Typically after a large move down, like we had on Friday in the Grain complex, the following session or perhaps 2 sessions witness a short term correction in the overall trend. So, Today, we saw exactly that in the Grain Complex, Beginning with the Nov Beans, we went down, “explored the space’ around 880, rallied back about 20 cents got within 3 cents of the 900 level, then reversed and moved down to about the middle of the range, unchanged at 885.
Now we have a situation where 900 beans will be resistance on the upside. Until we settle well above that level, I think most traders will be looking to initiate new shorts near that level…
Similarly in CZ, we have resistance now at 350 and in Dec wheat, we have resistance at 450….
The options market key around these strike price level, and options on futures are still on market where price discovery is done largely by open out cry… They hedge their futures on the screen, but they process, fill, and have a price discovery process which is still largely pit based. That’s why if you see a picture of the CBOT/CME floors, the pits which are full are the options pits.
The futures pits have about one-tenth of the number of people standing in them, because the order flow is no longer through the floor. The floor is a secondary market… The primary market in the futures contracts is electronic.
Technically,
Today we saw strength in the outside markets, with Stock index futures showing some nice gains, again, after we posted new multi week lows last Friday morning, after the un-enjoyment number came out, showing a jobless recovery… the 9350 level in the Dow and the 1012 level in the S&P’s will serve as a near term floor, but if we have a new down leg begin any time soon, those levels will definitely be challenged.
We have a 13 dollar pop in Gold, 50 cent pop in Silver, The Dow is up 130+pts around 9530 level, and the S&P’s are up 16 handles at 1038… Certainly a healthy bounce, but all in all possibly a new selling opportunity… That being said, picking tops is an exhausting and mostly fruitless activity… you are better off getting with the flow of the trade buy placing buy or sell stops in advance, so you position yourself with the move as it unfolds… In other words, you want to have buy stops at selected levels above the market so you automatically get long with the rally… Obviously with each buy stop, once a new position is established, you should immediately place protective sell stops below to 1) lock in profits, and/or limit losses to a specific level..
The exception to that rule is if you have specific areas of resistance of support in your plan… At that point you could have a resting order above the market to sell at a certain level, but you should definitely have a protective buy stop above that initiation point, again, to limit your potential losses…Having them in place prior to a trade mechanically forces one to be disciplined, thus extending your life expectancy as a professional trader if that is your goal..
The key is to take the emotion out of the equation.
Good Trading