FuturesTechs Blog

Recent Candlesticks suggest Gold may be on the turn, at least temporarily, and momentum studies back up the idea. Let’s dig a bit further.

Figure 1: Gold Daily Candlestick Chart - September - November 2010

Figure 1 is a Daily Candlestick Chart for Comex Gold (all sessions). Last week we got up to a high of 1424.3 on Tuesday, but we came back to post a close at 1410.1, right on the opening price. This combination of a wide range with an open and close at more or less the same price gives us a candlestick pattern known as a “Doji”. This is a reversal pattern, as the buyers and sellers matched each other out if we take the day as a whole. We weren’t too concerned by this as we said in our daily commentary on Wednesday:

“So could that be it? Is this great run over? Not yet is the simple answer. We would want to see a few bold support levels taken out before calling it a day on such a strong move, not just one day of (albeit major) uncertainty/nerves”.

Tuesday’s low was 1382.2, a level that held firm on Wednesday and Thursday, keeping 1366, one of our “bold” supports protected. On our reports we post important support or resistance levels in bold type, hence the reference above. On Friday things started to creak, and as we were writing the reports (early on in European trade) 1382.2 was coming under fire. Here’s what we said at this time:

“If we break 1382.2 I’m going to turn my back on the bulls. If we then go on to break 1366 I’m going to turn bearish in the short term and look for a move to 1321.7″.

1382.2 broke that afternoon, and we sold off to 1359.6, ending the session at 1368.3.

Friday’s candle was large and filled/red and it’s real body totally surrounded/engulfed Thursday’s real body (the real body is the difference between the open and the close, and is “filled” (red) or “open” (green) depending on whether the market closed below it’s open, or closed above it’s open respectively.

This left us with another strong reversal pattern called a Bearish Engulfing Pattern.

It also left us with a large red candle, which prompts us to add a “Marabuzo line” to the chart, measuring from open to close on any session with a large move. This can often be a good support or (in this case) resistance level afterwards. In this instance it suggests that 1387 will cap any advances by the bulls, if indeed the bears are now in control of this market.

The old support at 1382.2 is also now a resistance level as this sort of thing often occurs.

So as long as we stay below 1387 we’re now going to look for the move to 1321.7 that we mentioned in  last Friday’s comment, and if this level fails to hold up as support we can think about a deeper setback to 1258.2, or even long term trend support, at 1231.

Many Technical Analysts look at momentum studies with names like MACD (nothing to do with Hamburgers), Stochastics, and RSI (not repetitive strain injury, although sometimes it feels like it!). I don’t weigh on these Indicators heavily, but they can do a great job of adding weight to your thinking at times (or negating it, which can be just as useful). Right now we have a down-sloping RSI, and we have had since the start of October. What this suggests is that since the start of October the upside momentum has been on the wane. We may be making new highs, but the enthusiasm isn’t there to sustain the move at these current levels. This is known as a “Bearish Divergence”.

Obviously this idea will be helped if the Dollar sees further strength. EUR/USD has moved from 1.42 to 1.36 in around 2 weeks as Europe’s problems increase. The Dollar Index is a better barometer, and is the chart below (Figure 2). This shows we are nudging up against resistance at 78.61, where we fell over on October 20th, and again found resistance on October 27th. We want to see this level taken out to encourage this one to head to the next big resistance at 80.17-80.41. This sort of move will likely see further unwinding of Dollar denominated Commodity prices, like Gold!

Figure 2: Dollar Index Daily Candlestick Chart since July.

One final thing to note about this chart is how the RSI has been going up since the middle of October, even though we recnetly made a new low. This is the opposite situation to the Gold chart, and is known as a Bullish Divergence, suggesting that higher prices are around the corner.

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I have been on CNBC this morning talking about the outlook for the FTSE and Eurostoxx after a big week last week.The link for the interview is on our “Media” page here.

The crux of the comment was that the FTSE Futures broke higher to new territory for the year last Thursday, getting above it’s Arpil high at 5796.5. The big question when you get this sort of news driven breakout news is whether it’s sustainable, or whether you should “buy the rumour, sell the news”. In other words are we going to fall over as swiftly as we’ve broken higher? Friday’s price action, I think, offered a clue. We had a big support level at 5822 and it held firm. This suggests to me that the bulls are in charge, and hot to trot.

The next big resistance level above is 6396, the May 2008 high.

The Eurostoxx 50 Future is a different story and still has a few big resistance levels to see off, as I mentioned on CNBC.

Another market making positive noises is Oil, and Brent Crude is now breaking higher, although it has a big level to see off above at 89.58, so we’ll keep a close eye on that situation.

Gold is a hot story and has reached psychologically important resistance at 1400. We aren’t that worried by this level but have a target above that we’re aiming for.

Silver is a standout, and we’re bullish on this one while it’s above $25, and are advising our clients to buy dips to support while we’re holding firm at these levels.

Finally something for the Fixed Income mob. The Bund saw a decent turnaround last week and is back above 130.00. It now looks good to head back to it’s all time high up at 133.26.

Our clients receive reports every day on all of these markets and many more. We are happy to offer a free trial upon request, so please click here to get this set up.

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Have a good week,

Cheers,

Clive.

PS. I’ve just joined LinkedIn, so look me up if you want to “connect”!

A few days back we said: “Dips are being bought, the bulls are in charge, and we’re not going to be caught batting against such a solid trend. Oh no!”

The market is in a rampant mood now, and put on stellar gains yesterday, trading up to then through my 1340 target (we’ve been talking about this as a target all year!).

We busted through the channel top line, RSI is overbought (the highest reading since 2005 in fact), and everything looks like it’s getting a little bit carried away. We are aware of this, and aware that sometimes this is the sort of thing that happens at a top. But that doesn’t mean we’re “calling” a top, because we can still see further upside in these sort of conditions.

If we break below 1328.2 things could start to unravel pretty quickly as I think there is now a fair bit of “speculative froth” appearing on the surface now.

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Below are Support (S1 to S7) and Resistance (R1 to R7) levels. On our daily reports we also include a chart, “Automated” levels including Pivot Points, Market Profile levels and popular Moving Averages, as well as our unique “SkewBar”, giving you an instant snapshort of the current short term trend.

Our daily analysis is read by Prop traders, Brokers and Fund Managers. Please feel free to request a Free Trial of our service.

___________

R7  - 1425

R6  - 1410

R5  - 1404

R4  - 1400

R3  - 1379.4

R2  - 1373.4

R1  - 1350

___________

S1  - 1345.7

S2  - 1342.9

S3  - 1333.8

S4  - 1328.2

S5  - 1324.8

S6  - 1319.8

S7  - 1313.3

September 22nd 2010 Gold Futures Commentary for FuturesTechs customers:

We got bullish of Gold on August 9th when it broke above 1200. We had 1266.5 as a target from that moment. This target was reached on September 14th, and has been exceeded since. Over this time we’ve also introduced 1291 into the picture as the next target once 1266.5 was seen off.

This next target was reached yesterday as the market rallied strongly on the Fed. We have printed 1293.5 in overnight trade, and there doesn’t appear to be any let-up in this move.

We have also mentioned 1340 as a target to the upside using Elliott Wave/Fibonacci extension analysis. So we’ll look for 1340 now, and we’ll continue to ask that 1266.5 and/or 1259.2 hold firm as support on any pullbacks.

Don’t fight a trend like this!!!!
Chart Levels

R7        1375
R6        1350
R5        1340
R4        1325
R3        1310
R2        1300
R1        1293.5

S1        1288
S2        1280.4
S3        1276.5
S4        1272
S5        1266.5
S6        1259.2
S7        1251.9

For our full report, including Automated levels, Chart, and our unique “SkewBar”, clearly defining the current trend, please ask for a Free Trial using the buttons above.

Last week’s big highlight was meant to be the US Employment Report. As it turned out all the action was before this, and the numbers were a bit of a damp squib (like the topical analogy there?).

Equity markets have caught a fresh bid, and we were early to catch this as there were several reversal patterns on major indices at the start of last week. We were bullish from Wednesday onwards, so have reaped some firm rewards on the back of that timely change of sides.

Most of our readers are short term traders so they benefit from these timely “calls”. Longer term traders and Investors may be on the sidelines waiting for an opportunity to get in, and coming out of a dip or retracement is an ideal opportunity. Often, as was the case last week, our charts can tell us nice and early if it’s likely that a pullback has come to an end.

We are now looking to see if resistance at 5300 in the FTSE Index will be seen off. If this  happens the next upside target is 5650, a failure high from last August.

Gold is on another big run at the moment and has traded up to a high of $1111 as of yesterday morning. Yesterday’s candlestick (A “Shooting Star”) gave a warning that things may be getting toppy at these levels but so far we haven’t seen any downside moves to confirm this, so we’re sticking to the idea of higher prices going forward, targeting $1192 next, then $1250.

Oil is stuck in a range for now. Brent Crude has traded between $75 and $80 for weeks now. We expect this range to get broken with a move higher, and we would then target $90 and beyond. We have been suggesting to our clients to buy the dips to $75, and whatever their timeframe this has worked out well. Longer term holders would never have been offside, whereas those who trade in and out should have been able to jump out at $78 to $80 on several occasions then buy again at £75 next time it comes off.

If you are uncertain of any of the terminology used or methodologies discussed in this report you could swot up on our website. Feel free to ask for a Free Trial by clicking here.

Yours,

The FuturesTechs Team

Weekly Roundup, 19^th to 23^rd October.

Last week was a fairly mixed affair, particularly in Equity markets. The FTSE’s range for the week was 5166- 5299, and Friday saw the top end of this retested just before the US Markets opened, which triggered some afternoon selling. Quite often Friday afternoon sees traders tidying up positions that they’ve been holding all week, so if the market is long then you see selling on Friday afternoon as some of these longs are trimmed.

As far as individual stocks are concerned Miners and Resource stocks are still amongst the leaders, whereas Bank Stocks have been having a much tougher time. The “strong” banks like HSBC and Standard Bank are the safest bets for longs. We are seeing Utility Stocks finding support and starting to turn now and this is something that often happens at tops, with the real money moving into safe havens. We suggested buying United Utilities and Shire Pharma to our clients last week, which gives a clue as to our thinking. We are starting to short consumer related stocks as their charts are starting to agree that we are still in recession and things aren’t really improving.

The Dow has, as we suspected, shown a complete disregard for 10000, but we do seem to be having trouble getting through 10110-120, where we topped out each and every day last week. We are happy with our current “cautiously bullish” stance, and we continue to advise our clients not to get too excited about the prospects for higher prices.

Gold continues to go sideways, frustrating all of those who have piled in And got long because we got through $1000. We always thought $1034 was more important, and we’re happy to be long of this while this important technical level is holding firm.

In last week’s round up we talked about the change in skew we’ve been forced into in Oil. We had been favouring the bears but then we got above $75 to change our stance. Sure enough this has continued higher, and we want to see $78 holding now to give us a launch pad for a move to $90 and beyond.

Finally can I remind you it’s the World Money Show at the end of the week and we’re going to be exhibiting. We are running a competition to win an Apple iPod 3G, so if you can make it please come along and say hello.

Click here to register for free.

To request a free trial, with no obligation, of FuturesTechs’ daily analysis service please click here.

Have a good week,

The FuturesTechs Team.

Every week we send out a weekly round up e-mail to our database, and we figured it would probably be useful to post it here as well, so here goes!

FuturesTechs Weekly Round up - 19th October.

Here is your latest roundup of price movements on the major asset classes in the Investment arena. As regular readers will know by now we at FuturesTechs only look at the price action to determine what trend an instrument is in, and where this suggests it can head in the future. Many technicians use Cycle analysis to make longer term calls, and this is what allowed us to make the “call” that we were near a bottom back in March for Equity markets like the FTSE and DAX. Currently our analysis suggests there is a pullback imminent, but so far each time the market has threatened this sort of move the buyers have stepped back in and bought into the dips. There was some price action towards the tail end of last week that was slightly worrying, but once again the bulls appear to have averted the threat.

The Dow may be above 10000 as we write, but it’s failing to convince and we prefer maintaining a cautious stance for now. I heard a great line on the financial news channels last week. Someone said they were “at the party, but dancing near the door”. That sums up how we feel about the present state of things.

So we’d warn against getting too complacent about this recent rise, and we’d warn against worrying that you’ve missed the boat. Generally tops are formed when people pile in thinking they’ve got to get in because they’ll miss out otherwise!! If our analysis is right there will be a pullback soon, and it could even be a deep one, and just when people think we’re heading back to those March lows is just the time you want to be buying!

Gold has been front and centre on people’s minds of late, and the amount of mainstream press it’s been getting (all bullish) worries us, as far as whether this rally can sustain itself is concerned. BUT it has held above some important technical support levels like the $1027 to $1034 region, so we are happy to stay with the trend and back it to keep heading higher for now.

Oil has been the one that has surprised us. We weren’t expecting to see $75 again in a hurry but we’re above here at present, so now there’s scope for higher prices and we’ve been forced to readjust our thinking.

The Dollar’s weakness is the other big topic that many have had on their minds of late. We are keeping a particularly close eye on Dollar/Yen, actually, and want to see a move through 91.15 to take further pressure off the dollar.

Finally just a reminder that we are exhibiting at the World Money Show this year. It takes place at the QE2 Conference Centre in London (bang opposite Big Ben) on October 30^th and 31^st. Admission is free, so register and be sure to come along and say hello. Click here to register

If you wish to benefit from our analysis on a daily basis it is just £50 a month (+VAT). You can become a member by clicking here.

Have a good week,

The FuturesTechs Team.

One of the features we added when we made the free suite of levels is a collection of moving averages for each market we cover. These complement the pivot points and market profile levels which we had already been providing on a daily basis.

The moving averages are on 3 different timeframes: 10-day, 20-day and 50-day. We colour these numbers green when the 10-day is higher than the 20-day and the 20-day is higher than the 50-day, or red if the 10-day is lower than the 20-day and the 20-day is lower than the 50-day.

But why do technicians look at moving averages? The simplest way to put it is that the moving average is a smoothed trendline, and one of the most efficient ways of grasping the trend of any market. Unlike other technical tools (candlesticks and chart patterns, for example), the moving average is not designed to be an immediate predictor of future price action or key pivot points (though it does sometimes provide support and resistance levels). Instead, its job is to gives us a handle on the longer-term price direction. On the basis that trends tend to persist, aligning ourselves with this direction is usually to our advantage.

We use “simple” moving averages: this means that for the 10-day MA, for example, we simply calculate the average of the closing prices of the previous 10 days. There are other types of moving average (linearly weighted, exponential, etc.) which assign greater importance to more recent closing prices, or include data from all previous days using various different formulations for weighting the data, but the simple average remains the most commonly used.

As a lagging indicator, the moving average doesn’t react as soon as the price begins to trend, and it doesn’t reverse as soon as the trend changes course either. But in return for missing out on the exact start and finish of a trend, we get a measure of direction which doesn’t get knocked out by immediate fluctuations, helping us to stay true to the longer-term moves and resist trading too frequently.

There are a couple of variables which go into the makeup of the moving average. Apart from selecting which type of average to use, as already mentioned, we also need to choose the timeframe and the price to be entered into the calculation. While most people think that closing price is the most meaningful number as compared to the opening price or some other figure, there is no strong consensus about the choice of timeframe. The trade-off in this decision is between significance and responsiveness. A longer-period timeframe will certainly avoid being whipsawed and stay with the biggest moves, but it will also spend a great amount of time on the losing side when a trend changes course. A shorter-period timeframe will much better react to changes in trend, but will also get whipsawed more frequently and suggest more losing trades when there is a relatively weak trend.

One way to combine the best of both worlds is to use more than one moving average on the same chart. We can then look at moving average crossovers as buy and sell signals: when a shorter-term moving average crosses the long-term equivalent from below, we get a buy signal, and when it crosses from above, we get a sell signal.

This can work beautifully in markets with a well-defined trend. Using 10-week and 20-week moving averages to trade Brent crude oil, we would have got a buy signal on 19^th March, 2007 (closing price that day at $63.20), a sell signal on 25^th August 2008 (at $115.17), and a buy signal today (closing price somewhere around $52).

The problems arise in a trendless or choppy market, where the dangers of getting whipsawed increase and relying on moving averages can lead to ruination.

Suppose we tried to use 10-day and 20-day MAs to trade Brent crude in 2009, and in the most naïve way imaginable. How would it have worked out so far?

The horror show above doesn’t prove that these timeframes won’t work in the future (a rally from here could make the recent buy signal at $43.90 look inspired) but it does prove that they were the wrong timeframes to use over this trading period.

The lesson is that moving averages, as with any other indicator, must be used appropriately for the market under consideration, and in combination with other indicators and insights.

What we provide on our levels sheet are the 10-day, 20-day and 50-day MAs for the markets we cover, allowing members to get a feel for the price location in comparison to a decent selection of averages. As mentioned above, we point to the bullish or bearish alignment of these averages by highlighting them green when the 10-day is higher than the 20-day and the 20-day is higher than the 50-day, or red if the 10-day is lower than the 20-day and the 20-day is lower than the 50-day. Some traders who want to ride confirmed medium-term trends will wait for this kind of ultra-strong triple alignment before taking a position. The extreme case is when the price and moving averages are all aligned, and all moving in the same direction. Now that’s a trend!

But here’s a chart of the FTSE Index over the past 10 months, with the 10-day (red), 20-day (blue) and 50-day (black) MAs included, another example of the potential outcomes when using just one indicator:

Following the signals, and only closing out our positions when the moving averages turned to neutral, would have been great for the two downward moves in the first half of this chart. However, it also would have proved costly during the ranging market from November to January, which produced three false signals. To avoid being topped and tailed, we’d have to change the exit strategy during this time in order to take our profits much more quickly – something the moving averages will not help us to do. But the momentum of the averages should still be enough in most cases to ensure that the action continues in our direction for at least a few more points. Our level of confidence in the ability of the market to trend, combined with short-term indicators, should help to advise us on the correct course of action.

The point is that if you want to trade in the direction of a big trend, wait until you get the green or red highlights on our summary page. If the numbers are black, then there is simply no reason to get involved (at least, not from the point of view of the moving averages).

In the coming weeks and months we’ll be expanding the resources offered on our website to include exclusive files for our members covering new markets and new indicators. If there are particular markets or indicators you’d like us to cover, please let us know. For now, we hope you enjoy the levels sheet and find that the addition of the moving averages contributes to your successful trading!

Graham Neary (graham@futurestechs.co.uk)

I think i did a reasonable job of explaining it on CNBC this morning (you tell me!!) so instead of babbling on too much here I’ll post the link:

http://www.cnbc.com/id/15840232?video=820121614

To summarise I said that 850 is a MASSIVE support level, and that the weakness to here is a buying opportunity, although if 850 breaks you don’t want to be long, and a “stop and reverse” (see below) strategy might be advisable.

We get “proper” confirmation of a bounce happening if resistance levels like 872.6 and 900 are retaken.

In Brent Crude Oil I mooted the idea that we might be due a bounce some time soon as we’re getting close to some important supports.

And in the Bund Futures I talked about a Double Bottom formation which gave us a buy signal last week.

I steered clear of talking about Equity markets because the short term outlook is a tad confusing, and we haven’t had the best of time calling these of late, if the truth be known.

“Stop and Reverse” is where you have a position and you get out of it with a stop order, but at the same time you do the same trade to create an opposite position.

For example say you were long five lots of Gold at 870 with a stop order at 845, that means you want to get out and take the loss on your trade if the market goes down as far as 845. A stop order is defined as a market order that’s triggered if your loss reaches a certain level or price. You should always have a stop order on any trade that you put on, and technical levels can be the best way of deciding where to place these orders.

Many people place their stop orders below important support levels (like 850 in Gold) and sometimes, if you think the move below this key level is going to trigger a wave of selling, you may want to initiate a short position at the same time. If you put in an order to sell 10 lots at 845, to continue using our example, you would take the loss on your 5 lot long, then create a 5 lot short position at 845. If the market then went to 775, as we expect, you will offset the 25 point loss on the original buy order with a 70 point gain on the short trade.

Have a good week.

Cheers,

Clive.

We have had our new website available for around 1 month now and we are starting to gain momentum for our new “per end user” offering. Private Investors, CFD and Spread Bet traders are starting to sign up and see the value of our service.

In recent days we’ve seen some interesting moves in the markets:

Gold Futures have turned over and after a plethora of sell signals yesterday we went Bearish this morning, just before the market sold off sharply.

Brent Crude Oil Futures has seen a big sell off but we’re certain this is merely a buying opportunity.

We have remained Bearish in the short term on Equity markets but our patience is being tested on this, particularly in the DAX Future, never one to willingly play the game!!

Interestingly today’s early high/failure in the S&P 500 Futures could be key and suggests that the market can head lower in the short term.

Login for a free trial to see our thoughts on these movements in more detail.

So to a question we’ve been asked a few times of late: Where did we appear from?

We have been servicing professional traders for 8 years now. The company formed in March 2000, soon after the closure of the LIFFE Floor. The traders who congregated on the LIFFE Floor headed up to different offices around this time, and suddenly they needed an edge, they needed information. I always had a string of traders who used to come and have a chat about the charts when I was based on the Floor, and so it was a natural progression to turn this into a daily commentary. I started by sending out a daily report on Bunds and T-Notes, and it grew from there. We grew with the Industry. Proprietary trading accounts for a good percentage of the daily Volume on exchanges like LIFFE and Eurex.

We wanted to expand our horizons beyond this arena, though, so it was a choice of Banks and Hedge Funds or Private/Retail Customers. Which way to jump!? We have found over the years that “bean counters” at the Institutions can cause problems for services like us, because they see a lot of free technical analysis being provided by the large brokers vying for their business. “Why pay for something that you can get for nothing?” -they say.

So we came up with the idea of a Members website where the reports can be viewed securely, on a “per end user” basis, which allows us to significantly reduce the price without upsetting our existing professional clients who pay for a “Site Licence” and the ability to distribute the reports amongst their traders.

We encourage you to take advantage of the chance to utilise this professional trading tool in your daily trading routine.