March 23, 2012 - Issue #628

In This Issue

1. Dow Theory
2. Hot Market - May Soybeans
3. Economic Calendar

Featured Articles This Week

a. If the Economy's "Recovering," Why is the Largest-Ever U.S. City Bankruptcy on the Horizon?
b. A Two-Bar Pattern that Points to Trade Setups
c. Do Low Interest Rates Power Stocks Higher?

1. Dow Theory

Published with permission from Colby Asset Management

The following is an excerpt from my 820-page research book,
Colby, Robert W.,
The Encyclopedia of Technical Market Indicators, Second Edition,
McGraw-Hill Publishing, 2003 (click here for a description).

The Dow Theory is a major corner stone of technical analysis. It is one of the oldest and best known methods used to determine the major trend of stock prices. It was derived from the writings of Charles H. Dow from 1900 to 1902 published in the daily newspaper he founded, The Wall Street Journal. Dow's Theory was further refined by analysts and writers S. A. Nelson, William P. Hamilton, and Robert Rhea in the first few decades of the 20th century.

Seven Basic Principles of Dow's Theory:
1. Everything is discounted by the price Averages, specifically, the Dow-Jones Industrial Average and the Dow-Jones Transportation Average. Since the Averages reflect all information, experience, knowledge, opinions, and activities of all stock market investors, everything that could possibly affect the demand for or supply of stocks is discounted by the Averages.
2. There are three trends in stock prices. 1) The Primary Tide is the major long-term trend. But no trend moves in a straight line for long, and 2) Secondary Reactions are the intermediate-term corrections that interrupt and move in an opposite direction against the Primary Tide. 3) Ripples are the very minor day-to-day fluctuations that are of concern only to short-term traders and not at all to Dow Theorists.

2. Hot Market - May Soybeans

Soybean Bulls in Firm Technical Command

See on the daily bar chart for May soybean futures at the Chicago Board of Trade that prices are in a solid three-month-old uptrend and just this week hit a fresh six-month high. The bulls are in full near-term technical command heading into the key planting and growing season in the U.S. Midwest. Given the already-bullish technical posture of the bean market, expect to see any significant "weather market" scare in the coming weeks make soybean futures prices even more "goosey" than usual. Most years do find the grain futures markets experiencing at last one significant weather scare in the spring, summer or early fall.

Jim has an excellent daily newsletter where he reviews different markets, alerts you for potential trades and much more. Included is his great bi-weekly newsletter with charts and a little longer term outlook. We recommend checking out his website, educational CDROM, and services at Jim Wyckoff

3. Economic Calendar

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!