What The Momentum C’s Mean
What does it mean when cotton and copper rally? A
rally in these economically sensitive commodities signals forward demand of these raw materials and
historically has predicted an upturn in the economy eight to 18 months in
advance.
Both December cotton
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today by posting on the Momentum-5
List and closed on their highs.
Because of its economic forecasting quality, copper
has euphemistically been called the “metal with a Ph.D.” Copper is
heavily used in construction and industry. With the long end of the yield
curve down and providing multi-decade lows in mortgage rates, construction
spending is forecast to increase. Copper
was also pointed out in last night’s Nightly
Futures Traders Report and made good on its Off The Blocks
long after triggering above the high of the last hour of trading Monday.
Earlier entry could have been had out of a Slim Jim formation.
December cotton
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in still-shortened trading limited to between 1:30 to 3:00 PM ET due to the
NYBOT being relocated to Long Island City after the WTC attack, surged 7%,
or 2.43, to 35.21, and also made good on an Off The Blocks
long.
Mark Boucher regularly discusses the importance of
seeing these economically sensitive commodities rally (“bottom
formations and breakouts”) in order to get a “sustainable rally in stocks.”
Also from the Momentum-5
List and trading in shortened sessions still, December cocoa
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good on its Off The Blocks
long and closed again on its high of the session, the fourth 5% gain in five
days. How high is high here? There is formidable, defined resistance at 1225
(we closed at 1210). Cocoa is overbought, having rallied 23% in six days
Have a look at the
S&P futures
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Dow futures
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they have not retraced more than three days without advancing. This is a
useful market characteristic, or dance, that you can exploit by buying
pullbacks. Stock index futures are now trading at new highs, with the
S&Ps inching out their highest close since August. Given this
tendency, if they do trade lower more than three days, expect
a more substantial correction. But until then, you’ve got momentum in force
in all three major index futures.
In the grains, December wheat
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gapped down to a 20-day low. Given their quick descent from the Oct. 31 high
— three powerful down days — their inability to re-trace more than 50% of
this latest swing down, and gap-down break of support at 281 (which also
appears will be a neckline), this market could make a measured move, twice
the distance from the 297 head to the neckline, which projects 265 as a first
objective (see my trading article Defining
Reward/Risk Ratios With Chart Setups for methods on calculating measured
moves).
January soybeans
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slightly but held first support just below 444. Beans need to hold 439 to keep the
immediate-trend, bullish scenario intact. Basis January closed down 2
at 445 1/4.
Poor economic figures
out of France, the UK and Japan are bolstering the buck. Dollar index futures
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are up 1.10 and were on the Multiple Days Low
Volatility List, suggesting an outsized move. Retail
figures are lower in the UK and French consumer prices are higher. The
dollar closed above a low-level triple top, but also set up a Turtle Soup
Plus One Sell reversal for tomorrow.
In Japan, factory use
fell to the lowest level since the government started keeping statistics on
this subject in 1978. The Japanese government is already running a huge
budget deficit as the Parliament prepares to approve $8.3 billion in fiscal
stimulus. Here you have huge deflation (which equals a declining tax base),
imploding industrial and employment figures, and rising budget deficits. The
yen is down after a two-week run to the 38.2% retracement of its 9/20 high.
Here, note that an Off The Blocks
strategy kept you out of this market which appeared at the bottom of
the Momentum-5
List. The emphasis shifts back to the short side now for the yen. Public
officials in Japan also do not want the yen above 120, basis the spot
market. In September, the Bank of Japan spent $26 billion, intervening in
currency markets to defend this area, yet
another sign of too much spending in Japan.
Currency futures were closed due to Veterans Day. As
mentioned in Monday’s
Futures Setups, euro FX futures
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“implosive tendencies.” They gapped way down, but provided short entry out of
opening-range setups and closed down .01210 at .88020.