Thanks again for allowing me to show you some of my work. I hope you enjoy reading it as much as I enjoy producing it for you. Last week, I focused on longer-term market perspective, which I believe is prudent for traders of all timeframes. This week, I want to focus on a shorter-term analytical perspective on markets, via my Daily Markets Update. I want you to pay extra close attention to my exclusive Wyckoff's Market Rating System for all the markets. At the end of this feature, I explain in detail the workings of my rating system. In a nutshell, my rating system helps traders spot developing market trends.
Interestingly, when I had a customer suggest that I create a simple system to quickly gauge markets, I dismissed his suggestion as being too elementary. But I developed a simple system anyway--and it has been very popular with my customers. What I have found through the years in this industry is that readers want information that is easy to use and understand. I think most traders get tired of trying to figure out "complicated stuff" that is presented to them. Somtimes I think the creators of the complicated stuff think that the more complicated the stuff, the better. I strongly disagree. In my 20 years in this industry, I have observed that the vast majority of very successful trading veterans don't use highly complicated trading methods. As my friend Stewart Taylor says, "Simple is Simply Better." Now, on to Tuesday's daily report.
Tuesday, Oct. 21 — Jim Wyckoff's Daily Markets Update
Click below for "Today's Hot Market" item on my website.
http://www.jimwyckoff.com/hotmarket/hotmarket.asp
Dear Valued Subscriber: Following are today's significant developments in the U.S. futures markets.
LIVESTOCK: December live cattle closed unchanged at $88.55 today in active trading. Talk in the futures market that the cash cattle trade this week will be at lower money has the bulls shaky. Recent higher cattle futures margins are also keeping some bulls on the sidelines. Technical damage has occurred recently and a V-Top reversal pattern could be forming on the daily bar chart. Market fundamentals are still bullish in the cattle futures. Next resistance for December futures is seen at $89.50--today's high--and then at $90.00. First support is seen at $88.00 and then at $87.07--today's low. Wyckoff's Market Rating: 6.5.
November feeder cattle closed down $1.48 limit at $98.15 today. Prices traded sharply lower again today on reports of lower cash feeder prices being fetched at locations in the Plains. Recent price action has created a V-Top reversal pattern. A top looks to be in place. First resistance is seen at $99.30--today's high--and then at $100.00. First support is seen at $98.00 and then at $97.50. Wyckoff's Market Rating: 5.5.
December lean hogs closed down the $2.00 limit at $55.67 today, as the wheels have come off the bull run. Prices gapped sharply lower on the daily bar chart and serious technical damage was inflicted today. The weaker cattle market and weaker cash hog prices this week have pummeled hog futures. The bears are now looking for more on the downside in the near term and the bears are in technical control. However, the market is now short-term oversold, technically, and a couple rest days or even an upside correction would not be surprising. First resistance is seen at $56.00 and then at $56.90--today's high. First support is seen at $55.50 and then at $55.00. Wyckoff's Market Rating: 4.5.
February pork bellies closed down $2.00 at $83.45 today. Prices gapped lower on the daily bar chart today and we are seeing a V-Top reversal playing out in bellies. Severe technical damage has occurred. First resistance is seen at $84.00 and then at $84.70--today's high. First support is seen at $83.00 and then at $82.00. Wyckoff's market Rating: 3.5.
GRAINS: December corn futures closed up 2 cents at $2.15 3/4 today. Short covering in a bear market was featured today. Some spillover support from a stronger wheat market also benefited corn. Technical damage has occurred recently and it's going to take a move above $2.21--the top of a downside gap on the daily bar chart--to give the bulls any decent momentum. The next downside objective for the bears is the July low of $2.09 1/2. Harvest pressure will limit any upside moves. First resistance is seen at $2.17 1/2-- today's high--and then at then at $2.19 1/2. First support is seen at $2.15 and then at $2.13 1/4--this week's low. Wyckoff's Market Rating: 2.0.
November soybeans closed up 1 cent at $7.30 1/4 today. Prices are pausing at higher levels and that is not bearish, so far. No technical damage has been inflicted upon soybeans recently. It's going to take a close below $7.00 to do some technical damage and give the bears any near-term confidence. First resistance is seen at $7.35 and then at $7.40. First support is seen at $7.22--today's low- -and then at $7.20. Wyckoff's Market rating: 8.0.
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December soybean meal closed up $2.70 at $225.00 today. Prices hit another fresh contract high today as meal is the strongest market in the soy complex. First resistance comes in at $226.30--today's contract high--and then at $228.00. First support is seen at $222.70 and then at $220.00. Wyckoff's Market Rating: 9.0.
December bean oil closed down 24 points at 26.01 cents today. More profit-taking from recent gains was featured. But no technical damage was done today. Bulls are still in control. First resistance is seen at 26.20 cents--today's high--and then at 26.50 cents. First support is seen at 25.83 cents--the top of the big upside gap on the daily bar chart--and then at 25.50 cents--the bottom of that gap. Wyckoff's Market Rating: 8.0.
December Chicago SRW wheat closed up 6 3/4 cents at $3.40 1/2 today. More short covering was featured today and the second downside gap on the daily bar chart was filled today. Hotter and drier weather in the Plains states is slightly bullish for wheat at present. The bulls have gained some confidence that a bottom is in place. But the first downside gap on the daily bar chart still needs to be filled to give the bulls fresh solid power. That means a close above $3.51 1/2. First resistance is seen at $3.41 1/4--today's high--and then at $3.47--the bottom of the first gap on the daily bar chart. First support lies at $3.35 and then at $3.33--today's low. Wyckoff's Market Rating: 4.0.
December K.C. HRW wheat closed up 5 1/2 cents at $3.40 1/2 today. A close above today's high of $3.41 would be one clue that a bottom is in place. But it's going to take a close above the two downside gaps on the daily bar chart to give the HRW bulls fresh power. Than means a move above $3.52 1/2. First resistance is seen at $3.41--today's high- -and then at $3.44 1/4--the top of a gap on the daily bar chart. First support is seen at $3.34--today's low--and then at $3.30. Wyckoff's Market Rating: 3.5.
December oats closed up 3 1/2 cents at $1.39 1/4 today. Prices gapped higher on the daily bar chart on short covering from recent losses. A close below this week's low of $1.34 would give the bears a solid boost of power. Resistance comes in at $1.41 and then at $1.42. First support is seen at $1.37 3/4--today's low--and then at $1.36. Wyckoff's market rating: 4.5.
SOFTS: March sugar closed up 3 points at 6.05 cents in quiet trading today. Bears have power and are looking for more on the downside in the near term. It's going to take a close above 6.50 cents to give the bulls some decent upside power. First resistance is seen at 6.14 cents--this week's high--and then at 6.25 cents. First support is seen at 5.97 cents--today's low--and then at 5.87 cents--this month's low. Wyckoff's Market Rating: 1.5.
December coffee closed up 85 points at 62.45 cents today. Prices closed near the session high. It's going to take a close above 64.00 cents to give the bulls some good confidence. A close below this month's low of 61.10 would open the door to serious downside potential in the near term. Bears are still in command at present. First resistance is seen at 63.00 cents and then at 64.00 cents. First support is seen at 62.00 cents and then at 61.15 cents--today's low. Wyckoff's Market Rating: 2.0.
December cocoa closed up $22 at $1,385 today. We saw more mild short covering in a bear market today. Bears are still in firm technical control and are looking for more on the downside in the near term. First resistance is seen at $1,415--today's high--and then at $1,450. First support is seen at $1,360--last week's low--and then at $1,350. Wyckoff's Market Rating: 1.5.
December cotton closed down 13 points at 75.31 cents today. Prices Friday hit a contract high of 76.95 cents, and have since backed off on some light profit-taking pressure. The market is still short-term overdone on the upside, and more of a corrective pullback in the near term would not surprise me. First resistance is seen at 76.00 cents and then at 76.95 cents--the contract high. First support is seen at 74.50 cents and then at 74.00 cents. Wyckoff's Market Rating: 8.5.
November orange juice closed up 105 points at 69.50 cents today. Short covering in a bear market was featured today. Prices are still hovering near the recent contract low, in the wake of a very bearish USDA Florida orange crop report earlier this month. Bears remain in full command. But again, in the coming weeks, look for speculators to begin to accrue some long positions, ahead of the freeze- potential season in the southern U.S. citrus groves. Next resistance comes in at 70.00 cents--today's high--and then at 71.00 cents. First support is seen at 68.55 cents-- today's low--and then at 67.65 cents--the contract low. Wyckoff's Market Rating: 1.5.
November lumber futures closed up $5.50 at $282.80 today. Short covering in a bear market was featured today. It's going to take a push above $303.20 to give the bulls some fresh power. That price level is the top of a gap on the daily bar chart. Serious technical damage has been inflicted recently. Next resistance is seen at $286.50-- today's high--and then at $289.20. First support is seen at $277.00--this week's low--and then at $275.00. Wyckoff's Market Rating: 3.5.
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METALS: December COMEX gold futures closed up $7.60 at $382.00 today. Prices saw strong gains and closed near the session high. A weaker dollar helped the yellow metal today, as "commodity funds" were seen on the buy side. Today's price action did see a bullish upside "breakout" from a congestion area on the daily bar chart, and if prices can close above $385.00, then the bulls are right back in the chase for new contract highs. Technical damage that did occur with the early-month big price drop in gold has nearly been repaired. Bulls have the technical edge at present as prices are in a choppy seven-month-old uptrend on the daily bar chart. First resistance is seen at $382.50--today's high--and then at 385.00. Support is seen at $377.00 and then at $375.00. Wyckoff's Market Rating: 6.5.
December silver futures closed up 6.3 cents at $5.068 an ounce today. Prices hit another fresh three-week high today. While serious technical damage did occur with the early-month big price drop, that damage has almost been repaired and bulls have regained the technical edge. A move to $5.20 puts the bulls back in strong command. Next resistance is seen at $5.09--today's high--and then at $5.15. Next support is seen at $5.00 and then at $4.95. Wyckoff's Market Rating: 5.5.
December N.Y. copper closed down 55 points at 90.60 cents today. Prices today matched Monday's contract high and then backed off a bit on profit-taking pressure. Bulls are still very strong. The next upside objective for the bulls is the year 2000 high of 93.40, basis nearby futures. An accelerating six-month-old uptrend line is in place on the daily bar chart. First resistance is seen at 91.30 cents-- the contract high--and then at 92.00 cents. First support is seen at 90.00 cents and then at 89.50 cents. Wyckoff's Market Rating: 9.0.
ENERGIES: December crude oil closed down $0.11 at $30.32 today in quiet trading. Prices hit a contract high last week and have now backed way off. My bias is that a near- term top is now in place in crude oil. But this remains a dangerous market for traders to try to be a top-picker. First resistance is seen at $30.74--today's high--and then at $31.00. First support is seen at $30.00 and then at $29.77--this week's low. Wyckoff's market rating: 6.0.
December heating oil closed up 10 points at .8341 in quiet trading today. A V-Top reversal pattern may be playing out on the daily bar chart. My bias is that a near-term top is in place. First support lies at .8300 and then at .8150. First resistance is seen at .8451--today's high--and then at .8500. Wyckoff's market rating: 6.0.
December unleaded gasoline closed down 59 points at $.8220 today in quiet trading. Prices have backed way off the high and a near-term top appears to be in place. A V-Top reversal pattern could be developing on the daily bar chart. First resistance is seen at .8350--today's high--and then at .8450. First support is seen at .8180--today's low- -and then at .8075--this week's low. Wyckoff's Market rating: 6.0.
December natural gas closed up 7.7 cents at $5.225 today. We saw a tepid short covering bounce in a bear market today. A V-Top reversal pattern appears to be playing out. Bears are looking to challenge this month's low of $4.86 in the near term. First support is seen at $5.12--this week's low--and then at $5.00. First resistance is seen at $5.30 and then at $5.46--this week's high. Wyckoff's market rating: 2.5.
STOCKS, FINANCIALS, CURRENCIES: The December Euro currency closed down 8 points at 1.1633 today in quiet trading. Prices are pausing or consolidating at higher price levels. But in a warning signal to the bulls, a bearish double-top reversal pattern could be forming on the daily bar chart. If prices back off from here and don't soon push above this month's high of 1.1840, then bears will gain confidence that a top is in place. First resistance for the Euro lies at 1.1688--this week's high--and then at 1.1700. Next support is seen at 1.1600--today's low--and then at 1.1528- -last week's low. Wyckoff's Market rating: 6.5.
The December Japanese yen closed up 47 points at .9135 today. Prices closed near the session high. Bulls are in control as the market is pausing at higher price levels, which is not bearish. It's going to take a close below .9000 to do any technical damage to the yen. First support is seen at .9058--this week's low--and then at .9000. First resistance is seen at .9155--today's high--and then at .9208--this week's high. Wyckoff's Market Rating: 7.5.
The December Swiss franc closed down 15 points at .7513 today in quieter trading. Bulls are still in technical control, but just barely. First resistance is seen at .7555--this week's high--and then at .7600. First support is seen at .7490--today's low--and then at .7445--this month's low. Wyckoff's market rating: 5.5.
The December Australian dollar futures closed up 67 points at .6947 today. Like a broken record, prices scored another fresh contract high today and closed near the session high. There are still no strong technical warning signals for bulls at present. First resistance is seen at .6965-- today's contract high--and then at .7000. Next support is seen at .6900 and then at .6878--today's low. Wyckoff's Market Rating: 8.5.
The December Canadian dollar closed up 22 points at .7572 today. Not much new today. Prices hit a contract high last Friday. The bulls are in command and still have solid power. The lack of high volatility at higher price levels favors the bulls and does not warn of any topping process. First resistance is seen at .7605--the contract high--and then at .7650. First support is seen at .7524--today's low- -and then at .7500. Wyckoff's Market Rating: 8.0.
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The December British pound closed down 19 points at 1.6656 today. Prices continue to hover near the recent contract high as the market consolidates a bit and takes a rest. But bulls remain technically very strong. First resistance is seen at 1.6750--the contract high--and then at 1.6800. First support is seen at 1.6600 and then at 1.6468. Wyckoff's Market Rating: 8.0.
The December U.S. dollar index closed down 9 points at 92.64 today. Not much new. Bears are in command. Bulls are going to have to push prices back above 94.50 to gain some decent power and momentum. Next support lies at 92.22--this week's low--and then at 92.00. First resistance is seen at 93.00 and then at 93.50. Wyckoff's Market Rating: 2.0.
December U.S. T-Bonds closed up 8/32 at 107 15/32 today. We saw some short covering today after prices hit a five-week low last week. But it has not been a strong recovery. It's going to take a close above 110 even to give the bulls some decent upside momentum at all. Bears remain in technical control. First resistance is seen at 107 29/32--today's high--and then at 108 16/32. First support is seen at 106 6/32--this week's low--and then a 106 even. Wyckoff's market rating: 3.0.
December U.S. T Notes closed up 4.5 (32nds) at 111.19.0 today. More light short covering was featured today, but not much new. Bears still have the technical edge. It's going to take a close above 113.00.0 to give the bulls some decent confidence. First resistance is seen at 111.31.0-- today's high--and then at 112.16.0. First support is seen at 111.08.5--today's low--and then at 110.23.0--this week's low. Wyckoff's market rating: 3.0.
GENERAL STOCK MARKET COMMENT: The stock indexes closed mixed today in uneventful trading. Bulls remain in technical control during a time of year that has in the past been unkind to the bulls.
The December Nasdaq futures closed up 10.50 points at 1,422.00 today. Prices closed near the session high. Not much new. The bulls still have the firm overall technical advantage. Some sideways trading in the near term would not be unhealthy for the bulls. First resistance is seen at 1,427.50--today's high--and then at 1,445.00--the contract high. First support is seen at 1,406.00--today's low--and then at 1,389.00--this week's low. Wyckoff's market rating: 7.5.
December S&P 500 futures closed down 1.60 points at 1,043.70 in quiet trading today. Not much new. Bulls have the firm overall technical advantage. Some sideways trading in the near term would not be unhealthy for the bulls. First resistance is seen at 1,049.40--today's high--and then at 1,055.00--the contract high. First support is seen at 1,034.20--this week's low--and then at 1,025.00. Wyckoff's market rating: 7.5.
December Dow futures closed down 36 points at 9,723 in quiet trading today. Not much new. Bulls still have the firm overall technical advantage. Some sideways trading in the near term would not be unhealthy for the bulls. First resistance in the Dow lies at 9,775--today's high--and then at 9,840--the contract high. First support is seen at 9,680--this week's low--and then at 9,600. Wyckoff's market rating: 7.5.
Understanding "Wyckoff's Market Rating System"
Jim Wyckoff on the Markets
My Markets Update displays the exclusive "Wyckoff's Market Rating System" for each market. I distill risk, probability, technical indicators, fundamental analysis and many other factors in determining these ratings. This simple system can be your quick key to how all the markets are trending (if they are).
How it Works
Wyckoff's Market Rating System is based on a scale of 1 to 10, with 1 being the most bearish market rating and 10 being the most bullish market rating. The number 5 would be a neutral rating. And it is not uncommon to see fractions used - like 1.5, 3.5, etc. - if conditions warrant.
It's important to note that just because a market is rated as very bullish (8 or above), it does not mean I want to establish a fresh long position in that market. A high rating likely means a market has been trending higher for a sustained period of time, or has already seen a quick, powerful move that could mean a "correction" is near. An 8 or higher bull market is likely a more mature one - with the risks being higher for steeper setbacks and a more volatile topping process.
Similarly, a market rated as very bearish (2 or below) does not indicate you should rush out to establish a fresh short position and sell a market. It means a market has likely been in a longer-term downtrend, or has seen a quick and powerful down-move, and is at or near its contract low. It is a more mature bear market that has a higher risk of a corrective bounce higher, or even change in trend to sideways to higher.
Markets rated 4 to 6 are in the middle, and these are the markets I watch most closely for trading opportunities. They are characterized by a recent trading, and are in more of a longer-term sideways and choppier trading range, or have just backed well off from a recent up-trend high or have moved well up from a recent downtrend low.
Importantly, markets that have been in sideways trading ranges for a while - i.e., non-trending and then move to either a rating of 5.5 to 6.5 on an upside price move, or to 4.5 to 3.5 on a downside move - are the most critical to monitor. It's at these ratings levels that most trading "set ups" occur, based on my trading philosophy and experience. It's at these ratings which are just above or just below neutral (5) that most "breakouts" from trading ranges occur. But remember, the market has to have been trading generally (but not always) sideways beforehand, for the best trading opportunities to present themselves.
For example, let's say soybeans had been rated between 4.5 and 5.5 for several weeks. Then one day prices pop above a congestion area on the daily bar chart and are then rated a 6. That's likely when a good trading "set up" on the long side can occur. Or, let's say the Euro currency has been trading between 4.5 and 5.5 for several weeks, and then prices dip enough to drop below a recent trading range and trigger a 4 rating. That would likely be a good trading opportunity on the short side. Keep in mind that markets rated at 5.5 or 4.5 can also trigger trading opportunities, if chart and fundamental conditions warrant.
Being a conservative trader, I like to trade markets that are just beginning to establish a solid trend. The risk for high volatility (and bigger losses) is lower when a trend is in its early stages, as opposed to when a trend is mature and higher volatility is more likely. Wyckoff's Market Rating System helps me determine the stages of a market trend.
Here's an important reminder. My Wyckoff's Market Rating System is not and should not be used as a "stand-alone" trading system. But it can be a valuable trading tool in your "Trading Toolbox."
Jim Wyckoff is the proprietor of the analytical educational and trading advisory service, "Jim Wyckoff on the Markets." He has a website a www.jimwyckoff.com and his email address is [email protected] (Tele:1-319-277-8643)
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