Featured below is an article from the VantagePoint Strategies Newsletter. The author, Darrell Jobman,is Editor-in-Chief of TraderPlanet.com. Darrell has been writing about the financial markets for over 35 years, and was an editor for Futures Magazine for over 15 years. He has also written and/or edited multiple books on trading, and has a passion for helping other traders succeed.
Whenever a market does something unexpected or dramatic – at least, what I consider to be unexpected or dramatic – I like to look at my VantagePoint charts to see what clues they might have offered to help me make a trading decision.
The fundamentals are generally available to traders via government releases or media reports, but what could have tipped me off about price movement based on traditional chart analysis or VantagePoint indicators? Chart interpretation is rather subjective, and there are many ways it can be applied to markets. But, in general, here’s a setup I like to see:
• A string of candles showing a directional trend.
• A consolidation or congestion area or pause in the trend that appears ripe for a breakout.
• A previous price that provides key support or resistance.
• A candle that suggests a trend change or perhaps a pause.
• VantagePoint indicators forecasting a potential trend reversal or continuation.
These conditions can appear on charts for any time frame – intraday or weekly. How you view them depends on what kind of trader you want to be. It’s like being a runner in track. Are you a sprinter who likes the short, quick races? Or are you an endurance runner who likes to go distances with a trade?
The example for this article is December cotton futures, which rallied in late June into July while many other commodities, including crude oil, the leader of the commodity world, dropped. Although cotton acreage is down in 2009 from a year ago and the U.S. Department of Agriculture cut its carryover estimate by 600,000 bales in its latest report, the world still has a lot of cotton.
With economic conditions as they are and the U.S. dollar value rather flat, cotton did not seem like a candidate for higher prices. But cotton did the unexpected – to me – and prices rallied nearly 25% in the last three weeks. So let’s see what the VantagePoint chart says.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for cotton go here!
We’ll get to the current market analysis later, but let’s look at the prelude to an earlier rally first. Cotton futures drifted down more than 10 cents a pound from a January high to the early March low near 46 cents before stalling out and moving sideways (1 in the red circled area). The low was in the vicinity of previous lows in November and December, and the candles began to get whiter or bullish. That fills the chart requirements mentioned above.
VantagePoint’s predicted medium-term moving average of typical prices (blue line) crossed above the actual medium-term moving average of the close (black line), and VantagePoint’s predicted long-term difference (green line in bottom panel) and predicted medium-term difference (blue line) were both angled upwards (2).
So the conditions were in place for a price reversal into an uptrend. All that was needed was a breakout above the previous highs (green dashed line on chart). That came on March 31, the day the planting intentions report showed less acreage (3, red arrow), putting fundamentals on the bullish side, too, and launching an extended uptrend.
After a nearly two-month runup, matching the rallies in stock indexes and some other key commodities, it was time to look for an exit and perhaps a reversal to a downtrend as the bullish enthusiasm in most markets began to wane.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for cotton go here!
The rally died in mid-May (red circled area) with black, bearish candles marking the top and VantagePoint’s predicted medium-term moving average (blue line) turning down and dropping below the actual medium-term moving average (1). At the same time the predicted difference lines, after moving erratically but generally higher well above the zero line, turned down and suggested the strength of the uptrend was weakening quickly (2). The predicted neural index (gray line) was also at a bearish 0.00 after having been mostly at 1.00 for several weeks.
The long uptrend favored the endurance runner but after the downturn, it was time for the short-term sprinter strategy as the chart patterns and VantagePoint indicators tracked back and forth. Once the second attempt to exceed 63 cents was turned back, the key point was 55 cents, the 50% retracement area of the move from the March low to the May high (green dashed line). That is where a battle for control could be expected.
When support at the 50% retracement area held, the situation was somewhat similar to the start of the price rally in March. The predicted medium-term moving average (blue line) began to move up, crossing above the actual medium-term moving average (black line) and getting a big boost on the day after the June 30 planted acreage report, marked by the big white bullish candle (1 in red circled area). The predicted difference lines in the bottom panel are also angled upward (2).
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for cotton go here!
But can the cotton futures rally last? Do the current fundamentals justify a push back up to the 70-cent area, roughly a 50% retracement of the skid from the mid-2008 high? The market’s next key battle line is around 64 cents, the previous high in May (red dashed line). Current supply and economic conditions suggest that will be a tough obstacle to overcome, and it is unlikely cotton will be in a real bull market when the rest of the commodity world isn’t.
VantagePoint indicators on this chart still point upward, so don’t jump the long ship yet. But it looks like a good time to employ the short-term sprinter strategy described in my previous article – that is, have a sell stop in place below VantagePoint’s predicted next day low around 62 cents. If the rally still has legs and carries above the previous high, you are still in a long position; if the market is ready to turn down from the previous high, as seems more likely, you are in a short position near the high.
