hold and triple tops almost never hold. This chart contains perfect examples of the application of this rule. Between October 1997 and May 1998 three tops were made at the level. These highs held for over four years until this triple top pattern was finally penetrated on the upside, followed by explosive gains to the 2400 area. Another example of the triple top breakout rule took place in February 2008, when the triple top at the 2400 area, established in October 2002 to the February 2003 period, was explosively penetrated on the upside five years later. The subsequent rally took prices to above the 3375 area. This buy signal took futures to the highest levels since the early 1980s.

14 USD/metric ton Cocoa COCOA - ICE-US MONTHLY NEAREST FUTURES Chart Chart High: on 03/03/2011 Chart Low on 12/12/2000 Chart Low: on 12/12/2000 USD/metric ton

15 USD / troy oz Gold COMEX GOLD - COMEX MONTHLY SELECTED FUTURES Chart Chart High: on 09/06/2011 Chart Low on 08/25/1999 Chart Low: on 08/25/1999 USD / troy oz J S D M 2009 Commodity Research Bureau

16 Technical Commentary Gold COMEX There is a tendency for follow-through gains to take place any time historical highs have been taken out. In some cases, the additional strength can be substantial. Therefore, the probabilities of financial success are much greater by trading from the long side, when new historical highs have been made, than by trading from the short side in an attempt to guess when a bull market of this magnitude may eventually top out. Once the high from March 2008 was surpassed, substantial follow-through gains to were registered in September Another important pattern on this chart is the triangle congestion that took place at the May 2006 high at down to the low in October An upside price target can be calculated by using the measured move, or equal leg technique. When the price difference from the 2005 low to the May 2006 high is added to late October low, an upside price objective of can be projected. This price was hit in January 2008 and then substantially surpassed. Keep in mind that a sell signal is not necessarily generated when an upside chart objective has been met. Other factors must be considered, such as open interest and volume rules, along with the occurrence of new technical sell signals. Silver A reliable and powerful technical indicator can take place when a false breakout in one direction is quickly followed by a reversal and breakout in the opposite direction. A perfect example of this is when the double bottom at the area was taken out in August There was only limited followthrough to the downside before the trend reversed, taking out a steep downtrend line. The trend line in this instance is drawn from the high from February 2007 to the June 2007 high of This breakout to the upside proved to be a valid one, taking prices to in April 2011.

17 Cents / troy oz Silver SILVER 5,000 TROY OZ - COMEX MONTHLY SELECTED FUTURES Chart Chart High: on 04/25/2011 Chart Low on 02/22/1991 Chart Low: on 02/22/1991 Cents / troy oz

18 Cents / lb Copper COPPER, HIGH GRADE - COMEX MONTHLY SELECTED FUTURES Chart Chart High: on 02/15/2011 Chart Low on 12/21/1984 Chart Low: on 12/21/1984 Cents / lb

19 Technical Commentary Copper Between 1998 and 2001 there were three instances when futures declined to the floor area between and but could not fall any further. Each test of this long-term support area was followed by a price gains, with some of them being substantial. The most extreme example of this took place in 2001, when the low was followed by a major bull market that took prices up to the area, before any meaningful setback took place. The rule of thumb is always look for areas of previous support as potential buy areas on a return test. Crude Oil, Light The most prominent feature on this chart is the rare diamond congestion pattern. This pattern developed in the period between July 2006 and January 2007, when prices ranged between a high at the area down to the level. An upside price objective can be calculated by using the measured move, or equal leg technique. When the price difference from the July 2006 high to the January 2007 low is added to the December 1998 low, an upside price objective of can be calculated. This upside price target was hit in April 2008 and then substantially surpassed. It is important to note that an upside chart objective is nothing more than a resistance area and a possible exit point for long positions. Keep in mind that a sell signal is not generated only because an upside price target has been hit. Other factors must be taken into consideration, such as the occurrence of new technical signs of weakness just before or soon after the measured move objective price has been hit.

20 USD / barrel Crude Oil, Light CRUDE OIL, LIGHT - NYMEX MONTHLY NEAREST FUTURES Chart Chart High: on 07/11/2008 Chart Low 9.75 on 04/01/1986 Chart Low: 9.75 on 04/01/1986 USD / barrel

21 Index Value S&P 500 Index S&P 500 INDEX, E-MINI - CME MONTHLY NEAREST FUTURES Chart Chart High: on 12/29/2017 Chart Low on 07/25/1984 Chart Low: on 07/25/1984 Index Value

22 Technical Commentary S&P 500 Index There is a rule of thumb that new historical highs indicate that follow-through strength is likely. When new record highs were made in January 2017, it was an indication that there could be follow-through gains, which proved to be the case, as futures continued to advance through January This rule worked well in April 2013, when new highs were registered and futures continued to advance into May In some cases, the additional strength can be substantial. The logic behind this is that if the fundamentals are powerful enough to propel a market to new historical highs, they are probably strong enough to persist for a while longer and push prices even higher. A market often will bottom after the very last chart support area has been taken out and the chart patterns look horrendous. In this situation, the last of the longs give up. This is what happened in March 2009, when futures fell below the October 2002 low of An astute technician may have correctly predicted that a major buying opportunity would not present itself until the likely resting sell stops under this support area were taken out. Ample time should be allowed for the anticipated new technically induced selling that will probably be generated by a price drop to new lows for the move. After the lows were registered in March 2009, prices were able to sharply advance. Many times, it is only after the longs have been liquidated, along with new technically based selling, that futures can embark on a new bull market. Dow Jones E-mini When new historical highs were made in March 2013, prices continued to advance into May The new historical highs price follow-through rule correctly indicated that additional strength was likely. In addition, there was another more recent instance of this rule when new record highs were registered in January 2017 and prices continued to advance through January The patterns on this chart appear very similar to the patterns on the S&P 500 chart. In the bear market, the last of the longs gave up in March Futures were able to bottom once the last major support was taken out at the 7200 area at the 2002 lows. Increasing open interest along with higher prices often is an indication of further price gains. These two conditions prevailed on the 2005 to the 2007 advance to historical highs. However, in the first quarter of 2007 open interest began to drop while prices continued to advance. According to price and open interest rules, when prices continue to increase but open interest starts to decline, it is often the case that the bull market is about to end.

23 Index Value Dow Jones E-mini DOW JONES INDUSTRIALS, E-MINI - CBOT MONTHLY NEAREST FUTURES Chart Chart High: on 12/18/2017 Chart Low on 06/18/1984 Chart Low: on 06/18/1984 Index Value

24 Index Value U.S. Dollar Index U.S. DOLLAR INDEX - ICE-US MONTHLY NEAREST FUTURES Chart Chart High: on 02/25/1985 Chart Low on 03/17/2008 Chart Low: on 03/17/2008 Index Value

25 Technical Commentary U.S. Dollar Index There are other forms of technical analysis in addition to pattern recognition. There is also an element of psychology. The more prominent or obvious the chart pattern, the more attention it will receive from technical traders. In this case, the broadly based double bottom formation that was made in 2004 at the area was hard to miss. This area appeared to be a level of rock solid support. Sometimes major buying opportunities present themselves after the very last chart support is taken out. Some technicians may have correctly surmised that a major buying opportunity would not present itself until after the likely resting sell stops were taken out under the support area. Futures were able to advance only after the perceived support area was penetrated. It is a good idea to give the market enough time for follow-through weakness. Quite often, it is only after the longs have been liquidated, after being completely demoralized when the rock bottom support could not hold, that futures can begin a new leg up. Within approximately a year from when the lows were made, futures were able to advance to near the area. Euro Currency A series of highs and lows were made in the late 2000 to the early 2002 period, which formed the rare symmetrical triangle reversal pattern. Congestion patterns of all types, including triangle patterns, are usually continuation patterns. However, this triangle pattern was an exception, being a reversal pattern to the upside and not the statistically more prevalent continuation pattern. One important rule of thumb worth remembering is prices usually break out of a congestion pattern in the same direction that they came into the pattern about 60% to 65% of the time. One clue that this pattern could be a reversal pattern while it was forming was the fact that volume showed a tendency to be light on the breaks and heavy on the rallies. Another congestion pattern that formed in the early 2004 to the middle 2006 period did prove to be a continuation pattern. In this case, prices broke out to the upside, which conforms to the 60% to 65% follow-through rule of thumb. This late 2006 upside breakout was a valid one and was able to take futures to the area.

26 USD Euro Currency EURO FX - CME MONTHLY SELECTED FUTURES Chart Chart High: on 07/15/2008 Chart Low.5621 on 02/26/1985 Chart Low: on 02/26/1985 USD

27 USD British Pound BRITISH POUND - CME MONTHLY SELECTED FUTURES Chart Chart High: on 11/09/2007 Chart Low on 02/26/1985 Chart Low: on 02/26/1985 USD

28 Technical Commentary British Pound There is another very important rule of thumb on this chart. If it is true that double bottoms seldom hold and triple bottoms almost never hold, it also must be true that quadruple bottoms, most likely, will not hold either. In fact, it is more likely that a quadruple bottom will be penetrated on the downside rather than the double bottom or the triple bottom, since the more times a particular area of support has held in the past, the more likely there will be a large accumulation of sell stops underneath. During the 1986 to the 2001 period, there were four major lows between and The rule of thumb here is that if a trader wants to be long, it is advisable to wait for the obvious area of likely sell stops to be taken out first. This technique tends to work best after a long decline, when analyst and trader sentiment is overwhelmingly bearish. Japanese Yen One of the most reliable reversal patterns is the blow-off top reversal indicator. It is the most reliable when there has been a long advance, such as the one that began in 1990 at the.6300 level and continued into the 1995 high price at the area. The characteristics of the blow-off top are unusually heavy volume, large price ranges and extremely bullish news. The blow-off to the upside in this instance was accompanied by all three of these characteristics. The final move to the upside resulted after a breakout from a narrow double top pattern at the area in The blowoff top pattern was followed by a massive decline to the.6900 level in a relatively short period of time. The double tops seldom hold and triple tops almost never hold rule is illustrated in the period, when a triple top pattern occurred at the.8407 to the.8419 area. Once prices were able to advance above the major resistance level, there was substantial follow-through to the upside to the area. It should be noted that at the time of the breakout, there was an increase in open interest to a record level, which confirmed the validity of the buy indicator.

29 USD Japanese Yen JAPANESE YEN - CME MONTHLY SELECTED FUTURES Chart Chart High: on 10/31/2011 Chart Low on 02/25/1985 Chart Low: on 02/25/1985 USD

30 Points of 100% Eurodollars EURODOLLARS - CME MONTHLY SELECTED FUTURES Chart Chart High: on 05/08/2014 Chart Low on 06/22/1984 Chart Low: on 06/22/1984 Points of 100%

31 Technical Commentary Eurodollars Another very important rule of thumb is any time futures prices fall on declining open interest and on light volume, it can be an indication of a likely lack of follow-through to the downside. Clues to the potential for a false triple bottom breakout to the downside were evident when there was a pattern of declining volume and open interest. This chart contains an excellent example of a downside breakout with limited follow-through. This is illustrated by the 1999 price move below a triple bottom pattern at the area that took place between the years of 1996 to In this case, there was only limited additional selling before a major advance to above the level. 30 Year U.S. Treasury Bonds An up channel is formed when a trend line is drawn that connects the ascending major tops and another is drawn to connect the ascending major bottoms. The up channel formation on this chart appeared to be intact until 2006, when prices rolled under the lower portion of the channel. This proved to be a false breakout, as futures did not follow through to the downside. A clue that this downside breakout could be a false one was the light volume on the drop below the trend line, along with the lack of a confirming large increase in open interest. There was a quick reversal to above the trend line, which was followed by an unprecedented up move to the 143 area in December and open interest rules often are clues to the next major move. For additional market information on any of these products, send us an at sales@admis.com. Charts provided by Commodity Research Bureau

32 Points - 32nds Year T-Bond T-BOND - CBOT MONTHLY NEAREST FUTURES Chart Chart High: /64 on on 07/11/2016 Chart Low 48 38/64 on 05/30/1984 Chart Low: 48 38/64 on 05/30/1984 Points - 32nds

33 Connect with Us Chicago Chicago Board of Trade Building 141 West Jackson Blvd. Suite 2100A Chicago, Illinois (Main) (Toll-Free) New York London Hong Kong Taiwan Shanghai Singapore Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The risk of loss in trading futures and options can be substantial. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analyst does not currently maintain positions in the commodities specified within this report. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.