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ICT Mentorship Core Content - Month 10 - Relative Strength Analysis - Accumulation & Distribution
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ICT Mentorship Core Content - Month 10 - Relative Strength Analysis - Accumulation & Distribution

Introduction

The speaker introduces the topic of commodities and provides a disclaimer that he is not a CTA.

Relative Strength Analysis and Professional Accumulation and Distribution

The speaker discusses relative strength analysis in the commodity market, which involves analyzing the most important market to follow based on whether you are bullish or bearish. He also mentions professional accumulation and distribution.

  • Relative strength analysis involves factoring your analysis around the most important market to be following right now when you're bullish and the most important market that we found when you're bearish.
  • The dollar index sets the tone for everything else, especially when it comes to commodities. If the dollar index is trading higher, that's going to put pressure on commodity prices. If it's trading lower, that's going to allow insight into higher commodity prices.
  • Institutionally sponsored rallies refer to a market that has failed to go lower at a time when the dollar index would be expected to go lower. This may be a precursor to a bullish commodity market.
  • When buying commodities, what you want to classically see is underlying price strength where the market tends to trade higher energetically.

Agricultural Markets

The speaker discusses two main groups of markets in commodities: agricultural and financial markets. He then focuses on agricultural markets, specifically grains.

  • There are two main groups of markets in commodities: agricultural and financial markets.
  • In agricultural markets, there are grains such as corn, wheat, soybeans, oats, canola, etc., but historically he follows corn, wheat and soybeans traded on Chicago Board Trade.
  • There are also livestock sectors such as feeder cattle lean hogs and live cattle.

Favorite Commodities

The speaker shares his favorite commodities to follow.

  • The speaker's favorite commodities to follow are soybeans, wheat, feeder cattle, live cattle, lean hogs, cocoa, orange juice (when there is a freeze in Florida), coffee, sugar and cotton.
  • He also mentions that he likes the treasury bond and currency markets.

Metals

The speaker discusses metals in the commodity market.

  • The three metals he likes to follow are gold, silver and high-grade copper.
  • Palladium and platinum were followed early on but he lost interest in them.

Energy Markets

The speaker discusses energy markets in the commodity market.

  • Crude oil is one of the main energy markets in the commodity market.

Relative Strength Analysis Continued

The speaker continues discussing relative strength analysis in the commodity market.

  • When you're bearish on commodities, you want to look for a market that has failed to go higher at a time when the dollar index would be expected to go lower.
  • When buying commodities based on relative strength analysis, you want to see underlying price strength where the market tends to trade higher energetically.

Conclusion

The speaker concludes by summarizing what was discussed about relative strength analysis and institutionally sponsored rallies.

  • Institutionally sponsored rallies refer to a bullish commodity market where a market has failed to go lower at a time when the dollar index would be expected to go lower.
  • When buying commodities based on relative strength analysis, you want to see underlying price strength where the market tends to trade higher energetically.

Understanding Commodities and the Dollar Index

In this section, the speaker explains how to analyze commodities in relation to the dollar index. They discuss how institutional sponsorship affects commodity prices and how to identify commodities that are diverging from the dollar index.

Analyzing Commodities in Relation to the Dollar Index

  • Price upswings and up closing candles indicate institutional sponsorship for buying.
  • Institutional volume is much larger than a speculator's volume, which can facilitate market rallies.
  • Commodities that fail to make a lower low when the dollar index makes a higher high are diverging and show strength.
  • It's important to understand what the dollar index should be doing as a whole because not every commodity will rally.

Divisions of Commodity Markets

  • The agricultural sector and financial sector are two divisions of commodity markets.
  • When there is a bias for the commodity market as a whole to go higher, it means that the dollar index should be going lower or expected to go lower.
  • Not every commodity will show evidence of a higher low when the dollar is weakening.

Sympathetic Price Strength

  • A market that tends to trade higher in sympathy with another market that establishes underlying direction is called sympathetic price strength.
  • Short-term highs are seen broken and declines are shallow in nature.

Introduction

The speaker discusses how some markets move in sympathy with others, but at a lesser degree of speed and magnitude. They explain that the aim is to focus on the strongest downside markets.

Institutional Sponsored Decline

The speaker explains that institutional sponsored declines are markets that tend to trade lower energetically as a leader market and establish the underlying direction opposite to the dollar index. They discuss how these markets can be extremely profitable and how their aim is to focus on these markets as they will be the strongest downside movers.

  • Short-term lows are going to be seen broken and rallies are going to be shallow in nature.
  • Down swings in price and/or down closing candles are typically much larger than those that show with a closing higher or upswing in price.
  • The key is the focal point of the failure swing to make a higher high when that dollar index is bullish.
  • Commodities that fail to make a higher high will be leadership on the downside showing underlying price weakness.

Sympathetic Decline

The speaker explains how sympathetic declines occur when a market tends to trade lower in sympathy with the leader market that established the underlying downside direction. They discuss how it's potentially profitable, but their aim is still focused on leadership markets for weakest declines.

  • Short-term lows are being broken, and rallies are shallow in nature.
  • Price weakness occurs sympathetically with leadership issues failing to make lower lows.

Determining Weakness by Looking at Highs

The speaker explains how determining which commodities have weaknesses is done by looking at their highs.

  • The weakest of the commodities to sell short are determined by looking at their highs.

Commodities Overview

The speaker goes through various commodities and explains how they have performed in relation to the dollar index from mid-2016 to present day.

Corn

  • From mid-2016, corn declined as expected with a higher dollar.
  • Corn showed extreme weakness while the dollar index was making higher highs.
  • A failure swing occurred going into December 2016, but there was underlying weakness shown in the move down.

Commodities Market Analysis

This transcript discusses the performance of various commodities in the market, including wheat, soybeans, feeder cattle, and lean hogs. The analysis covers the period from summer 2016 to early 2017.

Wheat Market Performance

  • Wheat market saw a slide down from summer months and failed to make any significant rally higher.
  • Underlying weakness was seen in price action.

Soybean Market Performance

  • Soybean market failed to make lower lows while the dollar was making higher highs.
  • In November 2016, soybean market traded down with a higher low indicating signs of accumulation.
  • Soybeans were strong across the grains group and showed relative strength in the bean complex.
  • Soybeans rallied about $4500 per contract in January 2017.

Feeder Cattle Market Performance

  • Feeder cattle market showed signs of accumulation as it failed to go lower while the dollar index was making higher highs.
  • Short-term highs were being broken indicating buying by institutions or large traders.
  • In March 2017, when dollar index sold off again, it provided another buying opportunity for feeder cattle.
  • Move from buy to high is over $19,000 per contract.

Lean Hogs Market Performance

  • Lean hogs market saw clear accumulation patterns in October-November 2016 while failing to go lower as dollar index made higher highs.
  • In 2017, lean hogs market traded back down into a bullish order block and had a subsequent parabolic rally.

Overall, the analysis shows that commodities performed differently in the market during the period under review. Soybeans were strong while wheat showed weakness. Feeder cattle and lean hogs markets showed signs of accumulation indicating buying by institutions or large traders.

Livestock Group

This section covers the Livestock group, specifically Live Cattle.

Live Cattle

  • Price trades down from summer months into October making a low.
  • From October going into November and December, accumulation occurs while the dollar is rallying.
  • Live cattle market is failing to go lower and is under massive accumulation.
  • Trades down into a bullish order block rallies away.
  • Translates to a move of twelve thousand dollars per contract.

Foods Group

This section covers the Foods group, specifically Cocoa, Coffee, and Sugar.

Cocoa

  • Clearly under a lot of distribution due to bumper crop and no real shortage or impulse for supply and demand factor to be swung to a shortage.
  • No indication that this is under any accumulation whatsoever.

Coffee

  • Weakness market making lower lows in December going into January.
  • Nice little pop-up which is a nice little retracement but overall kept in sync with weakness seen in coffee.

Sugar

  • In November going into middle of December we see sugar making lower lows.
  • Kind of like mixed signal so you could have looked at it as weakness then ultimately falls over and can't find any more continuation.

Fibers Group

This section covers the Fibers group, specifically Cotton.

Cotton

  • Slide from August down in September after initial rally trades back down into a bullish order block at September.
  • Successive higher highs and higher lows every short-term high finding its way broken with no problem at all and bullish order blocks are supporting price.
  • Clearly under accumulation so cotton was a very strong commodity at the time when the dollar was weak.
  • Move to transpires is over eight thousand dollars per contract.

Financials Group

This section covers the Financials group, specifically 30-year Treasury Bond.

30-Year Treasury Bond

  • Market making lower lows here underlying weakness and has been range-bound and hasn't really moved much at all.

Overview of Currency Markets

The speaker discusses the performance of various currencies in the market and identifies which ones are strong and weak.

Australian Dollar

  • The Australian dollar had a sustained move to the upside due to a bonus interest rate differential.
  • Weakness was seen in the dollar index at those highs, leading to accumulation on the Australian dollar at those lows.

Canadian Dollar

  • The Canadian dollar started off with modest bullishness but gave up the ghost in February and rolled right back over.
  • It moved together with the dollar index, making it difficult.

Japanese Yen

  • The Japanese yen had institutional sponsored rally due to higher low accumulation seen by way of short-term highs breaking.
  • It was very strong and served as a leadership issue for the currency market.

British Pound

  • The pound market has been weak with no real accumulation until March when it created a high in the dollar index.

Swiss Franc

  • The Swiss franc rallied higher when there was weakness in the dollar index, making it very strong.
  • It closed its fair value gap scene in March and then rallied higher.

Euro Dollar

  • Short-term highs were being broken on this currency, supporting price at discount arrays.
  • It was very strong here as well.

New Zealand Dollar

  • With a differential interest rate, New Zealand's kiwi served as an upside leader.

#s Overview of Metals Market

Gold failed to make a lower low, leading to institutional sponsored rally when the dollar index was making higher highs.

Gold Market

  • Gold failed to make a lower low, leading to institutional sponsored rally when the dollar index was making higher highs.

Analysis of Commodities

In this section, the speaker analyzes various commodities using relative strength analysis to identify leadership issues and buying opportunities.

Gold and Silver

  • Gold started with a higher low institutional sponsorship rally but fell out of bed at the 1850 level.
  • Traded to a bullish order block at the 16 level which was an interesting buying opportunity.
  • Silver failed at the 1850 level and became relatively weak.

High Grade Copper

  • Accumulation was underway in September and October.
  • Finally exploded on the upside, making copper a strong metal.

Crude Oil

  • Failing to make lower lows as the dollar Index was rallying.
  • Under accumulation around the 43 Barrel Mark before finally rallying up.

Agricultural Markets

  • Soybean Market was the leader among grains.
  • Feeder cattle market was by far the absolute leader among livestock.
  • Cotton was an outperformer on foods due to professional accumulation.

Financial Markets

  • No buying opportunities found in debt instruments all year long.
  • Australian dollar, Yen, Franc, Euro, and Kiwi were all upside leadership into Metals.

Overall, relative strength analysis helped identify leadership issues and buying opportunities across different commodity markets.

Understanding Market Trends

In this section, the speaker discusses how to identify market trends and use them to make better investment decisions.

Identifying Market Trends

  • Look for patterns that indicate a "fingerprint Hallmark signature" of accumulation or distribution.
  • Use these patterns to identify when the market is likely to move in one direction or another.
  • By understanding market trends, you can avoid bad investment opportunities and increase your chances of success.
Playlists: 2017 ICT Private Mentorship Core Content Month 10
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2017 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in June 2017. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN Trading performance displayed herein is hypothetical. 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 trading 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. U.S. Government Required Disclaimer – Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. Trade at your own risk. The information provided here is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person’s investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. If you purchase or sell Equities, Futures, Currencies or Options you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you may be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a “limit move.” The placement of contingent orders by you, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.