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Welcome to Trading Tutors Weekly Review
This newsletter is written on a weekly basis to help investors understand and learn the principles of market analysis for themselves. We don’t provide investment advice, but we do aim to provide a straight talking review of the market action over the previous days with a focus on how real life analysis techniques could be applied.
Issue #126 23 September 2005
Editorial:
Tick Tock Tick Tock
Future Focus
The Good, the NAB and the Ugly
The Gann Angle:
Soybeans - The End of the Run?
Mind Matters:
Weight Loss And Trading

 Tick Tock Tick Tock

Tom Scollon
Tom Scollon
Chief Editor

The economic clock is ticking. Slowly. It stops for no man or woman.

In my book ‘Fair Share’ I refer to the economic cycle as the economic Ferris wheel because it is a bit of a ride.

We have experienced the peak in property prices and now we are seeing a decline. The decline is real though many would like to think otherwise.

We are now seeing banks and mortgage houses competing head to head, offering reductions in both fixed and variable mortgage loans. It may even be attractive to lock in some fixed rates.

Soon we will see the peak in the share market. It may be a few months before it finally winds its way to the top after what will be a three year haul. And yes, then the inevitable happens, the markets start to come off. Just like property.

You see, cycles repeat themselves. It is just that people have short memories.

How can I be so sure? Well inflation is just around the corner and that is what drives the speed of the clock. Right now many would say we are in good shape but as night follows day inflation will follow an economic boom.

We can see the evidence all around us. Oil prices will remain at overall steep levels for some time and record resource prices will eventually bite as so much of our durable purchases – computers, cars, white goods - you name it – comes out of the ground. Soon consumers will reduce consumption in retaliation against prices that have pushed too high.

The other major component of the cost of production is labour. We are now seeing hard evidence that wages are rising.

Inflation will stop us in our tracks – but that does not mean we have to be gloomy as ‘busts’ can be short-lived. But it is good to know what is ahead.

Enjoy the ride.

Tom Scollon
Chief Editor

 
 The Good, the NAB and the Ugly

Noel Campbell
Noel Campbell

Over the past couple of years NAB has for some, been the good and others the ugly! A number of readers emailed the suggestion that I do a follow up on NAB, considering the review I did on the stock in early June of this year.

Chart 1 shows over 12 months of the most recent market action for NAB on the daily bar chart. You can see where I have circled the position of the market at the time of first article back in June. The outlook was for the stock price to dip off this resistance. The market just worked its way down from this resistance in a controlled manner, rather than the stock being completely savaged. This tempered sell-off was a sure sign to be on the lookout for underlying support and a likely re-test of the resistance level.
Chart 1

click chart for more detail

Also in Chart 1 you can see the strange boxes or rectangles in the background of the chart. The border of the blue boxes represents the outside of each ‘permanent square' of 245. The red diagonal lines are the main 1x1 angles within each of the squares. When the first article was put together the stock had just entered into the weakest part of the ‘next' square and this was perfect for watching out for a top. Since then, the market action within the square has continued to be amazing, with the stock virtually forming a rising wedge pattern along the main diagonal in the square below. I have circled the spot on the chart where the price sat right on the intersection of the two main diagonals.

Where to now for NAB? The stock is showing great strength by having entered back into the square above, after having knocked on the door 3 times while forming the rising wedge. However, these rising wedge patterns are not as reliable as the books say and nothing can be taken for granted. I have indicated on the chart with a pinkish circle the area above the next diagonal. If NAB can break above that diagonal and hold for 3 or more consecutive closes in that area then that goes a long way towards proof of genuine strength. If the stock retreats out of this weak part of the square again without getting into the area above the next diagonal, then all the recovery in price on NAB over the past months may be short lived! For now the strength appears to be with the bulls, but our tests of strength and commitment have been put in place.

Until next week......

Noel Campbell

 
 Soybeans - The End of the Run?

Aaron Lynch
Aaron Lynch

Well another Trading Tactics Seminar is over and it's time to recharge the batteries and focus on the trades at hand. One of the trading examples that I discussed at the Sydney Trading Tactics in the futures session was on the soybeans market. Now for those who have studied Gann's work closely they will remember that Gann often talked about the Soybeans market. The Gann style of trading works fantastically well in this commodity market, for the primary reason that Soybeans, when not going up, are generally going down. It's a trending market!

The chart below shows the recent price action on Soybeans and some of the ‘extra' aspects that come into play when I am looking at ABC trades. The chart shows the double tops earlier this year in June/July which was followed by a strong sell-off to where we are now. The other aspects that were encouraging about the bearish move were the gap in the move down that has not yet been filled and the breaking of triple bar chart bottoms.
Chart 1

click chart for more detail

Stepping into a more micro level and looking at the current contract month, we will focus on November's contract or NS-2005.X. The chart below details the trade in point which is a short ABC. Our initial attempt to enter this trade was made on September 20th, however, an inside day followed point C. That means that we can readjust our plan and attempt to enter this market the next day. After the previous ABC short trade the market found itself in a consolidation period and travelled sideways bouncing around the same point. On September 9th the market was able to push through this support and has continued to move lower.


Chart 2

click chart for more detail

Another interesting observation that I have discovered is that the months of September and October are relatively active for forming turning points, in particular lows. So if we look at the concept of history repeating we may conclude that we could be on the end of a move into lower prices into the month of October. This is where an understanding of time frames can be helpful in your analysis.

One final point I will touch on is to compare the current bear cycle with the most recent bear cycle, once again looking for history to repeat. We can measure in both time and price the most recent run down into the November lows of last year and measure against the current cycle. I have used a rectangle to highlight the cycle to which I am referring. I am sure you can draw the same conclusion that this market may yet have some distance to run.
Chart 3

click chart for more detail

The contract on Beans is a relatively simple one to understand, however, it is always critical to understand the minimum ticks and the contract months that are trading. That is why it's important to check the contract specs on the exchange website. In this case it can be found at www.cbot.com.

Good Trading

Aaron Lynch

   
Weight Loss And Trading

Sinan Koray
Sinan Koray

A short while ago I was listening to a medical doctor who was a weight loss specialist. He said that at any point in time you are either gaining weight or losing weight. If you are putting something in your mouth you are gaining weight. If you are not putting something in your mouth you are losing weight. Here are some examples of this simple concept:



  • Walking to catch the bus (losing weight)
  • Exercising (losing weight)
  • Having a drink after work with colleagues (gaining weight)
  • Watching television (losing weight)
  • Watching television and munching on snacks (gaining weight)
  • Eating lunch (gaining weight)

He used this concept as an awareness exercise. He then built on this concept and talked about balance.

We can apply the same principle to trading. At any point in time you are either adding to your trading skills or you are taking away from your trading skills.

  • Doing technical analysis (adding)
  • Studying trading (adding)
  • Watching television (taking away)
  • Watching a DVD or video on trading (adding)
  • Going to a party (taking away)
  • Paper trading (adding)
  • Meditating (may be adding, may be taking away)
  • Buying a study course and leaving it unopened (taking away)
  • Negative self talk (taking away)
  • Positive self talk (adding)
  • Going to a workshop on trading (adding)

Pretty straight forward isn't it? The list above is meant to get you thinking. Your list will obviously be different and longer.

I am not suggesting that you dedicate every spare moment to trading. In fact it is very important to have a balance in your life. Please refer to Trading Tutors Newsletter #78 for more information on balancing your life.





Believe, achieve.

Sinan Koray

Look back to the last seven days. What proportion of it has been spent adding to your trading? How much of it has been spent taking away from trading? As you look forward into the next seven days, what proportion of it will you dedicate to adding to your trading? My suggestion is that you set aside a period of time every day or every week where you absolutely and completely ‘add to your trading', whatever form that takes. Here is what W.D. Gann says in How to Make Profits in Commodities: “If you want to make a success and make profits, your object must be to know more; study all the time; never think that you know it all. Time spent in gaining knowledge is money in the bank.”

   

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