DOW JONES INDUSTRIAL

After strong performance from equity markets and commodities and a positive start for 2012, indices are challenging their minor/major resistance levels. One of those indices is the Dow Jones Industrial Average now testing 12,750 levels, a resistance now being challenged for the third time. Since October 2011, Dow Jones Industrial moved from 10,500 levels to 12,750 levels. It has breached its 200 day moving average which is now standing at 11,925 level. We might see some weakness at this strong resistance area and the index might experience a pullback towards its 200 day moving average. Resilience around 12,750 will signal strength and a possibility to break above the strong resistance. Dow Jones Industrial is on my watch list with these two levels; resistance 12,750 and support 11,925.

GOLDMAN SACHS COMMODITY INDEX

When a clear chart pattern starts forming and have strong bullish/bearish implications I like to confirm it with volatility. Because without a surge in volatility that breakout would not succeed. Bollinger Bands and Bollinger Band Width is my favorite. Some might also look at Average True Range, which is also a good indicator to define high/low volatility periods.

Goldman Sachs Commodity index has been on my watch list for some time. With its horizontal resistance at 673 levels and its ascending trend line support at 640 levels it is poised for a strong breakout. Direction? Market will tell us. Confirmation? Yes there is; volatility is at a 6 month low, so a breakout from this range will also expand the volatility. Strong resistance is at 673 level. GSCI might be forming a Head & Shoulder continuation pattern. If that is the case then the neckline is at 673 level and H&S pattern will be confirmed only after we see a breakout above 673 level. This is a beautiful chart that we should keep a close eye on in the next few weeks.

SPAIN IBEX INDEX

The beauty of technical analysis is that it helps us compare current price movement with past price movements and layout a trading strategy depending on the historical price movements. Chartist have developed an extensive list of chart patterns throughout the years. For those interested in learning chart patterns Thomas Bulkowski’s The Encyclopedia of Chart Patterns is a must read. In fact this was my first technical analysis book in my library back in 2000. Another book that I’m currently reading on chart patterns is Peter L. Brandt’s Diary of a Professional Commodity Trader. In this book you’ll find plenty of chart pattern applications. 

You can find the book on Amazon as well as on his website. 

http://peterlbrandt.com/ 

Similar chart patterns develop one after another on different instruments, different time frames and in different markets. I try to stick with the widely followed chart patterns and don’t search  for “new generation” chart formations. Because usually new generation chart patterns are derivatives of the common chart patterns. Symmetrical triangle (coil) is one of the widely followed chart pattern in technical analysis. It’s strength comes from the perfect boundaries it forms and the breakout that follows the completion of the pattern.

I usually combine chart patterns with volatility analysis to see if the volatility has reached an extreme low level at the time of the breakout. If I see that the volatility has also decreased, I’m more comfortable with the breakout from these consolidation ranges. Followers of this blog enjoyed a perfect example of a symmetrical triangle breakout on Copper in January.

(https://techcharts.wordpress.com/2012/01/05/copper/)

In this post I’m presenting another text-book symmetrical triangle with a perfect volatility reading (6 month low). Spain’s IBEX index is now close to a breakout from this short-term consolidation range (symmetrical triangle). The direction of the breakout will be important. My suggestion as usual will be to wait for a breakout and then act on the direction of the breakout. I’m watching 8,650 level as resistance and 8,350 as support.      

SOY MEAL

In December I wrote about Soy Meal. A commodity that I’ve often traded and analyzed. Agricultural commodities are perfect for traders who are starting with a small capital. Their low margins allow you to trade 1-2 contracts per trade. Unlike Gold, Silver or even Crude Oil that have high margin requirements, agricultural commodities are better place to start with. I had a very timely call in December on Soy Meal when it was testing the lower boundary of its long-term symmetrical triangle at 270 levels(https://techcharts.wordpress.com/2011/12/10/soy-meal/) Since then price have rebounded sharply and reached 320 levels.

Sharp rebound in December 2010 and pullback in January has probably formed a nice inverted H&S pattern. The neckline of the inverted H&S pattern and the 200 day moving average are overlapping at 325 levels by increasing the significance of this resistance. If we see a decisive break above both the neckline and the 200 day moving average, Soy Meal will generate a clear buy signal in the short/intermediate term. Soy products should be on our watch list in the next few weeks.

COFFEE

Here is an interesting illustration on a commodity that we consume almost every day. I have always been a coffee fan. Of course born and raised in Turkey, Turkish coffee has been a part of our daily life. I start and finish my day with coffee and consume 4-5 cups per day. When I saw this great illustration I thought of the importance of coffee during my work day and my trading of this highly volatile commodity, so I revisited my charts. If you are a technical analyst that lives and dies by charts you see almost everything in charts, patterns and prices. So here is a brief history of coffee on how it changed America. I also share a long and medium term analysis of coffee price that you might find interesting.

Long term coffee chart goes back to 1979 and it clearly shows the importance of 280 level over the past three decades. In 2011 Coffee price tested the long-term horizontal resistance at 280 levels and pulled back. Same level was tested in 1986, 1994 and in 1997. Every time price tested the horizontal long-term resistance, it pulled back sharply except this time (at least for now).

To analyze the supply/demand dynamics in the intermediate term I’m presenting a shorter term view. On the second chart (weekly scale) 2002-2012 can be seen as a nice uptrend developing in a parallel trend channel. In 2011, price reversed from the upper boundary of the trend channel and the long-term horizontal resistance at 280. This was a strong resistance. Coffee price is now below its 200 day moving average and the RSI is below 50 levels (bearish signals). Downtrend on the RSI and on the price chart shows that Coffee is headed lower in the short/intermediate term.  I believe 200 day moving average will be an important threshold to call for further weakness or a possible reversal to the upside. If price breaches above 240 level with a confirmation from the RSI (breaching 50 level) then we will expect a re-test of the long-term horizontal resistance at 280 once again. Otherwise, we will expect the price to pullback to the lower boundary of the trend channel at 150 levels.