FuturesTechs Blog

There’s plenty going on around the traps this week. Let’s just go through a few highlights:

Oil is the one getting the headlines, with ICE Brent Crude getting up to $135 before selling off hard today. The NYMEX WTI* has done a similar thing; selling off $5 from a high just above $135 over the course of today.

As of this moment we wouldn’t be calling a top in this one despite this volatility. As we said last week, one swallow doesn’t make a summer. The lack of reaction to last week’s Doji Candlestick pattern proved that!

Saying that we might not be far away from a capitulation (it’s certainly starting to feel that way), but trying to pick the top of a market like this is a dangerous and foolish game.

Equities looked toppy last week, as we flagged in the Blog, but it took a few days before we turned over, although the DAX Future held key psychological support at 7000 today, and the FTSE Future is holding support at 6139.5, the last higher low.

But it’s Debt markets that are catching my eye this week. We have seen a sell off of 90 ticks in December ‘08 Short Sterling Futures. In simple terms that means a swing of rate expectations for December of almost a full percentage point. In other words this week the market has decided that there’s little chance of more rate cuts from the MPC, a sign that maybe things are settling down a bit. This is a quite spectacular move for a contract that is usually pretty “steady as she goes!”

For those of you who are finding trading things like the DAX and Oil a little precarious and volatile you can often put good directional trades on in these Interest Rate Futures, as the Central Banks try not to cause too many surprises; flagging their intentions with their rhetoric as they go along, and guiding the market if expectations are going awry.

Many professional traders trade huge amounts of size in these contracts every day. The equivalent in Europe is the Euribor, and in the US it’s the 3 month Eurodollar Futures. They are among the most actively traded Futures contracts in the world.

Check with your Spread Bet provider how wide their spreads are on these products. They should be quite tight, because they don’t move about quite as much as things like Equity Indices, Gold and Oil.

Let’s finish up by clearing up some confusion: We produce a report each day on NYMEX WTI.

NYMEX is the name of the Exchange where it is traded; the New York Mercantile Exchange, one of the few remaining “open outcry” Futures Floors (due to be taken over by the CME Group). WTI stands for West Texas Intermediate. This is the Benchmark Crude Oil in the US, and is also known as “Light Sweet Crude”.

Happy Trading,

Cheers,

Clive.

The brave new world for FuturesTechs is welcoming new traders into the fold. Whereas we’ve traditionally catered for Professional Traders and Brokers, with our new “per end user” website we can now be accessed by a wider audience.

But a question we’re being asked quite a lot by new subscribers is “What is the Bund?”, amongst other things! (Bobl, Schatz, Euribor, Short Sterling, GasOil, to name but a few!).

We have been writing Technical Analysis in the Bund Future right from the start. It is one of our original reports from 2000 when we first set up. It has an interesting history actually, because Bunds were traded on the LIFFE Floor until about 1999, at which point they suddenly migrated to the DTB, now called Eurex, which was one of the early pioneers of Electronic Trading. As it was one of the biggest Futures contracts in the world at that time (and still is today) this was quite a coup, and can be classed as the death knell for Floor traded Futures, not just in London, but around the world.

As I said above the Bund Future is one of the biggest contracts in the world, regularly trading over 1 million lots per day. It is the benchmark for 10 year Bonds in Germany. Even though Europe “became one” in 2002 the financial markets, still to this day, reference the Bund for transactions in the European money markets.

The 5 year Bond Futures is the Bobl, and the Schatz tracks the 2 year part of the curve. All three trade very good Volume each day and are excellent contracts to look at if you are accessing the market directly. By definition the shorter dated contracts have less volatility.

When choosing a contract to trade (direct to the market as opposed to Spread Betting) Volume and Volatility are the two things you need to look for. Volatility is specific to your needs: For some people the DAX Future is a rampant animal that they would never dream of trying to tame. To others it’s a perfect challenge and the Volatility is welcomed.

But Volume is important because you need to be able to get out of a trade if it’s going against you, and if you trade something that’s very thin you may have trouble doing this.

So to new visitors of our Members area I urge you to have a look at these products and discover if there’s something there that suits you.

Most spread betting firms have quotes for these contracts, and the spreads will likely be reasonably close, because one of the things the Spread betters base the size of their spread upon is their ability to “trade the other side” if they want to.

We were cheered by last Thursday’s rally in Equity markets, where the technical charts gave breakaway signals on several markets. Since then many Equity markets have held key support levels and we continue to move higher.

We are now at levels not seen since January in markets like the DAX Futures (next target gap resistance at 7342.5), the FTSE 100 Futures (there’s an upside gap at 6337.5) and the S&P 500 Futures (with another gap at 1451.20 that we’re targeting).

In the meantime the “hot” story right now is Oil, which is making new all time highs almost by the day. Goldman Sachs came out with a target of $200 for a 6 month to 2 year view. This was the same chap that targeted $100 a few years back which was met with guffaws at the time. Say no more.

Technically there’s been very little in the way of sell signals in Oil in recent years. At FuturesTechs I think we’ve been Bullish more or less non-stop since $30!!

Our next short term target area for the ICE Brent Crude Oil contract is £123.37-65. We use Elliott Wave projections to come up with these targets.

Gold and Silver are getting close to giving fresh sell signals so we’re watching this situation closely.

Our sell trade in Soybean Futures hasn’t gone exactly to plan although we are yet to close above our stop level of 1305.

Hope you’re having a good week, and if you’re in the UK I hope you’re enjoying this bout of fine weather!!

Cheers,

Clive.

We’ve posted a sell recommendation in CME Group Soybean Futures today, so thought we’d add it to this page for all to share!

Sell Soybeans (July ’08) @ 1263, stop at 1305, target 1125 then 1050

There’s been a huge press for the soft commodities of late and things had started to look severely overdone. While Corn Futures are still just a few ticks off their all time highs, we topped out in Soybeans a while ago, back in early March in fact. Most of March was spent heading lower but then we rallied, taking back 61.8% of the losses seen in March. We’ve kept a close eye on things since this failure, and now that we’re below 1300 and 1285 we want to be short again, looking for a fresh test of the 1121.4 low set on April 1st. Below here we have an uptrend support line on the longer term charts that comes in at 1042, so we’ve set our second target here.

We’ve set our stop above 1300, but you could use 1285 as a reference to stop out of you need it to be tighter.

I’ve just spent the last 5 days in Las Vegas; my first time there. Wow! What a place. I was immediately impressed with the sheer size of it all, especially casino complexes like Caesars Palace and the MGM Grand. While the main reason for the trip was purely for pleasure I couldn’t help but draw a few comparisons between trading the markets and playing the tables. I’m sure we’ve all done this before but here are a few thoughts I had. I’d love to hear any thoughts any of you have ever had on the subject!

The House always wins in Vegas. That was pretty obvious from the size and scale of things, and the money that had been spent. We were staying at the Ballagio and it was clear that they weren’t making their money on the “all you can eat” buffet breakfast, not with the amount of food that some people had piled onto their plates, sometimes for several trips in a row!

The house in the case of trading is the Exchanges, or sometimes in the case of smaller punters, the Spread Bet/CFD firms. But the Exchanges can rightfully argue that they haven’t, as is the case in Vegas, invented an uneven playing field in which they will always come out on top. They are there to provide the playing field, which is “level” for short traders and long traders, all of whom simply pay commission and clearing fees. In other words they’re providing the hotel and gaming-room, but not taking money out of the trading.

It’s a widely know fact that spread bet firms (and CFD firms, which is maybe less widely conceived) do sometimes take the punters bet and don’t “lay it off”. They have structures and models in place to manage the risk they take on. I am going to write about this at further length some other time as it’s one of the most contentious issues in this arena, I feel, but it shouldn’t be: The retail customer, in the main, is not being ripped off by the Spread Bet firms. After all, it’s you that decides when you want to buy and sell something, and you’ve been told the parameters with which to do this way in advance, which is where there is a firm comparison with the Casinos.

The big casinos on the strip are merely there to serve people’s insatiable appetite to chase the dollar. They facilitate the dream. The fact that a quick look around you at any of these establishments should tell you straight away who’s winning out of the deal doesn’t put you off: You still fancy the idea of walking away one evening with pockets full of chips.

There are countless books on people who have beaten Vegas, mostly to do with counting Cards in Blackjack. I read such a book; based on a group of MIT students with exceptional mathematical brains who worked tirelessly to devise a system that told them when the deck was predominantly filled with high cards; a prime opportunity to bet large as the chances of scoring 19 or 20 and beating the house increased dramatically. One line that interested me in this particular tome was that you didn’t need to get consistently high cards to win; you had to get higher cards than the dealer.

The key word for me from the above paragraph is “system”. Obviously these guys were exceptionally bright, and the system was extremely complex, and even then it wasn’t guaranteed. But at least they had a system. I was amazed a few times while I was watching or playing the tables the number of people, particularly playing roulette, who were putting on too many chips per spin of the wheel for the venture to ever be profitable. They clearly didn’t understand the odds, and were doomed to fail on this basis. There’s a valuable lesson that can be translated to the markets; know your odds. Know your market. Have some sort of system.

This is where I think technical analysis always scores big. It can allow one to develop a systemised approach to decision making for traders. When you are developing a system consider the following: You need to find a way to enter trades, and then potentially have a different system for running a trade for maximum profit. There’s no point in developing a fantastic way of spotting entry points if it then fails to tell you when to get out.

Finally back to Vegas: I noticed more than anything that the gaming rooms were highly charged and highly emotive places, with people making and losing money all the time. This got me thinking about human emotion, and how this can have such a profound effect on decision making. I did it myself a few times: If I was on a losing run at Blackjack I’d simply put a bigger bet on because I needed to get out of the rut. Clearly this was an emotionally based decision, and clearly it was wrong (judging by the amount of times it failed!!!). So my final thought is this: Emotion is inevitable, whether you’re playing the markets or playing Craps. Your best chance of winning is by sticking to a system that reduces the emotion. I’ve seen many people write that technical analysis allows you to eliminate the emotion from trading. Rubbish. You cannot eliminate emotion, but you can find a way to manage it so it doesn’t take over and end up costing you chips… or is that ticks!!

It’s Payrolls today, so strap yourselves in. At FuturesTechs we generally don’t make any bold directional calls on the first Friday of the month, especially in Bond Markets Futures. It’s just such a lottery!!

Many traders put in bids and offers at extreme prices on the numbers, and have said over the years that our levels can be a great reference for this sort of strategy. Sure it’s risky, and you need to be on your toes as the numbers are coming out, but as long as you don’t end up with too big a position you can take advantage of some of the extreme moves seen on the numbers.

Remember this: The market often reacts to the headline number, but this is an entire report on the state of the employment market, with many layers, and it’s what happens in the 15-20 minutes after the inital flurry that is often most telling.

So we hope the numbers treat you well, and that you have a good weekend,

Cheers,

Clive

Yesterday’s strong rally has seen lots of head scratching around the traps. A rally of that magnitude in the US Equity markets wasnt exaclty what you expect on the day when several more write downs were seen, including yet another from UBS.

So the question today is whether these gains can be sustained, and we’ll be watching the Marabuzo lines of yesterday’s candles to help to answer this question.

Gold Futures sold off hard yesterday but has got to some key support levels and we’ve discussed this in today’s report, with a trade suggestion to boot!

Please feel free to request a no obligation free trial of our FuturesTechs members area if you wish to view this report as well as all the other markets that we cover.

Be careful out there!! As I said in a seminar last week, make sure you’re still “in the game” in a few weeks/months.

These are extreme times. some of the best traders in the world are struggling to make money, so keep it tight and don’t try to take on the world!!!

Cheers,

Clive