CTS Spotlight for the week of July 23rd, 2010

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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

CTS Spotlight for the week of July 16th, 2010

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07/16/10: The European currencies have rebounded from the steep losses seen just weeks ago. This has come on the heels of better fiscal numbers coming out of the 'PIGS' nations. This recovery however has come in the face of dramatically lowered global growth forecasts (out of the proverbial frying pan and into the fire). Confirming this notion; equities are moving lower while bond markets are moving higher. Adding validity, the industrial metals have rolled over. While Platinum has broken down, Copper, Palladium and Silver are looking a little toppy. As stated previously, governments around the world should be spending their way out of the slow down not pulling back. Unfortunately, they will only act appropriately when prices are crashing once again, won't we ever learn!

Platinum: The heavy industrial metals were the first to turn up way back in the fall of 2008. After a precipitous decline prices moved higher through 2009 and into the first half of 2010 in almost a perfect 50% retracement of the crash. Notice though, the internal strength of this market was starting to fail (RSI momentum divergance) as we moved into 2010. This was a warning that prices were not as strong as they would appear.

So if prices are indeed correcting, where is a logical target for us to consider going forward. Two numbers jump out to me:
1. A natural 50% retracement of the recent up move would bring prices back into the 1266 area.
2. A potential Head & Shoulders price patten also suggest prices want to come back down into the 1242 area.

This then will be my target window for platinum prices going forward. Unfortunaly, there are no options available for this commodity contract and as a result OnlyDoubles subscribers and (I myself) won't be participating in this 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

CTS Spotlight for the week of July 02nd, 2010

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070210: On the heals of further bond market strength and a growing belief that deflation is back in the mix; all but one (Germany being the lone holdout) of the equity index's have broken their respective up-trends, have registered new bearish chart patterns and/or have broken down in earnest. Fundamentally, the recovery wasn't all that great to begin with and now politicians are calling for tighter fiscal policy, the imposition of various new corporate and consumption tax regimes and a growing belief that various industries need to be more strictly regulated. Look out all you capitalists, its going to be a bumpy ride for a little while. Else ware, commodity prices look vulnerable too. While they haven't broken the way stocks have we may need to go through a period of consolidation before any new moves higher can be seen.

Stocks: Listed above are the four most significant stock index's in North America. The Dow Industrials, The S&P 500, The Nasdaq and The TSX 60 (important for us Canadian's....irrelevant to the rest of the world....lol). Notice the almost straight line up move we experienced over the past year. It is hard to believe the Dow was trading in the 6000's just last year! The important thing here (I believe) is that it would be perfectly normal and healthy for all of these markets to take six months and clean themselves up. Give us a 50% retracement, let's hear some real bearish sentiment out there, and if we could too please.....could we get a nice bullish momentum divergence while you are at it......maybe that is asking a little much....

For those OnlyDoubles subscribers out there, after some careful analysis, it appears an option trade just isn't profitable enough (from a risk/reward perspective) to consider. Should we get a rally up to test the respective stops, options positions may become attractive at that point...


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

CTS Spotlight for the week of June 11th, 2010

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06/11/10: Some calm has returned to the currency markets this week. Additionally, equity and bond markets are settling down too. New signals registered this week include a nice breakout in Coffee (where it came very close to trading at a new yearly high) and Sugar (where a long over due bounce seems likely and a 50% retracement could be quite profitable). Please refer to this weeks CTS Blog spotlight for more on a potential Sugar options trade. Additionally this week, Soybeans and Soymeal held their recent lows and Oats popped on an oversold bounce. Interestingly, the meats look toppy again as Live Cattle has joined Feeders in consolidating.

Sugar: This market has fallen by more than 50% over the course of 2010. While we rode a good portion of the move higher, CRI was pushed to the sidelines when the market showed initial weakness last fall. Indeed, I even posted a blog about how one can miss the last part of a move higher but feel ok if the market subsequently breaks down. This market broke down and just kept on going!

Now that prices have fallen in half one might want to consider playing a long call option position. While I have little expectations for the old highs of $30 to be tested any time soon, a 50% bounce of the sell off is realistic. Buying the futures outright is one way to play this kind of market but I prefer an option. Currently I can buy the October 2010, $20 Call for 35 points (at $11.20/pt) that comes to about $390US. Should the market move back to the target ($21.70) by the middle of October this option would have an intrinsic value of 1.70 points or about $1900US.

Not a bad risk reward ratio indeed...

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

CTS Spotlight for the week of June 4th, 2010

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06/04/10: The US dollar reigns supreme as new European nations (some of the former Soviet Bloc now) bring to light their respective fiscal problems. The credit crunch is officially back on, as LIBOR rates shoot higher and our Euro-dollar trade enters its' 16th week of being short. One result, most stock index's have broken down. Similarly, many of the commodity market bull trends are coming into question too. While soft prices are indeed looking soft, this week's CTS Spotlight will look at the grains and how prices look to be pointing lower here too.

Grains: While Soybeans and Soymeal are still holding their recent bottoms, Wheat, Corn and Oats (the leading indicator of the group) have been pointing lower for a while. This past week Corn and Wheat broke down in earnest and are now pointing significantly lower. The weekly charts above (on left) are well defined bearish chart patterns and are of no surprise coming out of the normal seasonal peak in May. These formations may take a few days to a few weeks to play out but I would bet prices are heading to the indicated targets eventually. From a longer term perspective, the monthly charts (on right) show just how high they took these markets into the peak of '07-'08. As well, they show that real support of both of these markets is still a good deal lower. Wheat's bottom from '05-'06 is between $3 and $4 while Corn's is between $2 and $2.50. Should the trading targets indicated from the weekly charts (on left above) be breached, I would expect the above indicated Monthly support areas to prove as ultimate support.

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

CTS Spotlight for the week of May 28, 2010

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05/28/10: In a week that saw the US dollar push to new relative highs and another stock index break its stop point (Dow below 9869) one can't help but get the feeling the cliche 'Sell in May and walk away' has been proven right once again. One significant reason for the general pull back in the market - The historically steep yield curve (of a year ago) has been flattening. Short term corporate interest rates have been moving up (please refer to CRI's TTA on Eurodollars) while long term bond yields around the world continue to be pushed down. This market action suggests that economies are slowing in general and more importantly, the credit crisis of '08-'09 may be back on. Elsewhere, commodity prices in general are consolidating while this latest credit crisis plays itself out. This week I have pointed the spotlight on Cotton and how a natural 50% retracement of the '09-'10 bull market could translate into a nice little double in the options market.

Cotton: As stated on the chart above, the Dec. $65 put option for Cotton looks very attractive. Currently the weekly 50% level is just above $60 ($60.9) and there is a noticeable gap just below that number at $60. Should the December Cotton contract trade back to those levels this option will have an intrinsic value of $4.10 or more than 500% higher than current levels. Considering the risk on this trade is roughly $315US and the potential return is over $2000US one who can take the risk ought to seriously consider it.

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

CTS Spotlight for the week of May 21, 2010

Hello and welcome back to CRI's CTS Spotlight



05/21/10: In a week that saw the currencies settle down a little, one can't help but notice the dramatic flattening of the yield curve. The market is repricing both long & short rates as central bankers in North America prepare locals for the end of near 0% rate policy (of which CRI has been warning now for more than 3 three months - refer to this week's spotlight for more on that) and Europeans must now prepare for a potential inverted situation. As should be the case, the end of easy money may lead to the end of the equity party. Confirming this notion, the S&P 500 just this week tripped its stop (on a move just below 1056). So while all the equity markets are still tentatively pointing higher, 5 of the 8 have had their long positions stopped out and thus liquidated.

Eurodollar: CRI warned its readers weeks ago that not only was there a top in the Corporate short term interest rate market, but that the prevailing 'easy' short term interest rate market was soon to come to an end. While the latter is up for debate, the former has indeed played itself out. In a recent report (issued February 19th, 2010) CRI suggested starting to build a long term position in the Eurodollar market [by buying out of the money PUT options on deeply deferred contracts - in this case it was the December 2010, 98.00 PUT at .07 ($175 each)]. While I would like to continue to add to that position, it has moved up by 50% and on any short term bottom in price I may elect to just take the money and run.....we shall see...

Regardless, this is such a good looking trade that it ought to get its own blog entry for the ages, so here it is.

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