In these days of five-minute charts and tick-by-tick updates, it’s useful to step back to see the big picture. I look at the daily charts of the commodities I trade, but the weekly charts (one bar equals one week’s market action) can provide an even better vantage.

As Jesse Livermore told us in Reminiscences of a Stock Operator, the big money isn’t made in the day-to-day action--it’s made in the big moves: 

After spending many years in Wall Street and after making and losing millions of dollars, I want to tell you this; it was never my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! You always find lots of early bulls in bull markets, and early bears in bear markets. I have known many men who were right at exactly the right time, and began buying or selling when prices were at the very level which should show the greatest profit. And their experience invariably matched mine--that is, they made no real money out of it. Men who can be both right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a speculator has firmly grasped this that he can make big money.

Now let’s take a look at the weekly charts for corn, the Japanese yen, gold, the Nasdaq and the Dow Jones Industrials and discuss implications for potential future trading profits. Note that each chart contains just over one year’s worth of data.

The weekly corn chart reveals a rare and interesting pattern with significant forecasting ramifications. Because of a US Dept of Agriculture crop report, there’s a major gap on the weekly chart. A gap is generally formed after significant, market-moving news. This is an area the market jumps above without any trading. In the case of corn (based on the nearby March contract), the gap (where no trading occurred) is from a low of 396 3/4 to a high of 402 1/2.

Weekly Corn



Source: Commodity.com

In effect, every market participant who’s short corn below the gap area is showing a loss, because of the crop report,at least at this point in time, is trapped. If the shorts from below the gap area decide to liquidate their positions, they’ll need to buy back--at a loss. The act of short covering will push the market even higher. With ethanol production, high exports and high feed usage showing no signs of abating, I look for the gap to remain open. 

When the shorts finally decide to throw in the towel en masse, the market will surge higher. How high? The old rule of thumb is after the first gap, the market will move up (or down) at minimum an equivalent number from the low to the gap. It did just this in 2003 after a weekly chart gap, as illustrated below:

Weekly Corn 2003-04



Source: Commodity.com

If this newly formed gap isn’t filled in the coming few weeks, based on this rule, the projection is at minimum another $1.76 higher to $5.78 per bushel.

The all-time high for corn is $5.55, registered in July 1996. If it’s reached, $5.78 would be a new record price; it may seem like a stretch now, but the fundamentals could support such a price. That’s assuming a perfect market storm. (Of course, there are no guarantees; we’re dealing with the unknown to a major extent here, but remember what Jesse told us.)

Let’s now turn to the weekly charts of the Japanese yen, the Dow Jones Industrial Average, the Nasdaq Futures and gold.

The yen is approaching significant support near its 2005 lows. If the market can hold above this area, the yen could be a low-risk purchase. A break to new lows would, alternatively, appear as a bearish development.

Weekly Yen



Source: Commodity.com

The Dow registered an all-time record weekly close last week, but the Nasdaq closed on a weak note. One of these two is wrong; either the Nasdaq will surge to new highs shortly, or the Dow will correct. Which is it? You can ultimately be the judge.

Weekly Dow Jones Industrials



Source: Commodity.com

Weekly Nasdaq



Source: Commodity.com

Finally, the weekly gold chart appears to have broken (and closed for the week) above a longer-term triangle pattern, a potentially bullish development.

Weekly Gold



Source: Commodity.com

George Kleinman is editor of Commodities Trends.

© 2007 George Kleinman
Editor of Commodities Trends
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Futures and futures options can entail a high degree of risk and are not appropriate for all investors. Commodities Trends is strictly the opinion of its writer. Use it as a valuable tool, not the "Holy Grail." Any actions taken by readers are for their own account and risk. Information is obtained from sources believed reliable, but is in no way guaranteed. The author may have positions in the markets mentioned including at times positions contrary to the advice quoted herein. Opinions, market data and recommendations are subject to change at any time. Past Results Are Not Necessarily Indicative of Future Results.

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Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.