Asset Classes

A review of what the major asset classes are doing (S&P, dollars, bonds, and commodities) and some follow-ups to a couple of yesterday's charts:
SPY - I don't put a ton of stock into short-term fibs; however, today retraced exactly 50% from yesterday's high - we will see if this ends up being significant.


UUP


TLT


DBC


DBA - setting up...


XOM - heading lower.


OIH low-risk entry.

DBA broke support

Tomorrow I'll take a look at where some of the specific names in ag, oil, steel, etc. are likely to end up in the intermediate-term.

AGU | MON | DBA - bag some ag

Time to bag some ag.

AGU

MON

DBA

FSLR

I like FSLR on the long side here. Short-term. Use stops.

Shorts: FXP, ICE, NMX, MA, CSCO, PCX
Longs: GLD, FSLR, DBA, OXY, BP

Too far, too fast.

Be aware of earnings announcements and volatility - the following are based on charts only.

SHORTS:
In most cases these are stocks that are due for a pullback or have broken support.
LVS (this was my favorite until they talked about it on CNBC but nonetheless)
WYNN
CME
FDX
XLE
MA
NMX


LONGS:
In most cases these are stocks that have been beaten down too much too fast (i.e. UNG) or are presenting a low-risk entry (i.e. AMZN) at support
UNG
AMZN
DBA
FXI

How to bet on the future of agricultural commodities

A dark cloud has been forming over DBA since mid-March but it's not too late to profit from its recent decline. First, what is DBA?
DBA - seeks to track the price and yield performance...of the Deutsche Bank Liquid Commodity Index... The index is ... composed of futures contracts on some of the most liquid and widely traded agricultural commodities – corn, wheat, soy beans and sugar. The index is intended to reflect the performance of the agricultural sector.

Second, if you aware of any fundamental reasons why corn, soy, wheat, etc. are going to the moon please ignore the following trade. This suggestion is based on the technicals - which, of course, already has the 'fundamentals' priced in and is reflected in the chart below.

DBA has presented a setup. It has formed a nice descending triangle pattern and it is trading at the base of said triangle. The setup is done, so the next step is defining some entry / exit criteria to minimize risk and maximize profits. Assume Puts are being used for this strategy.











Use the following as a guide:
1) Place a contingency buy order around 35.25 (meaning the breakout has occurred, thus validating the pattern). The contingency order says that when the stock price hits x, a market order will be triggered to buy Puts at the market. Buying ATM or OTM Puts is up to you.

2) Define a target. This is done by measuring the vertical height of the triangle (5ish) and applying that length to below the breakout level. Accordingly, the target is 30ish.

3) Define exit criteria (assuming the order gets filled). First, it's likely that the stock (once it breaches the base of the triangle) will decline a couple of percent, then bounce back to the base (support becomes resistance) and ultimately continue back down. This is what SHOULD happen but since things often don't happen as they should, stops are necessary. The whole purpose of using these contingency orders is to make the stock's direction prove itself before you jump on board (and so that you don't miss the move).

4) Place an order to sell, contingent upon the stock reaching 5% above the triangle base. In this case, 37ish. If the stock hits this level, you misread the pattern and it's time to get out. The order will be triggered, contingent upon the stock hitting 37, and your Puts will be entered as a 'sell to close' market order - cut your losses.

False breakouts do occur so it's important to get out of the trade when it goes wrong. If your criteria to enter the trade was based upon this pattern, then if the pattern is breached, you no longer have any reason to be in the trade - except hoping things turn back your way...and they won't.