Technical indicators help traders recognize price levels where markets turns are likely to happen. They are not always a sure shot but they do help turn the odds in your favor, perhaps because many others are watching the same indicators making them a kind of self fulfilling prophecy. Since 1999, Elliott Wave International senior analyst and trading instructor Jeffrey Kennedy has produced dozens of Trader’s Classroom lessons exclusively for his subscribers. While commodity markets are known as some of the toughest trading environments around, these actionable lessons from a skilled veteran can help you trade commodities, or any market for that matter, with more confidence.
Enjoy this excerpt from Elliott Wave International’s free Club EWI resource, the 32-page Commodity Trader’s Classroom.
“Congestion” is my term for sideways price movement or range trading. And the Elliott wave pattern that best fits this description is a triangle. Those of you who have held a position during these periods know that it’s not fun. But the upside is that congestion often provides support or resistance for future price movements regardless of when it occurs. In May Coffee (Figure 6-1), notice how the brief period of congestion that occurred in early November 2003 acted as support for the December pullback. This happened again when the January selloff fell into listless trading for the rest of the month.
The weekly chart of Sugar (Figure 6-2) shows how these periods can also act as resistance.
And if you think about it, the tendency of congestion phases to act as support or resistance is right in line with the Elliott wave guideline on fourth wave retracements: support for a fourth wave pullback is the previous fourth wave extreme of one lesser degree.
Highs, Lows and Gaps
Other areas to watch for price reversals are previous highs and lows and also gaps. You can see on the chart of May Corn (Figure 6-3), for instance, that the September 2003 high was a significant hurdle for prices to overcome. For three months, each attempt to break through this level failed to produce a sizable decline. Also notice the small gap that occurred in early October. The December selloff closed this gap, and in doing so, introduced the subsequent rally. I have mentioned before how gaps often attract prices like magnets at first. Then they repel them — literally. Prices fill the gap and flee the scene, you could say.
The April chart of Lean Hogs (Figure 6-4) gives us two examples of the same setup: The February advance failed at the previous high made in November 2003, and then fell back to close the late January gap. Prices failed at a previous high again in March and then closed the gap that occurred in February.
The last chart for Orange Juice (Figure 6-5) offers one example of how previous lows can provide resistance. Each bounce within the last ten months in OJ has met resistance at or near a previous low.