Technical Analysis of Various Futures and Equity Markets
On June 13th, I mentioned Silver had firm support between 17.514 and 16.955. The low of 17.175 on June 15th bounced right off the middle of this zone and is now retesting the neckline breakout. This bearish pattern still looks healthy, but this support zone will need to be taken out.
On June 11th, I mentioned a possible support zone between 7350 and 7296. This zone has now held for four consecutive days and the 240M chart looks to be turning bullish. I now think prices will go retest the recent highs.
One basic technique I use to quickly determine bullish or bearish sentiment is the 50 DMA. If prices are above, then its bullish. If prices are below, then its bearish. The best trade entries usually occur when the weekly and daily charts are in alignment. For example, I prefer to enter a market on the long side when I get a bullish set-up on the daily chart AND the weekly chart shows a bullish bias. However, I find it equally interesting when I find a market at a crossroads moment. This occurs when the weekly and daily charts give opposite signals. Below I will discuss two such markets.
Soy Oil: The weekly chart shows price action rallying into its 34 EMA wave. A strong trending market will often pull back into this wave before resuming its dominant trend. In this case, the weekly trend has been bearish since the end of December. This pull back into the middle of the wave offers a low risk area to get short. This area also had its monthly R1 @ 28.18 and was below its 50 WMA.
Now lets look at the daily chart to see if it supports this trade. Prices rallied late April, moved above (bullish) its 50 DMA in mid-May, and stalled at its 100 DMA four days in a row in early June. Now we are retracing back into the middle of its 34 EMA wave, which offers a low risk area to get long. Seasonal tendency calls for bullishness mid June to late July further supporting this trade.
Cotton: The weekly chart shows a significant down trend since June 2018. Prices have rallied off the March 2020 lows into its 34 EMA wave. The 50 WMA also served as resistance. This pull back offers a low risk area to get short.
Now lets look at the daily chart to see if it supports this trade. The rally off April lows started off strong. Its dominant MM had a neutral retracement, which was bullish. However, its skewing was extremely left-handed. This indicates lack of upside momentum, which usually causes a pullback opportunity. That's what is happening now. Prices stalled at its 100 DMA and are now retracing back into its 34 EMA wave, creating a low risk buy trade set-up.
Conclusion...Both markets have conflicting trade set-ups. What do you do? You can take both if you have 2 accounts. You can stay with the dominant trend, which is the weekly set-up. You can go with the daily time frame, but trade smaller size. Or you can pass on both and look for weekly and daily alignment trades. That's why I always find these crossroads trades interesting. They give you multiple opportunities and I enjoy watching the tug of war between buyers and sellers. Remember, a weekly trend will only get reversed AFTER its daily trend. So these markets can be making longer term trend changes. These are two markets worth watching.
Friday saw prices close below the upward sloping neckline confirming a bearish head and shoulders top pattern. The target is ~ 16.134. However, there is stiff support coming up between 17.514 and 16.955. This zone contains its monthly pivot, its 34 EMA wave, and a fib cluster containing symmetry. I wouldn't be surprised to see prices stall in this zone, retest the neckline, and then move lower. Longer term, this market remains bullish if it holds 16.45. But this market is definitely a bit overbought and has already seen a bearish crossover on the MACD. I think this pattern has a good chance of success.
There's a possible head and shoulders top forming in the September futures contract. The left shoulder was formed on 5/20, the head was formed on 6/2, and a possible right shoulder was formed on 6/10. Now all we need to confirm this pattern is a close below the neckline. The height of the pattern is ~ 1.58. Therefore, the target will be 1.58 less the neckline break. If it breaks out today, then the target would be ~ 16.134.
How do we trade it? You can be aggressive and enter as the neckline gets broken. The risk with this entry is that the pattern fails confirmation and bounces higher. The more conservative approach is to wait for confirmation of the pattern. Then, enter on a pullback to the neckline breakout. The risk with this entry is that the market never pulls back. Your stop can either be above the right shoulder @ 18.56. Or you can place it above the downward sloping trend line. Today's level would be ~ 18.429.
This patterns obstacles to its target include the 34 EMA wave, which often serves as support on trending markets. If this area doesn't hold, then its 100 DMA and 50 DMA stand in the targets way.
