Silver’s Silver Lining

  • April 17, 2001
  • Marc Dupee

Pattern setups in the
markets do not always play out on a trader’s screen in textbook fashion. That’s
why it’s important to recognize a setup when it very “nearly” meets
your trading criteria and then execute the trade. This is the artful, rather
than scientific, aspect of pattern recognition. But the silver lining in
becoming deeply versed in pattern setups and recognizing imperfect setups are
the decent gains that come in markets such as May silver
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today. 

Silver had closed higher
for the past four days, equaling a 20-day high yesterday. This set up a Turtle
Soup Plus One-Like Sell situation. It
was not a classic Turtle Soup Plus One setup because it did not hit a new 20-day
high yesterday. You’ll notice that no signal was generated on Trading Market’s
Futures-Indicators Turtle Soup Plus One
Sell page because the contract did not make a new 20-day high — it only
matched it. Nonetheless, silver set up a nearly identical trading pattern and
tanked: it gapped lower, traded two ticks higher (providing entry) before
closing down 7.2 at 436.8. Gains of 3.00 to 4.00 from opening levels were
possible on the session for short side traders able to recognize the imperfect
pattern setup.

In another imperfect setup, T-bonds
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had tanked as many as 6 big points in 16 days and were trading at nearly a
two-month low. Turtle Soup-like setups also play out in different time
such as, in this case, on the weekly chart. Interest rate futures rallied from
their severely oversold conditions overnight and triggered a weekly setup above
the January low during the open outcry session. June T-bonds closed near their
highs, up 22/32 at 101 28/32. And 10-year notes
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rallied from an oversold condition and Turtle Soup Buy-like setup, a pattern
mentioned in yesterday’s Recap, to close 21/32 higher at 104 19/32.

Stock index futures popped lower on Cisco’s and Eastman
Kodak’s earnings warning and lower profit results. But traders paid closer
attention to economic reports out today that suggested the worst may be over in this economic slowdown and that much of the lowered earnings expectations may
already be priced into individual equities and index futures. The Nasdaq 100 futures
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rallied nearly 100 points out of the gates, leaving an outside expansion bar on
the five-minute chart as a tip-off of the early strength off the low. NDM1
settled up 44.50 at 1672.50. 

The S&P futures
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similarly, logging a 20-handle rally in the early going before pulling back to
close 13.50 higher at 1195.50.

Consumer prices rose just .1% last month and industrial
production gained for the first time in six months. Together, the reports
suggested that the manufacturing economy is recovering with low inflation. 

Euro FX futures
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lowest level of the year on the view that the European Central Bank remains
behind the curve in stimulating economic growth. The June contract closed just
shy of a four-month low, clipping .00420 to .8820.  

May wheat
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both made good on Turtle
Soup Plus One Buy
 setup closing down 3 3/4 and 2 3/4, respectively.