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Welcome all Safety in the Market traders to this month’s dedicated newsletter. Equities markets have been tracking essentially sideways since October last year with no big runs in either direction. The jury is still out on whether the January top will hold on the SPI200. This week represents the 1 year anniversary of the bear market low of 2009 and is potentially very important. I will look at this with you next month once we have more information. This month I want to talk to you about a set-up that we came up at my latest Gann Mastery Workshop in Brisbane late in February.
One thing we get to spend more time on at the advanced computer lab trading workshops is the world of futures trading. In the world of futures trading one thing you can always be sure of is that something is going to be on the move. Either up or down. Commodities futures contracts have two personalities. They can move sideways for extended periods of time and then all of a sudden break out into massive moves up and then back down again. It is picking when these massive moves are on that large profits can be made in relatively short periods of time. It is during the sideways periods that the market is getting ready for the big move. Think of it like winding up a spring for a period of time then letting it loose.
Sugar futures came up at the Brisbane Workshop as a result of a sugar cane farmer we had in the room. So I spent some time and looked at this chart during a break and we came up with some interesting stuff. Sugar futures are a relatively easy contract to get to know and trade and one I know quite a number of our students follow. Being a Gann Mastery Workshop which is basically the seminar for the David Bowden’s Ultimate Gann Course, we are well and truly immersed in the study of ‘time’ so that of course was part of our conversation.
Chart 1 is some big picture stuff on Sugar and what we noted was that back in 1980 Sugar went on a massive run to top in October/November of that year. Now the importance of 1980 is that it is 30 years ago which is an important cyclic period for commodities.
Chart 1 – Sugar 30 Year Cycle Top late 1980
click chart to enlarge
The run up the top in 1980 was punctuated by several sharp sell-offs. So these big runs can be very volatile along the way which does make them a little harder to trade then just sitting back and holding on. Sugar has been having a big pull-back recently from highs around 30cents/pound back down to around 20 cents/pound.
(Note: Sugar futures are quoted in cents/pound. A tick or minimum movement is 1/100th of a cent per pound or 0.01cents/pound. This has a value of US$11.20 per contract and the current contract with the highest volume is May 2010.)
At the workshop, based on Time by Degrees reasons we speculated that this pull-back could continue until early March (near the end of the first week or so) and perhaps re-test a top formed in February 2006. Chart 2 is still relatively big picture and shows some of the price work that could be relevant right now.
Chart 2 – Sugar Weekly Bar Chart – Basic Price Work
click chart to enlarge
Looking at the bull cycle from the 13 June 2007 low (8.37) to the high on 1 February 2010 (30.40) the 50% retracement level comes in at 19.385. (8.37 + 30.4 = 38.77, 38.77/2 = 19.385). This level clusters quite nicely with the old top of February 2006 at 19.73. Those of you who have study Time by Degrees should be able to see the relationship between the June 2007 low and where we are in March. That being said it is near impossible to miss the 4 year anniversary of the tops in February.
Now last night (10 March) price overshot these targets after having started the night above them. Gann does talk about ‘lost motion’ in fast moving markets where targets and support levels can be overshot.
What we need to watch for now is whether any bounce is a ‘dead cat’ bounce or the start of another leg up in the completion of the 30 year cycle. The first test will be for prices to get back above the February 2006 high of 19.73 and stay above that top. This is not the kind of set-up you want to try and trade too closely and the weekly chart will give some good indications in terms of signal bottoms. If any rally proves to be dead cat bounce and the market can’t hold about the 50% level of 19.385 and the old top of 19.73, then you have to say prices are going lower and the bull cycle has already played itself out.
The world of futures trading is challenging and rich in rewards. The best place to help us get your further down the road to successful and confident futures trading is at our advanced workshops such as the Interactive Trading Workshop or Gann Jump Start Workshop. If you have ProfitSource at home you can watch how things unfold on Sugar over the coming weeks using the code SB-SpotV. It’s a good market to start paper trading and getting to know soft commodity futures.
Until next month...
Noel Campbell
Professional Derivatives Trader
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