This probably qualifies more as a “market tidbit” than as a tradable idea, but I found it interesting so decided to pass it along.

(See also An Update on 26% a Year on 3 Trades a Year)

Figure 1 displays Historical Gold Prices for the past 100 years.  It uses a log scale and the values are inflation adjusted.

Figure 2 displays Historical Dow Jones Industrials Prices for the past 100 years.  It uses a log scale and the values are inflation adjusted.

I added red and green arrows to highlight the major trend.  For what it is worth, I think I see a (far from perfect, but nevertheless viable) long-term inverse relationship here.

Figure 1 – Gold price; inflation adjusted (Source: MacroTrends.net)

Figure 2 – Dow Industrials price; inflation adjusted (Source: MacroTrends.net)

Interestingly, If you do not adjust the values for inflation the trend is much less clear.  Figures 3 and 4 show Gold and the Dow respectively without adjusting for inflationFigure 3 – Gold price; NOT inflation adjusted (Source: MacroTrends.net)Figure 4 – Dow Industrials price; NOT inflation adjusted (Source: MacroTrends.net)

Jay Kaeppel

On 2/16/15 in this article I detailed a trading “method” that had averaged +26% per year since 1989 simply by making the same three trades each and every year.  This is an update of that method.

Since the date the article was published through 3/1/16:

*S&P 500 Index = (-3.8%)

*Jay’s 3 Trades a Year Method = +9.7%

Figure 1 displays the % gain for the S&P 500 (red) and the 3 Trade methods (blue) since the date of the original article.  An annualized interest rate of 1% per year is assumed when the 3-Trade method is out of the market.Figure 1 – % Gain for Jay’s 3-Trade Method (blue line) versus buying-and-holding the S&P 500 Index (red line); 2/6/15 through 3/1/16

*For the calendar year 2015 the 3-Trade Method gained +18.0% and it is down -1.6% so far in 2016 (through 3/1).

*The 3-Trade method bought FSESX at the close on 1/29/16 and will sell it at the close on 5/2/16.

Summary

So does any of this validate that this simple approach is a market beater? Not necessarily.  Some people may be impressed by a 9%+ gain over the last 12+ months, others will not. But given the market environment over the past 12 months, and the long-term results detailed in the original article – in the immortal words of whoever (presumably from Jersey) said it first:

“I’ve seen woise”

Jay Kaeppel

I wrote about a potentially bullish setup in soybeans here.  The setup was based on several factors.  The setup is now worth another look.

Figure 1 displays a bar chart for May soybean futures.Figure 1 – May Soybean futures (Courtesy ProfitSource by HUBB)

(See also 3 Reasons to be Bullish on 2016 (and 2 Reasons to be Scared as Hell))

As you can see there is a “line in the sand” level of support at the recent low price of 853.5.  On 2/29/16 May beans closed at 861. So – in theory – a trader could:

*Buy May soybean futures at 861

*Place a stop-loss order somewhere below 853.5 (for arguments sake let’s randomly pick 852.5)

*Risking a loss of -$425 ((852.5-861 = -8.5 points times $50 a point)

On the other hand if May soybeans bounced backup their recent high (recorded just 6 trading days ago) of 890, the buyer might generate a profit of +$1,450 per contract (890-861 times $50 a point)

On the face of it, this looks to me like a decent setup with:

*An obvious “Uncle” point (i.e., a support level that has acted as a low in November, December and January)

*A reasonable dollar risk (-$425)

*A decent potential reward-to-risk ratio of 3.4-to-1

So what could go wrong? You had to ask, didn’t you?

Well that’s easy.  Bean prices could drop through the previous low like a hot knife through butter by the time you read this article.  That’s one possibility.  Another thing to remember is that grain prices can and do “gap” – i.e., open sharply higher or lower from the closing price of the previous day – from time to time.  A “limit” move in soybeans is 30 points.

So a trader could:

*Buy a soybean contract at 861 thinking he or she is risking only $425

*Watch May soybeans gap open 30 points lower to 831, and

*Find themselves with a $1,500 open loss in a market that is “limit down” and unable to get out.

So while the example I detailed above in theory risks only $425, the actual “real world” risk is is that something “unexpected” happens.

What are the odds of May soybeans gapping “lock limit” down anytime soon?  It beats me.  But the important thing is that you are aware that such a thing can happen and that you are willing to accept that risk.

(See also Jay’s Trading Maxim’s (Part 1))

Summary

OK, this all sounds like a “recommendation”, but it is not.  It is simply an example of one relatively simple way to use price action to identify a potential trading opportunity.

Jay Kaeppel