CTS Spotlight for the week of September 24th, 2010

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09/24/10: The US Dollar Index has broken down in earnest as the Euro has finally bottomed. Stocks and commodities are moving higher aggressively within the vacuum that seems to be persisting ahead of the mid-term US congressional elections expected this November. In a similar fashion to the 2008 elections the market is moving into the event. Unfortunately this may mean that once the event has happened many of the currently trending markets may reverse. Having said that, 'make hay while the sun is shining' seems an appropriate stance. Grains, metals and softs are all moving higher so enjoy the ride while it lasts or just be short the US dollar index. Either way, there is money to be made.

US Dollar Index

The US dollar index has been in a significant trend channel between the Bush lows (70.80 fr March 2008) and the Obama reaction highs (89.71 March 2009) for the past three years. Typically Democrat US governments are US dollar bullish. Indeed, since the transition the US dollar has done better. The problem for the bulls, we are currently within a 17.5 year US dollar bear cycle in which we are about 10 years in. This means we should be expecting the US dollar to be heading lower for at least another 5 years but probably closer to 7.

Given the fact that the Republicans are threatening to take back control of Congress this November, it shouldn't surprise to see the market price that potential event into the marketplace. If the currently weekly breakdown is indeed correct, one ought to expect this tentative uptrend line (refer to monthly chart on right) to be tested in earnest.

From a global growth perspective, If the world is feeling like the credit crunch of just a few years ago is over, then one can make the argument for stronger world currencies vs. the greenback and higher commodity prices (which would be exacerbated by a falling US dollar as well).

Regardless of your macro perspective one should either be long commodities or short the US dollar on this major breakdown. The metals have been pointing higher for some time here. Similarly, grain prices and soft prices are moving higher in earnest as well. Lastly, stocks themselves are pointing higher too. There is a lot to choose from so enjoy the rally while it lasts.

Once on the other side of the election.....all bets are off!!!

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 September 10th, 2010

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09/17/10: While the currencies of the world hang in limbo ahead of the upcoming US congressional elections, the world stock markets are slowly working higher (this week saw the S&P 500 breakout) amid a world that is convinced rates are going to stay low for some while yet. Commodity prices are rising generally too with notable bullishness in the grains and metals. Regardless of the price action, I would be very reluctant to put on any new money of significance ahead of the November elections. Having said that, a coat-tail trade into the election isn't a bad idea but that is all that it should be seen as and nothing more. Gold looks especially appealing with its recent breakout through $1250. A move over the next couple weeks into the low $1400s wouldn't be a big surprise as it has been our target for 18 weeks now.

As per the most recent S&P 500 blog entry and previous posts here, many of the world's stock markets are moving higher. So much so that double bottoms have been regeistered and upside targets identified.

While I am cautiously optimistic for the market heading into the election (and the potential honey moon period into X-mass '10. I am rather pessimistic for the market after that event. If you are to be long then use the above listed reference points as a barometer for entry and keep stops tight!

For those that must be long something, I would take a serious look at the gold chart and associated options. While I don't have a specific trade in mind, I am looking at the November $1300 calls in earnest...

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 September 03rd, 2010

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09/03/10: The summer of 2010 is almost over and one can see the markets setting themselves up for the fall. While we see little movement in the currency and interest rate markets, Canadian and UK stocks have broken their respective downtrends and look like they want to test their spring highs in earnest. Considering the upcoming US Congressional elections this November, I don't see any major push lower until that event is out of the way. Elsewhere, Corn has finally broken out and registered a weekly bottom pattern. A few weeks ago we mussed at how long it would take for Corn to be dragged higher and now it too has finally turned the proverbial bearish corner. Refer to this weeks CTS spotlight for more on this. As well, for those OnlyDoubles subscribers out there, you should have put your latest position on (there is a hint at what the trade is in that sentence)....


Corn: I have included the chart above. To mix things up a bit this week. I have put the commentary on the chart itself. Offer feedback if you would like....

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

p.s. OnlyDoubles subscribers enjoyed taking profits on yet another OD trade! go here for more info...

CTS Spotlight for the week of August 20th, 2010

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08/20/10: The dog says of August are heavily upon us as we head towards Labour Day. A cautionary note, the last weeks of August often see very low volumes as many professional traders are away. Please don't be fooled into thinking that low volume price action can't be reversed very quickly in early September (as is often the case). Having said that, little movement has been seen this week in the currencies other than the Swiss Franc. Stock markets continue their malaise as bond prices get pushed higher on a daily basis. While many commodity markets have moved higher of late, some are looking a little 'toppy'. This week we see OJ breaking down as little or no Hurricane news may take the fear premium out of this market. Please refer to this weeks CTS Blog Spotlight for more on this trade idea.

Frozen Concentrated Orange Juice

This market is all about one work....Hurricanes....if there are a lot of them, expect OJ prices to be high. If there are few, expect prices to fall. So far this summer has seen a very quiet hurricane season and the charts seem to be pricing in the event - or non event in this case. Regardless, our time tested 50% rule, coupled with the classic Dow double tops suggests that there is a short trade here and potentially a very profitable one at that.

The chart above left shows the weekly price action in OJ for the past 18 months. Notice the tighter and tighter move higher. The predominant trend line that followed the move higher has just recently been broken. Not only has that trend line been broken, but the market put in a nice double top right at the break. One can easily see that prices are going to have a hard time getting back above the uptrend line and I would argue that what once was support (on the way up) shall now become significant resistance going forward.

The chart above right shows the monthly price action in OJ for the past 7 years. Notice here the dramatic fall (from '07 to '09) and the almost text book 50% retracement of that fall (from '09 to '10). Now that the market is no longer overbought or oversold, one can't help but consider the longer term trendline implications here. First off, a further rally from here seems to be quite unlikely and more importantly, real support on a monthly basis for OJ current sits at or near .70! This is a very risky market to be long...

So if a top is in, where might this market pull back to?

Our good old 50% rule shall help us here. Again, referring to the chart on the left above, we see that a simple 50% retracement of the massive move higher shall bring prices back into the 110 area (where we add the high plus the low and divide the result by two). Additionally, the real weekly support for this market exists near the trend-line from the major lows of the spring and summer of 2009 (ie. 100 to 110).

Putting these two pieces of information together, we can see that a move back into the 100 area isn't unrealistic, the question now - is it profitable to consider the trade?

List below are the two heaviest open interest option contracts for the March, 2011 OJ futures contract.



Considering that both of these options will have an intrinsic value well over double their current price (should we get a move back to the 50% level) I would have no trouble buying either. I will go for the 120 Puts simply because at 3.3:
1. I'm only risking $500 per contract so if the trade fails I'm not going to take too big of a hit.
2. By spending $500 per contract, I can justify buying two (total of $1000 invested) and then if the trade succeeds, I can sell 1 very quickly at a double and ride the remaining one to the trade's ultimate fruition.

Just remember,
1. don't risk more than 5% of your stake on any one investment idea.
2. the bulls make money, the bears make money....the pigs get slaughtered (so don't be greedy! If the position doubles, take it and be happy)

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 30th, 2010

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07/30/10: As calm has returned to the credit markets the Canadian dollar has joined the collective counter trend rally against the US dollar. Bond and equity markets believe growth has peaked suggesting that there is now room for further government sponsored stimulus measures should the correction in stocks get too out of hand. Significant to Asian growth prospects, The Japaneses Yen has finally broken a long standing resistance line (Please refer to this weeks CTS spotlight blog for more on that). If Japan has indeed awoken, that region of the world will have yet another growth engine coming online. In the face of this, commodity prices in general are reflating with noticeable moves higher this week in Palladium, Wheat and Coffee. Further to last week's CTS, OnlyDoubles subscribers ought to have taken a position in Feeder Cattle.

Jap Yen: On first blush I thought this chart would be clean and simple - a powerful bull market off a nice base. After some study my opinion of the Jap Yen is much more cloudy and uncertain....typical markets!

The problem....I don't think the latest move higher in the Japanese Yen is a new bull market. I think this market looks exhaustive, and dangerous. It also leads me to further believe that the latest US dollar sell off is a trap. Through the two charts shown above, I will try and explain why...

Weekly chart (on left above): This market has been pointing higher for about 12 weeks since it put in a double bottom in the last spring from 1.0859. Over the past quarter we have seen higher highs and higher lows (most recently taking out the 1.138 resistance point) suggesting the late '09/early '10 correction had ended. Indeed, we are currently within shooting distance of the important high at 1.179. Should that be taken out, one must look for a move to the top of the weekly channel (at or near 1.25). We will cross that bridge when we come to it! For the time being, yes we are heading up and that is why CTS is positioned so. In fact, Regular CTS followers should be enjoying an almost 7 cent profit at this point. New positions should NOT be considered. Momentum players may consider adding to positions on a move through 1.179, but not until then.

Here is where the problem comes in for me...

Monthly chart (on right above): The first thing that jumps out at me is the massive monthly move higher since the '07 lows. Interesting here, we are currently within a cent of that long term trading range breakout target (1.165). Absolutely remarkable! As well, a 50% retracement of that massive move higher would bring prices back into the .99 area (or almost 15% lower!).

Yes this market is still pointing higher and if one is long from the weekly breakout (1.0859) then enjoy the rally. My hunch is we shall move higher through the rest of the summer. Should the lows of last spring be violated, there could be trouble - so watch the 1.05 level like a hawk.

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 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