CTS Spotlight for the week of July 23rd, 2010

Hello and welcome back to CRI's CTS Spotlight



07/23/10: Little new in currency land as the correction from the spring moves continues. The credit crisis has abated for the time being and prices here appear to be trying to find stable ground. One exception, the Australian dollar, has resumed its' upward march as Asian growth prospect appear to dwarf those of the other regions. Backing this notion up, both Copper and Crude Oil have registered new long entry points. Of note this week, Feeder Cattle prices have broke violently higher suggesting a 20 to 30% price increase may be in the not too distant future. Please refer to this weeks CTS blog entry for more on that and a possible OnlyDoubles trade idea.

Feeder Cattle: Should the above noted bullish flag pole formation play itself out, one ought to expect a test of the 1.30 area going forward.

Trading Strategies:
1. One could be long from the recent breakout (at or near 1.15, with a firm stop below the recent lows at or near 108). The risk would be $.07 (each point is $500US) or $3,500 US per contract. If prices did move to 130 (and you sold) it would represent a potential profit of $7,500 US per contract.

That is a little over 2:1 risk reward, not bad but I don't want to risk $2,800 (or more!) and I don't want to be subject to a margin call - so lets take a look at a different trade idea.

2. One could buy the January 2011 Feeder Cattle $118 Call option for about $750US (refer to options sheet below)


if I bought the January $118 call option at $1.50 and let it expire worthless then my total risk/loss is $750US (no margin call ever!). If prices do move to $1.30 then this option will have an intrinsic value of .12 or $6,000US. That is a whopping 700% return.....now that is my kind of investing!

Considering our time tested principle of risking no more than 5% of our stake on any one play, one has to have at least 15,000 US in your trading stake to consider to trade idea. If that is the case then I highly encourage everyone to take a serious look at the trade.

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com