Sunday 3 February 2013
What could wheat possibly have in common with gold/silver, or the S&P, or interest
rates? When put into chart form, they are all the same: Bars that show highs, lows,
closes, and volume. Market psychology affects all players, regardless of market. The
factors of fear and greed are no different in a wheat trader than for a silver, S&P or
interest rate trader, even stock investors.
The corollary to the above is that precious metals and/or S&P traders also think they
have nothing in common with grain traders. All miss the point. Profit/loss opportunity,
which is what the market provides, is the exact same across the board. Markets are
neutral! They do not care what is being traded nor by whom. All markets do is reflect
back what the collective is doing, be it in wheat, silver, cotton, stocks, you name it.
The absolute best aspect about charts is that they transmit the most reliable and
unsurpassable information from the highest source, the market[s] itself. Incredibly, the
information is there for everyone to see as it develops in present tense real time. It tells
you what the cumulative decisions are from all participants, from those with the most
information and most money, pitting against those with less information, less money,
and everyone in between.
If ever you want to know what smart money, or controlling influences are doing in the
market, they may try to disguise what they do, and most often succeed, but it is all there
in the charts for anyone to read, if they so choose.
Everything in the following charts reflects activity in ANY market. If you are not a grain
trader, view the chart as gold, or AAPL, or whatever you trade, and focus on how the
activity develops. It happens in your area of interest, all the time.
Pure Chartists as we are, whenever something stands out in any market, we take notice to
find out why. It could lead to opportunity unexpected, and that can lead to a potentially
low-risk trade. When updating the daily wheat chart, Friday’s down day was a surprise.
One thing about which we are confident in the markets is, there are no accidents.
Everything happens for a reason.
The following six charts are reviewed in a Holmesian effort to see if what happened
happened for a reason few expect. We always start with the higher monthly time frame
and work down, looking for synergy within a little blip that stands out, Friday’s decline.
When you start looking, it is amazing what information can be gleaned. All of the
transactions from the past relate to present tense developing market activity. What need
be done is to find the market distinctions between present and past, and charts do it
best. The monthly allows the overall price structure to be put into a context that should
relate to lower time frames, which in turn, refine the one[s] before it.
The importance of bar 1 shows where the largest range down occurred. Wide range bars
can often contain future market activity bound within its high and low. We see that to
be the case for the next year of trading.
Bar 2 was a retest of the high of bar 1. Markets are continually testing and retesting all
important highs, lows, supports. resistance, breakouts, breakdowns, and from these
retests we glean important information in how price reacts to them. A weak market will
have a small reaction, a strong market will react sharply, with many shades in between.
There was a market transition at area 3. A rally had already begun, but this one did not
stop at the high of bar 1. Point 4 is more of an area, and markets revolve around areas
more than a single price level, so one must be flexible and adhere to a single price point.
The weekly shows the same points that apply on the higher time frame. Point 3 is an
important inflection point because it shows how price barely stopped at previous point 2
resistance, as a strong rally continued unabated. That inflexion point becomes an area of
support, which is where price recently stopped, at 4.
All of this is leading to why wheat closed relatively so much lower on Friday, and why did
it stop where it did?
This daily chart shows from where an important axis line came. An axis line is one around
which price finds support and/or resistance over time. It is a fairly strong area. You will
not see the left hand side on the next daily chart.
The explanations on the daily chart are stand alone and need not be repeated. What is
important is the sharply higher volume increase when price made a failed probe lower
on a wide range bar with a mid-range close. That bar is pivotal. Friday’s low close is now
retesting that support level.
We circled the close because we often see it can lead to a bear trap. Scroll back to the last
daily chart and note the June 2012 low-end close. It is better to point it out before price
confirms or negates the close, otherwise, it looks like a hindsight observation.
The activity at the beginning of this 90 minute intra day chart starts from that high volume
failed probe at support. The highest volume bar produced the largest intra day up bar, and
we drew dark lines to show the high and low of the range because it should offer support in
the future as buyers from that time defend their position[s].
We wanted to look at intra day activity to better understand Friday’s surprising [to us] sell
off and low-end close. The immediate question is, why was the high volume bar not at the
upper end of the trading range, when selling short made more sense and offered greater
profit opportunity? We next look at a 10 minute chart for the answer, but we wanted to
show how controlling influences, [smart money], needs to acquire their positions over a
period of time, due to their size, and accumulation cannot take place in a single day. As
we view it, that increased volume was smart money buying into an area of support.
The 10 minute chart is cutting this analysis to a fine point, however, the flow of price
behavior, from the monthly down to this 10 minute chart has a rhyme to it. It is the
information that the market provides on an ongoing basis that allows us to make what
can be more highly informed buy/sell decisions that offer an edge and reduce risk.
The stage is set, if we are in sync with the market forces.