Wheat to Rise

July wheat futures beautifully bounced off of a 78.6% Fibonacci retracement and rose sharply. It paused at the most recent swing high and began a consolidation that looks like a little rounded bottom. It could be the beginning of a J-hook forming.

Now that the 8ema has reached it, we could be seeing the beginning of support for a springboard higher.

Above is a weekly and a daily chart. There are 4 bullish observations written on the daily chart.

I entered at 565 3/4. It is probably a little too early. Would have been a safer trade if I had waited for a close above the high at 571 1/2. Or even safer than that if I waited to close above the recent weekly swing high at 589. But entering lower does reduce the loss if the Stop is hit. Placed the Stop just under the consolidation at 550.

The J-hook projection is coincident with the previous highs and the 127.2% Fib extension. Set the target just below the 127.2% Fib at 621.

Risk = 565 3/4 - 550 = 15.75 * $50 = $787.50.

Reward = 621 - 565 3/4 = 55.25 * $50 = $2762.50.

R:R = 1:3.5

ZL Better Late Than Never - Exit

Around 6am ET I checked the May ZL chart and what I saw eliminated the need for my morning coffee. The overnight session had climbed to a high of 27.38 then reversed. The precise target, carefully calculated, is 27.42. I always shave a couple points off the target to account for the Bid/Ask spread and in case price falls a little shy of the full target. So I set my Sell Limit Order to 27.40 days ago when I first entered it. I actually think there's a good chance price will go higher than this target, so I only took off 2 ticks. Then price falls 4 ticks short!

When I saw the chart, price had already dropped over 10 ticks. So how do you handle that situation? I  fought the desire to exit immediately because I think price will go higher. But its also possible this is all we get and it goes all the way back to break even. I don't want that.

So, I decided to move up my stop loss from break even to 1 tick under where today's candle opened, which was 26.83-.01=26.82, reasoning if it retraces that far, its looking pretty weak. Of course, it slowly dropped during the day and hit my stop.

I figured it would then reverse and start back up, but it didn't. It closed very close to the open. You can see it closed just under the 20sma. I mentioned in the last post the 20 sma could provide resistance. Because of this, I'm kind of glad I'm out and not exposed to a gap down open tonight.

I figure I left $354 on the table (27.40-26.81=.59*$600=$354) because it missed my target by $12 then I didn't see it until it was down about $60. If I knew how things would turn out of course I would have just sold at the market soon as I saw the chart this morning.

Bottom line:

Entered 3/23/20 $26.05
Exit 3/30/20 $26.81
Profit .81 - .05 = .76 * $600 = $456

Even though I only got about half of what I could have, still have to call this a win.

ZL Better Late Than Never Update 5

Yesterday's red Doji candle closed at 26.50. Today we opened at 26.49. Obviously today's close is much higher than yesterday's open. Therefore, together they form a Bullish Engulfing candle pattern. This is bullish.

We closed above the 8ema and 3ema. This is bullish.

Stochastics are not overbought, so they won't provide resistance to further upward movement.

Yesterday's volume is lower than the volume for the green candles on either side of it. That seems bullish, although that was never part of my training.

The past 3 days we've found the 38.2% Fibonacci to provide a little resistance. This is not uncommon. In fact, its common to get an actual pull back off the 38.2 Fib, and sometimes that's all the upward movement you get. But today we closed over the 38.2 Fib, indicating we have broken its resistance. This is bullish.

However, we're about to hit the 20 DMA. That could be a problem. It can provide significant resistance. In the wider view of the chart above, you can see where we hit the 20 DMA from below and rejected off it and went back down twice before. Look at 2/6/20 (32.33) and 3/5/20 (30.16). 

I was sorely tempted to exit and take the $500+ profits today before the weekend and before we hit the 20 DMA. But the 50% Fib of the green range and the 38.2% Fib of the yellow range are just above the 20 DMA, and we've been looking pretty strong so far.

So, I had to put on the straight jacket and hold myself back from exiting because I think staying with the trade is the smarter, unemotional, decision.

ZL Better Late Than Never Update 4

We formed another Doji candle today. Notice the low is higher than yesterday's low. Notice the close today was over the 8ema, and also over the 3ema. Stochastics are still below 50%.

Easy decision today. Stay the course.

ZL Better Late Than Never Update 3

Wow, that was close! The low today was 26.12. As I said in my post this morning I moved the Stop Loss to break even at 26.07. You can see that as a thin red line on the chart. At the open there was over $500 paper profits in this trade, then price dropped to within 5 ticks of the Stop Loss with a paper profit of about $30, then reversed. Could not have been much closer.

Fortunately for our trade, price went back up and recaptured most of the paper profits, and we closed with a doji candle. I was taught what happens after a doji candle depends on how the next candle opens and moves. If the next candle opens higher and starts moving higher, then you'll get a green candle. If the next candle opens down and starts moving lower, then you'll get a red candle. Sometimes you get a 2nd doji.

Of course, we want to stay in the trade and see how the price action goes tomorrow. The best possible outcome is if the Soybean Oil market opens tonight and goes up and hits our target before the the day session begins tomorrow.

ZL Better Late Than Never Update 2

Very nice price action in our favor overnight. High was 27.04 with a target of 27.40. We're getting close.

However, at 6:30am ET I noticed the 20 sma has dipped down to 27.25 which is between us and our goal. I think we'll hit our target before rejecting off the 20sma, if we reject off it at all. But its a good idea to move our Stop Loss to break even. 

So, I'm moving the Stop Loss from 24.50 to 2 ticks over our entry, 26.05+.02=26.07. The 2 ticks absorbs the Bid/Ask spread and commission.

ZL Better Late Than Never Update 1

Not much to say here. Price meandered upward overnight then continued up during the day session.

We closed over the 8ema and the 3ema crossed the 8ema. Stochastics has plenty of runway.

Steady as she goes.

ZL Better Late Than Never

May Soybean Oil Futures (ZL) formed a 2 candle Bullish Harami candle pattern at the beginning of the low on 3/17/20. That's a bullish signal.The rightmost candle of the 2 is an inverted hammer candle with Stochastics oversold. That's a bullish signal.

Today's candle closed over the 8ema. That's a bullish signal. Today's candle combined with the previous candle form a Bullish Engulfing pattern. That's a bullish signal.

We seem to be completing a third drive downward. See the 3 angled, thick, white lines. In my experience with charting in general, this is often when you get a strong counter trend move. Its the sloppy version of the Elliot Wave. I consider this to be bullish.

That should be enough to go long if you have a decent Risk:Reward ratio. But wait, there's more.

Check out what May Wheat has been doing. That's a rocket ship. But wait, there's more.

May Soybean Meal is doing the same thing. To the moon on a Lorna Doone.

The Wheat and the Meal acting so strongly bullish adds confidence the Soybean Oil will be bullish as well. However, ZL is so late it makes me cautious. So, I want to get long but pick the lowest possible target.

I pulled Fibonacci levels from the top of the middle leg down (in yellow), as well as for the length of the last leg (in green).

I chose the 50% Fib level of the green range at 27.42. This is coincident with the 20 SMA. I used a Stop Loss just under the swing low at 24.50.

I waited until about 90 seconds before the grains market closed at 14:20 ET to make sure it was going to close above the 8ema. Then I entered a Buy Limit Order and was filled at 26.05.

Risk is 26.05-24.50=1.55. Reward is 27.42-26.05=1.37. R/R=1.55/1.37=1.13. Not so good. But, if we get a rejection at the 1st target, then price reverses and starts back up, with room to go in the Stochastics, a second likely target is either the green 61.8% Fib coincident with the beginning of a gap, or the yellow 50% Fib coincident with the top of the gap. If we re-enter to take this secondary trade we'll add significantly to the profit (reward). This will help with the R/R ratio.

Summary:

Entry: 26.05
1st Target: 27.40
2nd Target: 28.07
3rd Target: 28.50
Stop: 24.50
R/R: 1.13+
Value: ZL is $600/point (where a point is 1.00 on the chart Y-axis)

DJ-30 Index Targets

I use Fibonacci levels frequently. They are amazing and work as well as any other indicator, if not better. If you're not familiar, do yourself a favor and read up on them. There's more than enough free information on the web.

If we are experiencing the crash I've been waiting for since 2010, then we're experiencing the piercing of a huge financial bubble. If that's true then we can expect this crash to continue all the way back to the beginning of the bubble. I figure that is March 9th, 2009, the announcement of QE1.

If this is a lesser crash, we can expect a reasonable bottom would be a 50% or 61.8% Fibonacci retracement level. 78.6% is another but not as common as the other two. Some people think 76.4% is a Fib level but its not. Its 100-23.6, where 23.6% is a valid Fib level.

The chart above is a monthly chart back to the Dot Com Bust aka Tech Wreck. Some people think the bubble started there but you can see March 9th, 2009 is even lower. So we'll use that as the bottom of the bubble. I pulled a Fib range from the recent high back to March 9th, 2009. The levels and calculations are shown on the chart. Here's the bottom line for some likely targets for the Dow Jones Industrials Index:

50% Retracement:     18,020

61.8% Retracement:  15,294

Bubble Bottom:           6,470

May Soybean Bearish Breakout Exit

Booyah! Hit the target today. I expected more like Tue or Wed. Not complaining :)

The hardest part was waiting the last few points. I wanted to cash out so bad!

So, 866 1/2  - 827 1/2 = 39 * $50/pt = $1,950.

Winning!

May Soybean Bearish Breakout Update 4

Today's candle started off with a bit of a threat. Look at that large top wick, about the size of half the full candle. That was big, green and mean, and lasted from about 10pm ET last night until 8:45am this morning. Fortunately though, it maxed out at the neckline, which is coincident with the 8ema. It rejected off of that level and started back down. 

We made a new low for this swing and closed near it. The volume of today's and yesterday's candles are relatively large, in fact the largest on my chart for this contract. I believe today's candle represents a battle between the bears and the bulls because the we had a significant upswing followed by a more significant downswing about twice the distance. I think we can say the bears won yesterday and they won today.

Stochastics are quite low, which is concerning, and we're close to the AB/CD projection of the downswing from 3/5/2020, which could provide support and cause an upswing (see the purple downward angled lines).

However, the yellow double top projection and the large white downward angled AB/CD projection from the top of the second double top, show targets well below our 61.8% Fib extension target.

So, the decision at the 2:20pm ET end of the soybean futures trading day was easy. Hold through the weekend with the expectation of hitting our target sometime next week.

May Soybean Bearish Breakout Update 3

The daily chart at the end of the grains market day (9:30am - 2:20pm ET) looks almost exactly like the morning chart I posted in the previous post. The chart above is a zoomed in 10 minute chart. It shows an upward channel was formed. It looks like a Bearish Flag to me.

The last 10 minute candle closed in the middle of the channel and stochastics closed in the middle of its range. Really its not much of anything, other than showing some respect for the 27.2% Fib, which it hugged and traded around during the regular session today.

Also, the thin white horizontal line at 854.011 is a support line from back on 5/13/19. Price action respected that support level as well. Hopefully, not too much respect or we could have a problem with a short position and a large Stop Loss.

The expectation is to drop out of this channel during the evening session. But before that, we could go up and test the 200 sma and/or the yellow neckline.

The decision was to hold the position overnight. A bigger decision will be Friday afternoon when we decide whether to hold it over the weekend.

May Soybean Bearish Breakout Update 2

It's 6:30am ET on 3/12/20. Overnight last night, beginning after the Presidents address on Covid-19 at 9pm ET, Soybeans started dropping. Eventually it triggered our Sell Stop Limit order, and continued dropping. This morning we have a healthy start down toward our target.

I was concerned about how far down our target is relative to how far down stochastics are. We already hit the 27.2% Fib extension. It could be all we get. The trouble maker in my head wants me to take these profits while I can and get back in after a possible bounce off the Fib. The problem is, we may not get much of a bounce. We could miss a re-entry and miss the majority of the move.

I looked in the recent past on the daily chart (use chart on 3/9/20 blog post) and see the period of 11/20/19 - 12/2/20. Stochastics were on the dead bottom of its range. Pinned to the floor as price made a substantial move from about 940 to 899. That stochastic behavior could happen for us here on this trade.

So, while there is a valid concern we may reverse off the 27.2% Fib, and lose the current paper profits, I think the odds favor a further drop on this trade. Just going to hold the position for now and see how the day goes.

May Soybean Bearish Breakout Update 1

Not much going on here. You can see price opened gapped up last night at 8pm ET, the eventually started filling the gap but didn't finish. Then came back down and closed on the trend line. I circled today's action on the chart.

It formed an inverted hammer candle in slightly over sold conditions (stochastics), which also qualifies as a Bullish Harami candle pattern, but its under the 8ema, so its not to be taken seriously, at least not until price closes over the 8ema.

Using a Sell Stop Limit order last night kept us out of this trade. So if it starts heading up and looking bullish we won't lose any money. I left the order on and we'll see what happens next.

May Soybean Bearish Breakout (Video)

May Soybean futures broke through a long term trend line and closed below it. That and 9 other indications convinced me to short this contract. All the reasons are listed on the chart and a full explanation is in this 9 minute video:

https://youtu.be/KwNxRgC1k98

We're using a Sell Stop Limit to enter. The reason is explained in the video.

Sell Stop  = 866 1/2.

Sell Limit = 866.

Stop Loss is 900. I'll be moving that down as soon as possible.

The 827 1/2 target is the 61.8% Fib extension which is coincident with the AB/CD projection.

Risk:Reward = 1:1.15.

The price action on this chart isn't very clean, but it seems like a worthwhile trade. We'll see.

May Soy Meal 3-4-2020 Bearish Reversal Exit

Grains market opened 8:00pm ET tonight. May Soy Meal opens nicely gapped down. Stochastics still have a long way to go to be oversold. Its not even to the center of the graph yet. So I'm thinking we can probably hit the 2nd target at the 61.8% Fib.

Then DING! Soy Meal hits the 50% Fib target 8:07pm ET. Profit 308.30-301.00=7.30*$100/pt=$730 per contract.

Nice win! But of course, I'm looking at the 61.8% Fib at 298.40 and the generous stochastics runway, and thinking I left about $300 on the table. People are never satisfied for long :)

It would probably be reasonable to get back in immediately but I'm going to avoid being a pig and chasing. Also, there's a 20 sma between the 50% Fib and 61.8% Fib that could provide support. Instead, I'll watch a lower time frame, like maybe the hourly, and look for a technical reason to get back in.

Why printing money adds lubrication to financial markets but not value

Let's say this pizza represents the money supply of a country. The total money supply represents the total purchasing power of all the money held by the country's citizens, companies, organizations, and government agencies. 

Now that country has a central bank empowered with printing and controlling the money supply. Let's say the country's economy is a little stagnant and elections are approaching. The administration wants to spruce things up. So they get the central bank to double the money supply and make it available to all the retail banks to double the account values, thinking people will have more money to spend. (This is not how it works. Banks don't just put free money in people's accounts. Not yet anyway. Its just an illustration to explain a point.)(Update from this morning. I learned during the day today Hong Kong is actually doing this. The Chinese government is planning to give every adult resident  $1,284; see https://www.bloomberg.com/news/articles/2020-02-25/hong-kong-set-for-budget-deficit-amid-unrest-virus-outbreak)

So while the total purchasing power remains the same, the number of currency units, let's call them dollars, doubles. Initially, people are thrilled they have twice the money they did the day before. But very soon the prices for things double and spending trails off and things get stagnant again.

So the central bank doubles the money supply again. Now what used to cost $1 costs $4. Any stimulus to the economy quickly trails off.

Double it again. There's no reason the money printing will increase the total purchasing power of the country. But now what used to cost $1, costs $8. So each dollar now has 1/8th the purchasing power or 12.5 cents.

People who saved their money from before the money printing  started now have a problem. Their $100 dollar bills have lost $87.50 (100-12.50) of purchasing power. So a lottery ticket that used to cost $1, now costs $8.

This process cannot bring prosperity. If it could, every country would have been doing it since before you were born. 

1913 is when the Federal Reserve was given control over the US banking system, including management of the US Dollar. The dollar has lost over 96% of its value. That means today's dollar would be worth less than 4 cents back in 1913. Here, see for yourself:

https://fred.stlouisfed.org/series/CWUR0000SA0R

This shows a 1913 dollar is worth 3.98 cents in Jan. 2020. This is from the Federal Reserve Bank of St. Louis.

https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=202001&year2=191301

This shows the same thing rounded up to the nearest penny. This is from the U.S. BUREAU OF LABOR STATISTICS.

Why would the government do this? In my opinion its to pay off debt with cheaper dollars in the future. The other choice would be to raise taxes to a crazy level or just outright confiscate a percentage of citizen's bank accounts, known as a "Bail-In" and has already happened in several countries in recent times. (See https://www.forbes.com/sites/nathanlewis/2013/05/03/the-cyprus-bank-bail-in-is-another-crony-bankster-scam/#306e50762685).

The last 2 methods would get every politician ousted at the next election cycle, so they tell us 2% inflation is a good thing and go with the devaluation plan as long as they can.

May Soy Meal 3-4-2020 Bearish Reversal Update 2

The little rightmost candle is currently a doji above the 8ema. This is the currently trading overnight candle. The shape of that candle will most likely change all day until the grains market close at 14:20 ET. But the current candle having gapped up at the open, not making any new lows overnight, and looking like a doji above the 8ema, makes me a little cautious.

So, while overnight trading should not be given much weight in my opinion, and this trade still looks very promising, we moved the stop loss from 315 to break even at 308, which is above the open of yesterday's candle. If price comes all the way back up to 308, its time to get cautious anyway.

However, a partial retrace would be normal. If we get taken out by the closer stop, followed by price starting back down again, we'll have to get back in. We need to be extra diligent today if price starts rising.

May Soy Meal 3-4-2020 Bearish Reversal Update 1

Nice day in the Soybean Meal factory. Had a gap down, a relatively big candle, and a close under the 8ema, and a close near the bottom of the candle. All of that is bearish.

It was such a strong move I wouldn't be surprised if we get a bit of a retrace tonight or tomorrow. If we do, followed by a rollover, I'll most likely add to the short position.

Stochastics have barely budged. I'm thinking we should move the target down to the second level, which is the 61.8% Fib retracement. But it seems likely we'll get a bounce off the 50% Fib or the 50sma, 34ema, or 20sma before reaching the 61.8% Fib. If I knew we'd get a bounce, I'd keep the 50% Fib target, take the profits and get back in on the pull back for another down move to the 61.8% Fib. And in the absence of that certainty, its the safer move because the 50% Fib may be all we get. Or maybe we get close to the 61.8% Fib but don't hit it before retracing all the way back up.

I'll leave the original target on for now and see what happens tomorrow.

May Soy Meal 3-4-2020 Bearish Reversal (Video)

ZM May Soy Meal looks to be in a fantastic bearish setup. I see 6 different indications price should reverse significantly from here. Everything is explained in the notes on the chart and in this 5 minute video:

https://youtu.be/5P38M-omEWQ

ZC May Corn Futures Bullish Reversal Exit

Wish there was no overnight trading. I don't have actual statistics but I think the large majority of trades I hold overnight, that have a stop loss, get stopped out. 

I know I can buy an option just for the overnight session, and I've certainly done that for weekends many times, but while it protects you it also counts against your profits. Since the market is open all night and there is a stop loss, you don't need an option for protection. Well, there could be a black swan event, like the surprise Swiss Franc unpegging from the Euro. A stop loss won't help you there while an option would. 

Also, your position could go to your target and continue much further which would reduce the value of the option more than expected, and you could lose more value in your option than the profit in your underlying instrument, especially if its a new position, like in this case, where the profit amount is small compared to the cost of the option.

If you got an option every night and lost money selling it the next morning for several days in a row, that's going to eat into your profits also.

So, as you may have guessed by now, I got taken out at 2:36am ET last night for a loss of 382-379 1/2=2.5*$50/pt=$125. This leaves 300-125=$175 profit per contract. 

From here, price could shoot right up to the next target, but could also go down or worse, it could meander up and down in a channel of consolidation causing loss after loss if I try to chase this up. I took a shot at the next target and used a tight stop to make sure I kept some profit and it didn't work out, but I'll call this a win and move on to better opportunities.

ZC May Corn Futures Bullish Reversal Update 2

Hopefully you saw my earlier post from this morning changing my target to the 50% Fib instead of the 61.8% Fib.

The market came up and hit the 382 target, yielding a profit of 382-376=6*$50/pt=$300.

After that I expected a rejection leg downward (see earlier post), which we got. I wanted to catch the pivot where price started going long again so I could get back in with the expectation of hitting the 61.8% Fib second target. So I dropped down to the 10 minute chart to catch that pivot and kept an eye on it as I did my scalp trades on other instruments.

The chart above is that 10 minute chart. It shows we didn't get a clean J-hook pattern back up. Instead it formed a pennant pattern. You can see the second to last candle of the day came down and actually touched my stop loss at 380. But the Bid/Ask spread was 380/380 1/4 so it didn't trigger. A quarter point lower, 1 tick further down, and it would have triggered for a $100 loss. But I lucked out and it started going back up and closed in the middle of the pennant before ending the trading day in corn at 14:20 ET.

If it gaps down when the market re-opens at 8pm ET, I'll be wishing we were stopped out. We'll see what happens.

ZC May Corn Futures Bullish Reversal Update 1

I changed my target to the 50% Fib at 382.

I noticed the 50% level is exactly at the bottom of a consolidation period of several weeks. Its also near the 20sma which price has respected in the past.

However, there's a lot of room left in the stochastics. So, I moved in the target but I expect a rejection off that level. The plan is to watch that dip and get back in long when the dip turns up.

See chart on previous post.

ZC May Corn Futures Bullish Reversal (Video)

May Corn is displaying several bullish indicators. Went long today from 376, stop loss at 365, and 3 possible targets. 

See the 7 minute video at https://youtu.be/QRiGGO9OlTU

for all the details including what the bullish indicators are and a trading plan, with targets and risk/reward information.

Correction: The video said Wheat was already going up. That is wrong. Should be ZM Soy Meal.

Clarification: The video said 1 in 19 or 1 in 20 candles close outside the Bollinger Bands on average. I remembered where that comes from and its 1 in 20. Therefore, 19 out of 20 candles should close inside the bands on average.

Here's why. The default settings for Bollinger Bands is 2 standard deviations, which is what I use. 2 SD's include 95% of all the data in a data set. The data set here are closing prices. So that means 5 out of a 100 candles will close outside the bands on average. If we reduce the fraction to lowest terms 5/100 = 1/20. Viola, 1 out of 20 close outside the Bollinger Bands.