 Fasten Your Seatbelt! | |
The Forecasts Those who have read my general forecasts in this newsletter or my very detailed forecasts in the recent 5-3-7 Report are well aware of the fact that I have been predicting a commodity price inflation for many months now and, furthermore, that I did so well before the current bull markets started. We have seen the "domino effect" slowly but surely engulf almost every commodity market from hogs and cattle to oats and orange juice. Some markets have soared to new all time highs while others have still remained relatively tame in spite of the generally bullish market backdrop. As in most cases, there were few who believed my forecasts and there were even fewer who took advantage of them either from an investing or trading standpoint. It’s the nature of traders to never have enough of a position when they’re making money and too large of a position when they’re losing money. Nonetheless, I’d like to share with you my general thoughts about what may yet be coming in the world of commodities. Still the Hottest Game in Town Commodities are still the hottest game in town - and this should come as no surprise to futurists, cyclical analysts, intelligent economists (is that an oxymoron?) and those of us who have been in the markets for many years. When a market sector becomes popular the reaction of money managers is just as susceptible to fads as is the public response to the "pet rock," the "hula hoop" or "new" blue jeans with holes in them. The current commodity fad will eventually settle down but not before the game claims its victims; not before the public is lured into the markets at high prices, and not until professional traders have made a bundle on this game. What do I Mean? What I mean by the above is simply what I’ve been telling you, preaching at you and warning you about for such a long time. A necessary correlate of large moves is market volatility. Market volatility is both a blessing and a curse. It’s the yin and yang of trading. The bigger the front - the bigger the back; the higher prices go, the greater the volatility will become. And while volatility may be a friend to experienced traders, it’s a foe to new traders and to those who do not have either the right tools or the right psychology to participate in such a volatile market environment. | Grist for the Mill The commodity markets are unique in that there is a winner for every loser. While shares of stock can be created by corporations, commodity trading is a closed system or otherwise known as a "zero sum game." There is only a certain amount of money in the pool. Professional traders can only make what other professional traders and/or the public loses. It’s really very simple. People wonder why the odds of success in trading are so low for the new trader. There’s no great mystery here. You don’t need to be an economist or an analyst or an intellectual to see the situation. Most new and inexperienced traders are grist for the mill. Could there be a better opportunity for professionals than the current market environment? Think about it. Commodities are hot. Many are soaring. The stock market is dull and choppy. Interest rates are low and unpromising. And the real estate market has lost its glitter. What a GREAT opportunity for professional traders, brokerage houses, and futures exchanges to make money by bringing fresh blood into the pool! The good news is that the markets are moving and that numerous opportunities exist. The bad news is that UNLESS YOU HAVE THE TOOLS TO TRADE THESE MARKETS YOU WILL BECOME A STATISTIC VERY QUICKLY. These markets will take your money so fast you won’t know what hit you. The Equalizers (Almost) In this day and age of low cost computers, highly effective trading software, low commissions, and the ability to get instant price quotations, the odds of success for small traders SHOULD have increased dramatically. But I do not believe that they have. Why? I respectfully suggest that there are three major reasons. FIRST, most traders do not begin with sufficient capital. SECOND, most traders do not have effective trading tools and strategies - they trade haphazardly without a plan or methodology and, THIRD, most traders lack the discipline, organization and emotional fortitude to follow systems. That’s the good news and the bad news. Is that a surprise? No! It was like that when I made my first trade in the summer of 1968 and it’s that way now. What to do? Learn some good methods. But even more important make the commitment to be disciplined and consistent. An undisciplined trader with a good system is still grist for the mill. |
COWS (Corn, Oats, Wheat, Soy Complex) | |
The grain and soybean complex have behaved very much in line with my forecasts. And if my expectations continue to be correct, then what we have seen so far is merely the beginning of what may yet come. I believe that the big bull markets are still ahead of us and I will give you recommendations accordingly. I further believe that those who follow the long side will be handsomely rewarded but it will take patience and perseverance. Soybean Complex In my recently published long-term 5-3-7 Report I gave you specific details about my bullish projections for soybean meal and soybeans. Beans rallied to resistance that has been in process for over a year and they now sit at resistance again. The next few days will be important in determining the next few months. The hotline will recommend longs in the bean complex if and when prices decline to short-term technical support and then give buy triggers. Should any of the soybean complex markets CLOSE ABOVE their May or June highs on a WEEKLY basis then I will be even more confident in expecting a major bull market. I remain bullish on all three commodities in the soybean complex but I note that soybean oil remains the clear leader of the pack, having made new highs for the move this week. | Corn: My indicators gave short-term buy signals. The hotline recommended a long position on Dec. futures. This trade should have been closed out at a small profit and then entered again and closed out at a profit. My indications and projections remain bullish, I do not see any technical reason to change my long-term or intermediate-term forecasts given the continued intermediate-term up trend. Wheat: Commercials accumulated large long positions in wheat which I told you would have bullish consequences. Another buy recommendation should have been closed out at a profit. The intermediate-term trend in wheat remains bullish. Await hotline buy recommendation on declines to support. The May high in Dec wheat futures is a very important resistance point which, if penetrated on a weekly closing basis, should portend a much larger rally. Oats: I have been and remain bullish on oats. Volume remains too thin for recommendations.The oats market is still a reasonable risk vehicle for new traders. If I recommend a position via the hotline, then they will be at limit orders only. DO NOT USE market orders due to the very low trading volume in this market and, as a result, price fills could be exceptionally bad given the thin trading volume. |
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Meat and Livestock | |
I have been telling you for many months in this newsletter, that years ending in "6" have often correlated closely with the start of major bull markets in cattle. So far, my forecast has been correct. Await long recommendations in Aug or Oct cattle on the current decline to support. Hogs have been very strong, turning in their most bullish performance in many months and also confirming my bullish expectations. But a short-term correction is now in process. The hotline recommended a long. Follow up as advised. I believe that the largest rallies are yet to come in these markets and that the upside moves could be substantial, making what has already been seen appear to be small. I expect new all time highs in cattle and hogs. | Hogs: As noted in the last few weeks, the ideal seasonal tendency is bullish. The hotline recommended a long position that should be followed up accordingly. Hog prices have moved strongly higher. If my analyses are correct, then this is only the first stage of the long-term bull market. Cattle: I expected the decline to support to be followed by a major rally. The short-term trend remains bullish. The hotline will again recommend a long position in August cattle when prices decline to short-term support. This is now happening. Await a recommendation via hotline. I believe that cattle prices could move to new all time highs based on the cycle pattern. |
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The corrective declines in all metals were considered normal and reasonable. Although the declines were large, they need to be put in the proper context of volatility. I told you that my focus and expectations had not changed. The markets have rallied strongly BUT we are not out of the woods yet. As we enter a time frame that has been seasonally bearish for the precious metals it will be important for them to hold technical support levels. By the time late August has arrived there should be additional buying opportunities, especially in gold which has shown a very strong tendency to rally from late August to late September. Copper: My advice has been consistently and persistently bullish on copper. I warned you that the days of this history making bull market were numbered. I DO NOT and have not recommended long-term short sales as yet because I still do not see technical signs of a major top as of this writing in spite of large recent declines. Based on the current status of the COT Commercials number I believe that copper prices could test or exceed all time highs before topping. As you can see from the accompanying chart, the market is on the road to test highs. When the top comes in copper and the other metals, the severity of the subsequent crash in prices will surely make market history. Gold: My advice has been clear and unhedged. I told you as follows: "Based on my analyses, I do not believe that a longterm cyclical top in gold has yet been made. A correction down was expected. I told you to wait for an intermediate-term BUY recommendation in the event of such a large decline to support." The hotline recommended a high risk long position as the market fell to support. And the long was closed out at a profit when | resistance was hit. My Internet based Precious Metals Report recommended longs on the last decline and is still long. NOTE: UNLESS YOU CAN AFFORD TO RISK AT LEAST $50 ON A POSITION IN GOLD DO NOT TRADE THE FUTURES. TRADE STOCKS INSTEAD if the risk in futures is too high for you! Silver: Long-term investors were advised to hold positions in silver and silver mining stocks with trailing stops to lock in profits. My long range target of $10 or higher was achieved. I told you to "be prepared for even larger intraday price swings." We have only seen the tip of the iceberg in volatility. NEW TRADERS or those with small accounts: STAY AWAY or trade stocks, or ETF’s instead of futures. The seasonal decline is ideally over and a recovery rally is likely. I advised you to await buyingopportunity at long-term support - that opportunity developed. Platinum/Palladium: My opinion and forecast has not changed. The corrections down were expected and correctly predicted. Platinum and palladium are still in major bull trends. The corrections were overdue given the dominance of large traders and hedge funds in metals. I do not see any triggers that pointto a long-term top as of this writing. My platinum projection was $1240 or higher - it was achieved. Next new target of $1310 was hit and surpassed. My comment when the decline started was as follows: "For those who have been patiently waiting to buy, I believe that the opportunity to do so will soon be upon us." The huge declines to support were expected, and should have come as no surprise to you if you’ve been reading my forecasts. This is a high risk game with large intraday price swings common. Don’t trade these markets unless you know the risks and can handle them financially and emotionally! |
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Currencies | |
Aussie $: The market bottomed and rallied strongly in sympathy with the metals only to turn lower again. The odds are that a short-term top has been made. They turned shortterm bullish with the metals. No surprises there! Eurocurrency and Swiss Franc: Both markets rallied to projected long-term resistance areas and topped as expected. A bullish short-term pattern developed. The trend os now bearish as the dollar has rallied to resistance. A very broad level of resistance is developing consistent with my bullish forecast on the dollar. Japanese Yen: The Yen is positioned for an approximate 7- year cyclical low which may have been made. I expected a MAJOR rally in the Yen vs. US dollar over the next few years. | This move appears to have started. Note the developing support base. SEE CHART ABOVE. BrPound: The market has made an 8.1-year cycle top almost exactly as predicted. Long-term trend is down. A short-term low was made as predicted. I expected a short-term top and it has been made. US Dollar: I am long-term bullish on the US dollar. A shortterm low has been made. A buy recommendation was given via the hotline and closed out at about break even. Canadian $: I believe that the Canadian dollar can test the 93 level or higher. I advised you to expect a short-term top. That top has been made and the seasonal is now bearish. |
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Cocoa: The long-term trend remains bullish. The short-term trend has turned bullish as well. In fact, the trend is now strongly bullish. I told you to expect big things from this market and this is exactly what’s happening. The accompanying chart shows how strong the trend has been. The hotline recommended a long position at short-term support. I am awaiting a decline to short-term support to enter this market again. Sugar: My next target is in the 23-25 area. I advised you to be careful of a downside correction. That correction developed and may have made its low in the last week. The hotline recommended a long position which, in spite of early weakness, has come back up very strongly. Large price swings and the expectation of large moves require the use of largestops. DO NOT trade this market unless you can risk $2500 minimum. I continue to expect big things from this market on the upside over the next few months. The hotline will give updates on the current long recommendation. The accompanying chart shows that the market has rallied from support and is now in a new up trend. | Orange Juice: I DO NOT see any significant technical indications of a top as yet. This is a primary bull market that could easily go to record highs by the end of this year. Of course, this depends a great deal on weather. My long-term bullish forecast remains in effect. Readers of this newsletter know that I turned bullish on OJ long before the start of this bull market. The market has declined from long-term resistance. Note that I rarely recommend longs in OJ via the hotline given the thin trading volume and I rarely considerfundamentals in my work. There is a good chance that OJ could climb to all time highs before this year is over. Coffee: My long-term cycles tell me that coffee is overdue for a significant rally that could take prices much higher in 2006 or beyond. The market still has large upside potential in 2006 with the move now just getting started. Short-term indicators have turned bullish. The recent buy signal has been tested as the market fell into MAC support, as shown on the accompanying chart. Another MAC buy signal could result in a very strong rally. Bear in mind that coffee is a high risk, high volatility market - NOT FOR BEGINNERS! |
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Cotton: The intermediate-term trend remains bullish as prices have dropped to test support. A buy recommendation was given via the hotline after my short-term trading indicators turned bullish. Cotton could become one of the stronger markets over the next few years. The position recommended via hotline shows an open loss.Note that the vast majority of my recommendations carry large stop losses by necessity. YOU CANNOT TRADE THIS MARKET WITHOUT A LARGE STOP GIVEN THE VOLATILITY. My bullish forecast has not changed - cotton needs more time to begin its rally. | Lumber: A major cycle low COULD BE developing. The bearish sentiment and declines are typical of what transpires at cyclical lows. My long-term cycles tell me that lows COULD BE FORMING NOW! Trading volume remains exceptionally low; much too low for hotline recommendations at this time. Although there is no timing trigger to go long as yet, one could develop over the next few days after which a very strong recovery rally could follow. The new low for this move has given us a bullish divergence setup but, as noted, there is NO buy trigger as yet! |
T Bonds / TNotes | Stocks |
I concluded that interest rates were likely to stabilize or decline BEFORE they surged to high levels. So far this has not happened, but I think it will. The current bottoming process of futures suggests that this could be starting. Seasonals in futures are ideally bullish at this time of the year, which continues to point to a possible short-term rally before a continued decline. The hotline has recommended a shortterm long position in TNotes which should have been rolled into the Sep contract as recommended and then closed out at resistance after which another long was advised on the short-term decline to daily technical support. Remember that a cyclical low is due at any time now and that daily sentiment was very low prior to the recent low. This has, in the past, been a precursor to bottoms. | Prior to the recent decline in stocks I WARNED you, without a doubt, that the stock markets all over the world were in trouble and that bearish divergence would eventually take its toll. Some of the Middle East markets have crashed and they remain in severe bear trends. I also stated that "when stocks begin their decline the drop could be significant." The terrorist attacks in India scared markets throughout the world but the prevailing trend was already bearish. My trend projections and timing indicators strongly suggest that stocks could trend lower until late October to be followed by a strong year end rally and possible 4 year cyclical low. I expected rallies to resistance and failures when resistance levels have been hit. The hotline recommended a few very short-term trades in Dow Jones futures on the long side but the intermediate-term is bearish. |
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Petroleum Complex | |
Natural Gas: The approximate 3-4 year cycle in natural gas futures is due to bottom this year. This low COULD be developing now. I believe that bottoms are developing. They are as follows: • In order for a major bull market to develop I need to see the weekly indicators turn bullish. This has not, as yet, happened. • In order for a more sustained rally to occur I need to see a buy trigger on my Daily Sentiment Index. This has also not happened as yet. And, finally, • The daily chart indicators need to give me buy signals. In order for this to develop new lows for the move were needed. This HAS happened and the market is now in even better position to bottom. BUT there are no confirmations of a low as of this writing.As an alternative to natural gas futures, which are very risky and volatile, you might consider long positions at the right time in some of the many natural gas stocks. Crude; Heating Oil; Unleaded Gas: The bullish fundamentals continue to convince traders and analysts that the long side is the best side and that $100 crude is inevitable and, perhaps, even unavoidable. I advised you to BE PREPARED for a severe decline. I also told you that "it’s possible that we will see $50 before we see $100." This is still my forecast. | Are you a Trader or a Brain Surgeon? If you could see the kinds of e-mails I get, you’d probably tell me that they’d make a very entertaining book. The e-mails range from praise to criticism and from the intelligent to the absolutely moronic. Thankfully, I get some very positive letters and that makes my day. In fact, I get many more positive calls and letters than negative ones. Among the more humorous letters is the one from a school teacher who stated: "I’d like to buy some commodities from you. What’s your best price on 100 pounds of sugar, 50 pounds of coffee and 50 pounds of potatoes?" More recently, however, I get emails like this one: "Jake, why do you use such large stops in your recommendations? I can’t afford to risk that kind of money. I can only risk about $500 on each trade." My replies are as follows: 1) You need to give your trades enough room to account for the average daily trading range or you won’t be successful. 2) The market DOESN’T CARE about how much you can afford to risk. The market doesn’t even know you exist. All the market knows is its internal volatility. Your stop loss and degree of risk have to respect the inherent volatility in each market. And, finally, 3) You are NOT A BRAIN SURGEON! You’re a trader. A brain surgeon goes after very precise points that control brain functions. Their work is so exact that even a small error could result in big damage. Trading is nowhere near that precise. It requires a large playing field from which (we hope) to extract a profit. |
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Jake Bernstein’s Weekly Commodity Trading Letter
Started by
TTHQ Staff
, Jul 20 2006 09:26 AM
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Posted 20 July 2006 - 09:26 AM
