ZLBT Chats

Saturday, February 27, 2010

DJIA >>> A Soft Week Ending To A Hard Month

Shaky Data Failed To Traumatise Investors
Trading volume was remarkably light for most of the session, as a blizzard pounded New York City and kept many traders away from their desks through the first half of the day.

However, the relatively barren trading conditions didn't translate to any violent, whipsaw moves in the equities market. Despite bouncing between positive and negative territory, stocks didn't stray too far from the breakeven line. A dose of upbeat economic data helped to tip the scales in the bulls' favor.

After a few days where the Dow posted relatively large intraday moves, the average never strayed more than 50 points from the breakeven line today. Against this backdrop, stocks were able to end the month of February on a modestly positive note.

The Dow Jones Industrial Average (DJIA – 10,325.26) settled for a slim gain of 4.2 points, or 0.04%, as 14 of its 30 components trekked higher. JPMorgan Chase (JPM) paced the advancing equities, while Kraft Foods (KFT) swallowed the steepest percentage loss among the 15 decliners. Meanwhile, shares of Cisco Systems (CSCO) finished flat. The Dow gave up 0.7% this week, but added 2.6% during the month of February. The blue-chip barometer settled today just fractions of a point below its 10-week moving average, but it's still holding support at its 10-day and 20-day trendlines.

The S&P 500 Index (SPX – 1,104.49) eked out a daily gain of just 1.6 points, or 0.1%. The index lost 0.4% this week, but rose 2.9% for the month. The SPX is still perched above its 10-day moving average, and finished flush with its 10-week trendline. Finally, the Nasdaq Composite (COMP – 2,238.26) enjoyed the day's healthiest climb, rising 4 points, or 0.2%, by the close. The COMP shed just 0.3% for the week, and ended February with a robust gain of 4.2%. Unlike its peers, the COMP finished comfortably above its 10-week moving average.

We have been consistently noting that the intermediate-term up trends were still intact. However, I began this week saying the broad market indexes were stuck in the middle of nowhere as far as near-term support and resistance. My takeaway there was that we could see the blue chips swing a couple of hundred points in either direction without hitting any significant levels.

Tuesday afternoon brought a 100-point drop that I largely ignored. Wednesday started with a 95-point gain that I disregarded as well. Yesterday, of course, had it all with a morning loss and an afternoon rally that I described as akin to drunken fisherman standing in a small boat. My reason for recounting all of this is to put the weekly charts below in perspective...

For much of this week I had stressed the word patience. To be honest much of the reason for the constant reminder is for my own benefit. It is very easy to get caught up in the moment when watching intraday ticks.

(At least that is a weakness of mine.) In a whipsaw environment like this, that can be very dangerous. After everything was said and done, the Dow finished the week with a loss of just 77 points, 0.74%. The other indexes posted even smaller losses.

In other words, there was plenty of opportunity to get "pulled in" but there was virtually no net movement this week. The near-term action may still be choppy but the charts above reflect the current uptrends as they continue to evolve. I think that is the point to keep in mind.

And until I see you guys on Monday, this is where I will sign off.
Have a great weekend.

Hard to cultivate fruitful CPO exchanges

BMD Exchange Still Numero Uno
It is undeniable that crude palm oil (CPO) has become the world’s most tradeable vegetable oil despite the constant bad publicity it receives on the issue of sustainability and environment.

This is well reflected by the growing number of international CPO contracts being set up in most major consuming and importing nations as the annual world demand for palm oil keeps growing at a very healthy pace.

Apart from Malaysia’s Bursa Derivatives Exchange CPO futures (FCPO) contract, there are now CPO contracts traded at the Dalian Exchange in China, Multi Commodity Exchange in India and the Joint Asian Derivatives Exchange (Jade) in Singapore.

The latest to jump on the bandwagon is Indonesia, which is currently the world’s largest palm oil producer. It launched its own CPO physical contract under the Jakarta Futures Exchange (BBJ) last July in its bid to create a local benchmark pricing.

The republic is also planning to launch a CPO futures contract this April via newly set up commodities and derivatives exchange, PT Bursa Komoditi and Derivatif Indonesia (ICDX).

However, despite the euphoria in setting up international CPO contracts, perhaps it is worth noting that Jade and BBJ are still struggling to attract market players to trade CPO as they have failed to attain sizeable volumes given very poor liquidity in the market.

The US-dollar denominated CPO contract traded on Jade, a joint venture between Chicago Board of Trade and Singapore Exchange Ltd, for example failed to attract open interest since its launch in 2007 while BBJ spot CPO contract was reported to have only traded about 29,000 tonnes versus Indonesia’s production of 21 million tonnes of CPO in 2009.

While Indonesia may have good reasons to set up its own benchmark pricing to better reflect its local supply and demand, and elimination of currency risk factors given its stature as the world largest CPO producer, one must realise that the CPO benchmark pricing is always determined in the most liquid market.

For example, Malaysia’s Bursa Derivative Exchange has about 28 years’ experience in developing a highly liquid CPO contract backed by an in-depth knowledge of the entire industry to ensure sound success in CPO trading.

In fact, many industry observers expect it would be difficult for most newly set up international CPO contracts to challenge Bursa’s FCPO contract which has in fact become a global benchmark pricing for CPO and its related products.

A lot at work is involved to ensure that the CPO contracts can be a reliable risk shifting or management operations. This reflects the hard work by Bursa to ensure sustained interest among traders who always need to hedge position against the volatility price movement in the world edible oil market.

Over the years, trading in the local FCPO contract has been healthy and showing tremendous growth year-on-year. Last year, four million contracts were traded. In 2008, a total of three million contracts were traded compared with 2.8 million in 2007.

Having said that, despite Bursa’s sucess in operating a highly successful FCPO market, the exchange would still need to increase it efforts to ensure growth in the FCPO via initiatives that would promote higher access to the world markets.

Assistant news editor Hanim Adnan believes that Indonesia’s ICDX CPO futures contract will be interesting to watch as it will be headed by a former Bursa executive director, who is said to have roped in many big Indonesian plantation companies to trade in the new exchange.

Friday, February 26, 2010

Resilient Dow Par Losses After Early Data Plunge

Come Back Bulls Slash Opening Triple Digit Losses
Bears took the reins bright and early at the opening bell, as an unexpected surge in jobless claims sparked a fresh round of economic hand-wringing. The Labor Department announced that initial filings for unemployment benefits rose by 22,000 last week to arrive at 496,000, defying economists' expectations for a weekly decline.
Meanwhile, both Standard & Poor's and Moody's have now warned that Greece's long-term credit ratings are in danger of being slashed, reigniting concerns about the country's fiscal health. As if that weren't enough uncertainty to send the broad-market indexes reeling, traders also took note of a brewing partisan battle on Capitol Hill, with Democrats and Republicans slugging it out at a six-hour health care summit.

Stocks attempted to bounce back in afternoon trading, but succeeded only in paring the worst of their losses.

The Dow Jones Industrial Average (DJIA – 10,321.03) was sitting on a loss of 188 points at its intraday nadir, but managed to finish on a much slimmer deficit of 53.13 points, or 0.5%. Only five of the 30 blue chips managed to close higher, with Alcoa (AA) and Bank of America (BAC) leading the gainers. Home Depot (HD) shares finished flat for the day, while Coca-Cola (KO) paced the 24 declining issues after announcing a deal to acquire the North American bottling operations of Coca-Cola Enterprises (CCE).

The Dow bounced back today after finding support at its 20-day moving average, and notched its eighth consecutive close atop its 10-day trendline.

In similar fashion, the S&P 500 Index (SPX – 1,102.94) caught a lift from its 20-day moving average, and settled on a decline of just 2.3 points, or 0.2%. Tomorrow, the SPX will attempt to complete a second consecutive weekly finish above its 10-week moving average. Meanwhile, the Nasdaq Composite (COMP – 2,234.22) spent a brief moment in positive territory this afternoon, but eventually wrapped up the day on a dip of 1.7 points, or less than 0.1%. Like its broad-market peers, the COMP settled comfortably above its 10-day and 20-day moving averages.

As mentioned in yesterday's Dow report, whipsaw reactions have dominated the week and the afternoon reversal just continues that theme. So far, the yo-yo-like action has the indexes at mild losses on the week. The daily charts just continue to show more of the same.

As I have been saying, the longer-term uptrends are still intact but the near-term action is very noisy. The various headlines are driving the frenetic reactions but I think that the lack of near-term levels exacerbates the potential for whipsaw moves.
In other words, there is little for short-term traders to key off of so you end up in a situation akin to drunken fisherman standing in a small boat. Each wave generates a reaction that causes everyone to lean the same way. The combined leaning is too much and results in an over-correction. The back-and-forth plays out until everyone sits down. (Or until my buddy CJ falls out of the boat but that is a different shark story.)
So, while wish I had something more exciting and insightful to say, I am left simply reiterating my thoughts from last night - "patience" remains the name of the game.

And that is where I will pick up next week.
Have a nice weekend & happy holidays.

Buffett's Biggest Mistakes

Warren Buffett is widely regarded as one of the most successful investors of all time. Yet, as Buffett is willing to admit, even the best investors make mistakes. Buffett's legendary annual letters to hisBerkshire Hathaway shareholders tell the tales of his biggest investing mistakes.

There is much to be learned from Buffett's decades of investing experience, so I have selected three of Buffett's biggest mistakes to analyze.

Conoco Phillips
Mistake: Buying at the wrong price
In 2008, Buffett bought a large stake in the stock of Conoco Phillips as a play on future energy prices. I think many might agree that an increase in oil prices is likely over the long term, and that Conoco Phillips will likely benefit . However, this turned out to be a bad investment, because Buffett bought in at too high of a price, resulting in a multibillion dollar loss to Berkshire. The difference between a great company and a great investment is the price at which you buy stock and this time around Buffett was "dead wrong". Since crude oil prices were well over $100 a barrel at the time, oil company stocks were way up.

Lesson Learned
It's easy to get swept up in the excitement of big rallies and buy in at a prices that you should not have - in retrospect. Investors who control their emotions can perform a more objective analysis. A more detached investor might have recognized that the price of crude oil has always exhibited tremendous volatility and that oil companies have long been subject to boom and bust cycles.
Buffett says: "When investing, pessimism is your friend, euphoria the enemy."

U.S. Air
Mistake: Confusing revenue growth with a successful business
Buffett bought preferred stock in U.S. Air in 1989 - no doubt attracted by the high revenue growth it had achieved up until that point. The investment quickly turned sour on Buffett, as the U.S. Air did not achieve enough revenues to pay the dividends due on his stock. With luck on his side, Buffett was later able to unload his shares at a profit. Despite this good fortune, Buffett realizes that this investment return was guided by lady luck and the burst of optimism for the industry.

Lesson Learned
As Buffett points out in his 2007 letter to Berkshire shareholders, sometimes businesses look good in terms of revenue growth, but require large capital investments all along the way to enable this growth. This is the case with airlines, which generally require additional aircraft to significantly expand revenues. The trouble with these capital intensive business models is that by the time they achieve a large base of earnings, they are heavily laden with debt. This can leave little left for shareholders, and makes the company highly vulnerable to bankruptcy if business declines.

Buffett says: "Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it."

Dexter Shoes
Mistake: Investing in a company without a sustainable competitive advantage
In 1993, Buffett bought a shoe company called Dexter Shoes. Buffett's investment in Dexter Shoes turned into a disaster because he saw a durablecompetitive advantage in Dexter that quickly disappeared. According to Buffett, "What I had assessed as durable competitive advantage vanished within a few years." Buffett claims that this investment was the worst he has ever made, resulting in a loss to shareholders of $3.5 billion.

Lesson Learned
Companies can only earn high profits when they have some sort of a sustainable competitive advantage over other firms in their business area. Wal-mart has incredibly low prices. Honda has high quality vehicles. As long as these companies can deliver on these things better than anyone else, they can maintain high profit margins. If not, the high profits attract many competitors that will slowly eat away at the business and take all the profits for themselves.

Buffett says: "A truly great business must have an enduring "moat" that protects excellent returns on invested capital."
The Bottom Line
While making mistakes with money is always painful, paying a few "school fees" now and then doesn't have to be a total loss. If you analyze your mistakes and learn from them, you might very well make the money back next time. All investors, even Warren Buffett, must acknowledge that mistakes will be made along the way.

Thursday, February 25, 2010

TECHNICAL ANALYSIS >> 综合指数 2010年 02月 25日 / Composite Index 25/02/2010

综合指数 2010年 02月 25日

如图所示,布林频带(Bollinger Bands)收窄6%,这显示综指的涨势再度遇阻,接下来若布林频带进一步收窄,那综指将有出现技术调整的可能。无论如何,只要综指能在布林中频带(Bollinger Middle Band)上获得扶持,那综指将有再度回弹的可能,反之若综指跌破布林中频带的话,那综指的涨势将有提前结束的风险。




Composite Index 25/02/2010
The KLCI attempted to break the 1272 Fibonacci Retracement but still closing at 1270.78 points. As indicated by A, the KLCI was resisted by the 1276 Fibonacci Retracement on Thursday, and therefore, the 1276 and 1272 Fibonacci Retracement shall remain as the resistance for the KLCI while the support is at 1266.45 Fibonacci Retracement.

As shown on the chart above, the Bollinger Bands contracted 6%, suggesting that the KLCI bullish momentum has failed to gain strength. If the Bollinger Bands should contract again, the KLCI is expected to return to its consolidation. Nonetheless, provided that the KLCI is still staying above the Bollinger Middle Band, the immediate outlook for the KLCI is still on the positive side.

As indicated by B, total market volume increased 33.4%, while the volume is getting closer to the 40-day VMA level. Generally, if volume should break above the 40-day VMA level, the market sentiment is expected to improve.

As indicated by C, the Stochastic started falling, but still above the 70% level. Therefore, this suggests that the short term movement of the KLCI is still bullish biased. If the Stochastic should break below 70% level, it would be an end to the short term bullish signal.

In conclusion, since the rebound from 1224.37 points, the KLCI has gained 50 points, and it is normal to have a correction, but as long as the KLCI should remain above the Bollinger Middle Band after its correction, there is still a chance that the KLCI would resume its uptrend. If the KLCI should break below the Bollinger Middle Band, the immediate outlook would turn bearish bias.

Free Your Trading Mind From Frustrations And Experiments

The nature of this blog is that almost everyone who writes to me for guidance is either a beginner or someone who has not had success with trading. This is fine, as a big part of what I do both in this blog and in life is to share & educate - in that order. The problem is that I only have a small space to deal with such a huge and complex topic – TRADING.

Little in the world of trading is black or white; it is a world full of nuance colored with various shades of grey. Thus, my answers to big questions often lack depth and more often than not, ZL had failed to answer satisfactory to your expectations. But try & try again you bet I will .....

By necessity, much of the work of solving your issues is left to you. The best I can do is frame an issue, point you in a direction, and ask you to finish the job of answering your own question. This is as it should be, as the best learning does not come from what others tell you; it derives from self indulged research, experimentation, and a mind that is free from the hindrance of frustration.

Often, ZL had wrote about striving to free your mind from emotion when trading. The same is true for learning. Do not be frustrated with what you think you don’t know. Work with satisfaction in the realm of what you do know, continually expanding that knowledge …

A normal question:

... you say "take profit when you have it, do not be greedy" I agree. But you and a lot of other experts say also "let the profits run" I agree again but ... how do I understand the difference?

Can you “feel” the frustration in the question above? I can, so here is my answer …
Since you understand both concepts, finding the point of separation is matter of experimentation and knowledge of the broad market and your specific market.

Knowing the markets is key to understanding the difference. Is the broad-market trend momentum in your favor? What is the volume? Is your market tightly range bound, or is it highly volatile? Is your market overbought or oversold? These are just some of the questions, but once you can answer them without hesitation, you will begin to understand …

As I have said before, in the beginning of your learning process, take profit as soon as you have it. Do this over and over again. This will build both your capital account (slowly but steadily) and your confidence, which is the key – when you are confident, experiment.

When you are in profit, experiment with stop types and stop placement. For example, if you think your market will keep moving, try setting a 2% trailing stop when you have a 2% profit. Yes, you are risking losing your profit, but you are also now “letting your profit run,” and the worst that can happen is that you end up losing your trading costs and nothing more.

As you experiment, you will begin to understand market movement and stop placement. Yes, you will make mistakes, but you will also gain valuable experience. In time, you will learn the answer to your own question; you will learn the difference between taking profit when you know there is no more room to run and letting your profit run.

And here is a bonus. Experimenting with stop placement will teach you both the mechanics of stop placement and the art of knowing which, when, and how much.



Sweet Talking Bernanke Soothes Wall Street

Negative Home Sales Data Loses Out To Bernanke; Dow Up 0.89%
All eyes were on Federal Reserve Chairman Bernanke today, as the central banker began a two-day venture on Capitol Hill. Issuing his semi-annual assessment of the economy, the Fed chief didn't disappoint, assuring Congress that last week's move to boost the rate on emergency loans to banks doesn't necessarily indicate more rate hikes in the near future.

As a result, Wall Street investors let out a collective sigh of relief, sending stocks soaring in late-morning activity. Though the government's report that new-home sales unexpectedly fell to a record low in January helped to limit the bulls, the major market indexes settled in the black nonetheless, halting a two-day downturn.

The Dow Jones Industrial Average (DJIA – 10,374.16) finished with a gain of 91.75 points, or 0.9%, as all but two of its 30 components ended higher. Pacing the advancing issues were financial concerns Bank of America (BAC) and JPMorgan Chase (JPM), while Alcoa (AA) and Kraft Foods (KFT) bucked the trend. After two straight days of losses, today's resurgence has the Dow positioned back atop support at its 10-week moving average, though the blue-chip barometer hasn't yet negated all of its weekly deficit.

In form, the S&P 500 Index (SPX – 1,105.24) added 10.6 points, or 1%, climbing back atop both the 1,100 level and its own 10-week trendline. Meanwhile, the Nasdaq Composite (COMP – 2,235.90) advanced 22.5 points, or 1%, reclaiming a foothold atop its 10-week moving average. However, like the Dow, the SPX and COMP remain in the red for the week.
Similar to yesterday, the bulk of the day's movement occurred in morning and the afternoon was just a sideways drift. Of course, the difference is that yesterday was dominated by sellers while buyers ruled today.

On the topic of whipsaw moves. The Dow dropped 101 points yesterday and recouped all but 10 of those points today. Unfortunately, that means the indexes are still are stuck in the middle of nowhere when it comes to near-term support and resistance.

As stated in yesterday posting, I think you get the best reads of the underlying supply and demand when the indexes are near significant levels. That means "patience" is the name of the game here.

And that is where I will pick up tomorrow.
Have an enjoyable & rewarding trading day.

BMD Crude Palm Oil Futures >>> Market Overview

CRUDE palm oil (CPO) futures on Bursa Malaysia Derivatives closed lower in quiet trading due to lack of interest.

“The market remained quiet. A majority of fund managers remained sidelined while others were still away for the Chinese New Year.

“Their absence was greatly felt by the market, but it was a blessing in disguise as lower prices helped clear the current high stocks, said Interband Group’s senior palm oil trader. Another dealer said investors refrained from taking up fresh positions ahead of Thursday’s release of palm oil export data.

Traders said there was talk in late trade that the Intertek Testing Services export data may show a figure of 1.089 million tonnes, but earlier on, the rumoured figure was 1.03 million tonnes.

“I think the market reacted to that earlier number,” said a trader with an investment bank in Kuala Lumpur.

“The market is overdone and the chart indicates exhaustion. With crude oil weakening, the market eased off,” another trader said, adding that the pressure also come from long liquidation.

Some other traders said an export drop is expected because February is a short month, but the market needs a healthy correction after its recent rise.

March shed RM56 to RM2,600, April eased RM54 to RM2,590, May decreased RM45 to RM2,590 and June slipped RM47 to RM2,580.

Turnover fell to 11,713 lots from 15,847 lots on Tuesday but open interest increased to 83,180 contracts from 82,196 contracts on Tuesday.

On the physical market, March South was quoted at RM2,610, down RM50 from Tuesday.

Wednesday, February 24, 2010


Please click on images to ENLARGE

BT Morning Reports >>> Crude Oil + EURO + Gold

Daily Oil Report Wednesday 24th February 2010
Oil’s two week rally consolidated in and around the $80 level as we now await to see if the run will continue, or will profits be taken off the table? The Dollar has retreated, thus helping keep the oil price up, so the next big hurdle is tomorrows weekly oil inventory release and Bernanke’s two day testimony which starts tomorrow.
Market News
Ben Bernanke is scheduled to start his two day testimony tomorrow, with attention likely to focus on future interest rate policy
Goldman Sachs expect the price of crude to trade between $85 and $95 this year

Daily FX Report Wednesday 24th February 2010
The Euro once again finds itself at the centre of attention on another busy day in the currency markets. Unconfirmed talk that the Dubai government is going to help Dubai World with a $5bn bailout helped buoy currency markets, and dovish comments from the San Francisco Federal Reserve President helped push the Dollar lower.
Market News
San Francisco Federal Reserve President Janet Yellen suggested that any chance of a US rate hike was remote
Ben Bernanke is scheduled to start his two day testimony tomorrow, with attention likely to focus on future interest rate policy
The latest Ifo sentiment index fell to 95.2. Most analysts expected the index to record a rise to 96.4
Mervyn King, Governor of the Bank of England, reiterated that the recovery in the UK remains fragile, and the UK may have to return to quantative easing.

Gold futures retreated for a second consecutive session today, thanks to the greenback's accelerated gains against the euro. In addition, commodities traders remained cautious ahead of Fed Chairman Bernanke's congressional testimony tomorrow, which is likely to shed light on the central bank's monetary policy. By the close, April-dated gold gave up $9.90, or 0.9%, to settle at $1,103.20 an ounce.

FBM KLCI Futures >>> Market Overview

FKLI contracts ended generally higher
The KLCI Futures contracts ended generally higher Tuesday after surging more than ten points a day earlier. All contracts closed at discounts except the February contract.

The February contract closed at the day’s highest level of 1,270.0 points after rising 4.0 points, reversing its discount of 0.44 of a point to the underlying Monday to a premium of 3.57 points. The contract opened 2.5 points lower at 1,263.5 points and moved to a low of 1,262.0 points during the day.

The March contract closed 3.0 points firmer at 1,265.5 points, representing a discount of 0.93 of a point to the cash market against a discount of 3.44 points a day earlier. It opened 2.5 points weaker at 1,260.5 points and traded between 1,257.5 and 1,266.0 points during the day.

The June contract settled flat at 1,260.5 points, which is a discount of 5.93 points to the underlying, while the September contract closed 2.5 points higher at 1,254.0 points, representing a discount of 12.43 points to the underlying.

Tuesday, February 23, 2010

TECHNICAL ANALYSIS >> Composite Index 23/02/2010 / 综合指数 2010年 02月 23日

Composite Index 23/02/2010
As indicated by A, the KLCI tested the 1266.45 Fibonacci Retracement, but remained resisted. Therefore, the 1266.45 Fibonacci Retracement is still the resistance for the KLCI while the support is at 1256.52 Fibonacci Retracement.

As shown on the chart, the Bollinger Bands has not expanded, but the KLCI remains above the Bollinger Middle Band, while the Bollinger Middle Band is slightly tilting up, suggesting some improvement of the current movement.

As indicated by B, total market volume increased 10.7%, but still below the 40-day VMA level. This shows that the overall market participation is still relatively low, and this could be the reason why the KLCI failed to break above its resistance.

As indicated by C, the Stochastic retreated slightly, but still above the 70% level, thus the short term bullish signal remains intact. Provided that the Stochastic is still above 70% level, the short term technical outlook for the KLCI is still positive.

In short, the KLCI is gradually regaining some losing ground, but it is still too early to determine a reversal, for more conditions is needed. For the immediate term, if the Bollinger Bands should re-expands with the KLCI above the Bollinger Middle Band, it could be a positive start.

综合指数 2010年 02月 23日

如图所示,布林频带(Bollinger Bands)虽然并未明显的打开,不过布林频带已经开始缓缓的向上翘起来,这表示综指后市有进一步改善的迹象。由于综指已经处于布林中频带以上了,所以接下来若布林频带开始打开的话,那综指将有望更上一层楼。




Oh! Crystal Ball, Show Me the Future

What is the intermarket relationship between other market indices and/or such as the Dow, Soil Oil, Crude Oil, Palm Oil, the U.S. Dollar, and the futures market?

For example if I look at the futures market the night before, can this be used to gauge the next day’s market open or close? Thanks for all your very informative articles. They are always very helpful and interesting ........

From Thomas Lee Melaka


To understand the answer I will soon give, you need to understand the basic definition of futures trading, so here it is …

“A futures contract is a standardized contract to buy or sell a specified commodity of standardized quality at a certain date in the future and at a market-determined price (the futures price). The price is determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract.”

The relationship between the future price and current price is real but extremely fluid. For example, Trader “A” might look at the futures market price of XYZ and see that the price is higher. That trader might determine that the trend of XYZ will be toward that higher future price and so he or she might take a long position based on belief that the futures price is correct. Trader “B” might see the same futures price of XYZ and then take the opposite position. Which way the majority of traders go is dependent on a wide variety of factors, too numerous and specific to mention here.

To use the futures price of XYZ as an indicator of the open or close price of a specific market on a specific day is only helpful if you understand the other variables affecting the price of the specific market you wish to trade. The futures market is one factor to consider.

For example, if you see the futures price of Soybean Oil going higher 90 days out, you might think the price of Soybean Oil will trend higher, so you buy long the next day. Mid-afternoon, a report comes out announcing an oversupply of Soybean Oil on the market. The current price drops. What do you do? It is the same for the indices as it is for any market—things can change, and change quickly depending on what the market knows now, in the moment.

In general, though, one could look at the futures market the night before and get a “feel” for the next day’s action, but it is only a feel. You must have all of your other “ducks in a row” in order to use the “indicator” reliably.

Inventories, productions or geopolitical discrepancies can alter some sentiments or even a whole trend with natural phenomenons such as El Nino, hurricans or industrial strikes which is all possibilities, and usually does, make a dramatic turnaround of the futures' prices you were looking at the previous night.

Be prepared for such eventualities at any given time usually withour prior warnings. The only certainty closes to a sure thing is the sun will always rises in the east and sets in the west.




Wall Street and Oil Report >>> What's Rumbling What's Tumbling

Please click on images to ENLARGE

Dow Last Minute Selloff Snap Winning Streak

The Dow Jones Industrial Average (DJIA – 10,383.38) couldn't stave off the eleventh-hour sell-off, settling on a loss of 19 points, or 0.2%. Energy concern Chevron Corp. (CVX) led the 19 losing blue chips into the red, while financial issues BAC and JPMorgan Chase (JPM) blazed the trail higher.

The blue chip average traded in a low-to-high range of only 65 points. The S&P 500 (SPX) and Nasdaq Composite (COMP)were more or less flat as well.

Coming off a strong week, it isn't unreasonable to see the bulls take a breather. Of course, there is a fine line between ignoring lackluster action and complacency.
The indexes are stuck in the middle of nowhere as far as near-term support and resistance. We could see the Dow retrace a couple of hundred points and still be above the recent lows. Likewise, a rally of a couple hundred points would still leave the blue chips below the recent highs. In other words, we could see a bit of back forth before any significant levels are hit.

The S&P 500 Index (SPX – 1,108.01) also ended on the south side of breakeven, giving up 1.2 points, or 0.1%. In similar fashion, the Nasdaq Composite (COMP – 2,242.03) swallowed a loss of 1.8 points, or 0.1%, thanks to a last-minute surge of selling pressure.


Crude futures edged higher again today, thanks to a refinery strike in France and escalating geopolitical tensions. More specifically, after a sixth day of strikes by Total (TOT) refinery workers, a French petroleum industry body said the country has about one week of fuel supply left before facing a shortage. Meanwhile, also bolstering black gold was news that Iran has earmarked potential sites for 10 new nuclear enrichment plants, with construction beginning as early as this year. By the close, crude oil for March delivery – which expires after the closing bell – added 35 cents to settle at $80.20 per barrel.

March crude oil closed higher on Monday as it extends the rally off this month's low. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are overbought but remain bullish signaling that sideways to higher prices are possible near-term.

If March extends this month's rally, the 75% retracement level of the January-February decline crossing at 80.72 is the next upside target. Closes below the 20-day moving average crossing at 75.30 would confirm that a short-term top has been posted.

First resistance is today's high crossing at 80.51. Second resistance is the 75% retracement level of the January-February decline crossing at 80.72.

First support is the 10-day moving average crossing at 76.30. Second support is the 20-day moving average crossing at 75.30.