*I will be out of town this evening until Sunday so there will be no newsletter Thursday or Friday, but will resume Monday.
Opening Note:
With the violation of recent trendlines in major directional indicator commodities I believe that the commodity and equity markets are beginning their second leg down. Copper and Silver were good market predictors in Mid-January for the first bearish correctional move, and with a lower close yesterday, appear to be signalling that another down move is starting. The Euro/Yen Cross, which has predicted larger market moves when it has broken out of consolidation range, also had a close below this upsloping range yesterday. Technicians look for 2 daily closes for confirmation of the move, so today is important in establishing downward momentum. But, with the market looking slightly weaker today these markets would have to make a significant rally to negate their breakouts. With many of the commodity markets just breaking the trendlines on their recent rallies there are not many good reversal top formations, or others that have small patterns with easy entry and projection parameters. I will most likely be looking at the second leg projections in many of the weakest markets as an end goal, but hoping to catch some momentum for a day or two by selling rallies and taking profits instead of focusing on the whole move. With the end of the month coming on Friday there will likely be long profit taking. As we have seen for the last year there has also been allocation into commodities and equities so it will be interesting to see if Monday has new money coming into the market. While January saw a two week rally off of this new money entry I believe that it will more likely be a two day rally like we saw in the beginning of February.
Buys to Watch:
Canadian Dollar vs. British Pound- Until 6 a.m. this morning the chart was continuing to look very weak. Recently though the cross rate has rallied 60 ticks on Pound weakness. I am becoming a little weary of this trade because the Canadian had a sizable break yesterday on weak market action. It is difficult to tell from just yesterday whether a break in commodities will have a larger effect on a propped up Canadian chart or an extremely weak Pound chart that is beginning to look a little tired of falling. I believe the trade should easily be let go below -6050, but may be worth taking profits on before then. Despite the rally it is still sitting in the low volume buy zone from -5920 to -6000 and I am tempted to take it off if it does not close above the -5920 level. This is fairly common 2 day pullback action, but the large break in the Canadian side yesterday has me a little spooked on it's future prospects. The weekly cup and handle projection is still to -5188.
Sells to Watch:
Cocoa- In January Cocoa was sitting on it's all time highs but has set up an extended topping formation since October. The first leg down from Mid January to early February on a double top formation had a 500 tick down move. Cocoa suffered a massive break yesterday making it one of the weakest looking commodity charts currently. Based off the first leg move and the recovery to 3175 I am projecting the second leg down to 2675. I see a good low volume sell zone from 2972 to 3000 on a rally if the market can catch one. Note: On the monthly chart the upwards trendline from the November 2008 base sits at 2848 for February so it may find support at this level. However, monthly stochastics for cocoa looks on the verge of a sell signal in close to overbought territory after this month's close.
Copper- Copper had one of the most violent breaks of any commodity on it's first leg down, but also had one of the better rallies more recently. Because most of this volatility is due to the low volume of the market I believe that Copper again could be one of the worst performers. The second leg down has a projection to $2.70. A low volume resistance zone from 323.50 to 324.40 created the high on the overnight range. Other than this area I do not see an adequate entry point for today though. Copper has had a small rally since it's open this morning so there could be a push toward it's violated trendline, but sitting at 333.90 today it is unlikely that it will be able to re-establish it. Daily Stochastics for the market will put out a sell signal in overbought territory today with a lower close.
Put on the Radar:
Silver- Like Copper, Silver had one of the more volatile down moves starting in mid-January. The recent rally in silver was much flatter though in comparison to other commodity markets. Today a close of 16105 is needed to re-establish the trend and negate the breakout. A modest second leg projection for silver is to $14.15, which is nearly the same value that the weekly head and shoulders projection is that has not been reached. A minuscule low volume resistance area is between 1604 and 1605 today, but because of it's size is difficult to take seriously. Like its initial break in January I expect silver to be one of the weaker performing commodities, as it normally is during big picture commodity moves.
Bean Oil- Since the beginning of January open interest in Bean Oil has risen nearly 40% on spring growing season speculation. This percentage increase is huge in comparison to the rest of the grain complex and could be based off of bullish fundamental reports in comparison to Soymeal. It looks like the market may be setting up a double top (or cup and handle) pattern that could be reached within a day if it was to set-off. Below 3860 May Bean Oil has a projection to 3777 and is easily within the reach of this level today. Soybeans had a spike rally failure yesterday that is bearish looking and the Oil Share (Oil - Meal) also has a similar topping pattern like the Oil. All of these factors make the bean oil move very likely to happen soon.
Notes:
Nasdaq and Crude Oil- The Nasdaq and Crude Oil have both bounced off of their uptrends to create the lows on the range today. These trendlines are slightly modest though because they are drawn off the lowest possible values and only have a couple touching points. The Crude trend has a value of 7828 today and the Nasdaq of 1795.
*There has been small rallies on commodity opens this morning so far
Wednesday, February 24, 2010
Tuesday, February 23, 2010
Tuesday 2/23/10 Midday Update
With poor economic data out of Germany and a much weaker U.S. consumer confidence number commodities and equities have come under fire today, violating uptrends across the board. Copper, Silver, and Nasdaq have suffered the most today and I expect further losses in these markets in the coming days. The fixed income sector has rallied above the head and shoulders neckline in the individual markets, pointing towards a run to safety out of riskier assets. Furthermore, the Euro/Yen Cross also has violated it's bottom consolidation trend signaling further weakness in the market. I expect the Euro/Yen to continue to around 118.50 on the YR symbol CQG chart on this recent down move.
I recommend looking to sell rallies for short position entry and not holding long positions in commodities or equities for the time being. Silver looks to have a projection on the short-term down move of $14.15, Copper to $2.70, and the Nasdaq to 1670. I believe that these are the best markets right now to sell rallies in as they have the most potential for downside volatility if their trend violations hold today.
I recommend looking to sell rallies for short position entry and not holding long positions in commodities or equities for the time being. Silver looks to have a projection on the short-term down move of $14.15, Copper to $2.70, and the Nasdaq to 1670. I believe that these are the best markets right now to sell rallies in as they have the most potential for downside volatility if their trend violations hold today.
Tuesday 2/23/10 Commodity Ideas
Opening Note:
With very little to report yesterday other than a large sugar break, the overnight market action has taken a different tone with downside volatility in a number of markets and the threat of violating uptrends over the last two and a half weeks. While European strength around 1 a.m. Central Time has been a theme that has spilled over into buying on the U.S. open for the last eleven days, it was market weakness on the European open this morning that has set the pace of the markets. While foreign currencies like the British Pound and Euro showed increasing strength until 1 a.m., by 3 a.m. they violently swung from significant gains on the day to moderate losses as Europe began trading. Furthermore, strengths like Copper and Crude Oil over the latest recovery also reversed from their highs on the session to lows that test the validity of their recent uptrends. While testing their uptrends and supporting them has been common in the commodity markets lately, today's action has a different tone than the rest of those days. The lows in commodities have often come around 1 a.m. followed by buying support that continued until around 12 p.m. on the U.S. session. Overnight it was highs followed by selling action that indicates that there is a less likely chance of support for the markets today. This is the first time I recall over the last 2+ weeks that this tone has been taken by the markets, which is why I will be keeping a close eye today on the violation of commodity market uptrends to look for opportunities to sell, rather than catching buying momentum moves on an intra-day level. Heading into the end of the month this week it is likely that some profit taking will occur. I would hold off on entering overnight positions for the beginning part of today as the market sorts out whether the recent trend in commodities and equities holds strong.
Buys to Watch:
Canadian Dollar vs. British Pound- The relationship trade set up a downtrend that held for nearly 24 hours, but since the early morning hours has had a nice recovery rally taking it back it's recent highs. Major support around from -6030 to -6050 easily held, while the pullback buy zone from -6000 to -5920 level was entered overnight fueling a rally beginning at 1 a.m. The weekly cup and handle pattern maintains a projection to -5188 with only a resistance spike to -5656 from last January standing in its path to completion. The previously mentioned buy zone still is a spot of entry, but has less strength with the market already reaching these levels. Below -6050 I would abandon the trade.
Sells to Watch: With many markets disregarding support and resistance levels I am hesitant to enter into short positions that are not relationship trades for the time being. In the put on the radar section I list some markets that I am watching as sells after confirmation.
Put on the Radar:
Ten Year or Five Year Note- I moved this out of the sells to watch section for right now because after a bearish head and shoulders technical breakout on Friday the markets have sat sideways to slightly up. I have the least amount of confidence in the head and shoulders pattern of any, and despite the markets now entering their sell zones, I have less confidence in the trade as downside momentum has been lost. The Ten Year Note has a neckline of 117.16 with a final projection to 116.00. A low volume sell zone entry sits between 117.10 and 117.145 with a proper stop probably being placed just above resistance at 117.23. The Five Year Note has a neckline of 116.09 today with a projection to 115.09. A low volume sell zone also sits between 116.05 and 116.085 with resistance around 116.13 to place a stop above. Note: I think that the success of this trade may depend largely on commodities holding their uptrends today. Over the last couple days the fixed income markets have resumed price movement contrary to commodity markets, so support of commodities should give this trade a better chance.
Copper- Using a trendline from the lows of Feb. 5th to the lows of Feb. 16th shows the largest amount of support touches while only having the lows of the Feb. 9th below the trend. Today the trend value is sitting at 330.30, with the market decidedly below this level currently. Today does not have the feel of a pullback "buy day" for Copper thus far and I do not have a good low volume support or entry point for this argument. As this market had one of the strongest recoveries over the last two weeks, I believe it has the potential to be one of the weakest. Because it trades such a low volume, entry and exit from the market can cause volatile swings. I would look at Copper as one of the best sells with a confirmed violation of it's trendline tomorrow.
Silver- Keeping the trendline the same as Copper provides a value of 16.10 for silver today, but another trend drawn from the lows on Feb. 5th to the lows of Feb. 12th gives another value of 15.99. The market has not violated these levels like Copper, supporting them thus far. Silver in comparison to many of the commodities has a flatter uptrend, with little price recovery on it's break over the last two weeks. I still have a bearish head and shoulders weekly projection to the low $14's that has not been reached yet, for some insight into a potential down move.
Crude Oil- Just for radar's sake, the trendline for Crude has a value of 7763 today.
Notes:
Grains- I remain fundamentally bearish on the soybeans and the wheat, but the bullish action over the last two days has caused me to remove them from the sells to watch list. While my sell values of 9.68 in beans and 5.14 in wheat caused temporary resistance in both markets, volatility carried prices beyond both of these levels at different times. Corn strength supported the other grains yesterday on a consolidation rally. I still feel strongly that both markets will at least test their contract lows in the coming months, but it may still be an uphill battle as speculative money may continue to enter in the spring. I do not have great levels to sell anymore and would rather focus on the other markets for right now, but with an eye on opportunities to sell in the future.
With very little to report yesterday other than a large sugar break, the overnight market action has taken a different tone with downside volatility in a number of markets and the threat of violating uptrends over the last two and a half weeks. While European strength around 1 a.m. Central Time has been a theme that has spilled over into buying on the U.S. open for the last eleven days, it was market weakness on the European open this morning that has set the pace of the markets. While foreign currencies like the British Pound and Euro showed increasing strength until 1 a.m., by 3 a.m. they violently swung from significant gains on the day to moderate losses as Europe began trading. Furthermore, strengths like Copper and Crude Oil over the latest recovery also reversed from their highs on the session to lows that test the validity of their recent uptrends. While testing their uptrends and supporting them has been common in the commodity markets lately, today's action has a different tone than the rest of those days. The lows in commodities have often come around 1 a.m. followed by buying support that continued until around 12 p.m. on the U.S. session. Overnight it was highs followed by selling action that indicates that there is a less likely chance of support for the markets today. This is the first time I recall over the last 2+ weeks that this tone has been taken by the markets, which is why I will be keeping a close eye today on the violation of commodity market uptrends to look for opportunities to sell, rather than catching buying momentum moves on an intra-day level. Heading into the end of the month this week it is likely that some profit taking will occur. I would hold off on entering overnight positions for the beginning part of today as the market sorts out whether the recent trend in commodities and equities holds strong.
Buys to Watch:
Canadian Dollar vs. British Pound- The relationship trade set up a downtrend that held for nearly 24 hours, but since the early morning hours has had a nice recovery rally taking it back it's recent highs. Major support around from -6030 to -6050 easily held, while the pullback buy zone from -6000 to -5920 level was entered overnight fueling a rally beginning at 1 a.m. The weekly cup and handle pattern maintains a projection to -5188 with only a resistance spike to -5656 from last January standing in its path to completion. The previously mentioned buy zone still is a spot of entry, but has less strength with the market already reaching these levels. Below -6050 I would abandon the trade.
Sells to Watch: With many markets disregarding support and resistance levels I am hesitant to enter into short positions that are not relationship trades for the time being. In the put on the radar section I list some markets that I am watching as sells after confirmation.
Put on the Radar:
Ten Year or Five Year Note- I moved this out of the sells to watch section for right now because after a bearish head and shoulders technical breakout on Friday the markets have sat sideways to slightly up. I have the least amount of confidence in the head and shoulders pattern of any, and despite the markets now entering their sell zones, I have less confidence in the trade as downside momentum has been lost. The Ten Year Note has a neckline of 117.16 with a final projection to 116.00. A low volume sell zone entry sits between 117.10 and 117.145 with a proper stop probably being placed just above resistance at 117.23. The Five Year Note has a neckline of 116.09 today with a projection to 115.09. A low volume sell zone also sits between 116.05 and 116.085 with resistance around 116.13 to place a stop above. Note: I think that the success of this trade may depend largely on commodities holding their uptrends today. Over the last couple days the fixed income markets have resumed price movement contrary to commodity markets, so support of commodities should give this trade a better chance.
Copper- Using a trendline from the lows of Feb. 5th to the lows of Feb. 16th shows the largest amount of support touches while only having the lows of the Feb. 9th below the trend. Today the trend value is sitting at 330.30, with the market decidedly below this level currently. Today does not have the feel of a pullback "buy day" for Copper thus far and I do not have a good low volume support or entry point for this argument. As this market had one of the strongest recoveries over the last two weeks, I believe it has the potential to be one of the weakest. Because it trades such a low volume, entry and exit from the market can cause volatile swings. I would look at Copper as one of the best sells with a confirmed violation of it's trendline tomorrow.
Silver- Keeping the trendline the same as Copper provides a value of 16.10 for silver today, but another trend drawn from the lows on Feb. 5th to the lows of Feb. 12th gives another value of 15.99. The market has not violated these levels like Copper, supporting them thus far. Silver in comparison to many of the commodities has a flatter uptrend, with little price recovery on it's break over the last two weeks. I still have a bearish head and shoulders weekly projection to the low $14's that has not been reached yet, for some insight into a potential down move.
Crude Oil- Just for radar's sake, the trendline for Crude has a value of 7763 today.
Notes:
Grains- I remain fundamentally bearish on the soybeans and the wheat, but the bullish action over the last two days has caused me to remove them from the sells to watch list. While my sell values of 9.68 in beans and 5.14 in wheat caused temporary resistance in both markets, volatility carried prices beyond both of these levels at different times. Corn strength supported the other grains yesterday on a consolidation rally. I still feel strongly that both markets will at least test their contract lows in the coming months, but it may still be an uphill battle as speculative money may continue to enter in the spring. I do not have great levels to sell anymore and would rather focus on the other markets for right now, but with an eye on opportunities to sell in the future.
Monday, February 22, 2010
Monday 2/22/10 Commodity Ideas
Opening Note:
On Friday the buying that began in the morning continued throughout the afternoon with commodities and equities finishing with strong gains throughout the day and week in most cases. Overnight thus far, commodities are only up slightly with a little buying coming in after the European opening. It has been fairly consistent during the commodity rally over the last two weeks that strong buying around 1 a.m. has been followed by buying on the U.S. open and throughout the morning. The most effective trade has been to wake up around 1 a.m., buy your commodity of choice, and sell it at noon later that day. The reason this trade has worked so well is because a lot of this rally has been more about money flow than anything else. The majority of this money is coming in during this time frame with larger orders consistently moving the market after there has been buying on Europe's open. Despite this strong rally the volume over the last two weeks is lower on average than the weeks prior when the market was breaking and open interest has not had much of an increase or decrease in the markets either. These are not typical symptoms of a healthy bull market, but with the rally still intact across the board I suggest that buying and looking for momentum on a day trade level is the best way to make money right now.
Buys to Watch:
Canadian Dollar vs. British Pound- The trade continued to rally Friday, but with little movement to report today. I still believe that buying Canada's resource based economy against the European weakness is a trade that will continue to work. The Canadian, again, has lower downside volatility than the rest of the currencies, while the Pound has lower upside volatility than the others, giving this trade increased value. The cup and handle weekly breakout above -6249 projects to -5188 with only a spike of resistance to -5656 from last January. There is a low volume support level from -6000 to -5920. I would look to abandon the trade below -6050.
Sells to Watch:
5 Year Note or 10 Year Note- The fixed income market turned negative right after The Fed hiked the discount rate, but has sat mostly sideways for the last day and a half. Looking at the chart from a purely technical standpoint I like the 5 year and 10 year head and shoulder charts as a better sell than the other markets. They also may be a safer bet to continue downwards as it is uncertain if the yield curve will continue to steepen with the two year gaining price on the bonds, or if the trade will unwind a bit. The 5 year has a breakout of 116.09 with a projection to 115.08. A low volume sell zone sits from 116.05 and 116.085, and if sold a stop should be placed at or above 116.13. The 10 year note has a breakout of 117.16 with a projection to 116.00. A low volume sell zone sits between 117.10 and 117.145 and a stop should be placed above the resistance around 117.23. Note: The head and shoulders pattern is the most recognizable and also one of the least reliable ones lately. Furthermore, the 30 year bonds rejected a close beneath the neckline and rallied off of the neckline value on Friday.
Wheat or Soybeans- With option expiration on Friday there was low volatility on the day with prices gravitating towards higher volume traded option levels. With a bleak fundamental story in each market I am looking for opportunities to sell both markets. The daily Stochastics indicator on the wheat has given a sell signal today and the soybeans Stochastics appears to be on the verge of doing so as well. Open interest has also leveled off and began to decrease slightly for the first time since 2010 began, signalling that cyclical speculative money has stopped flowing into the grains for the growing season. I believe that beans should test their support level of $8.90 and wheat it's $4.72 support level within the next couple weeks. For soybeans I have a small low volume zone to sell at 9.68 and in the wheat I have one at 5.14. The low volume rejection zones have not worked well lately in markets where money is flowing in, but it appears that this may not be the case in the grains anymore.
Put on the Radar:
Euro/Yen Cross- I have not written much about it lately because there has not been a lot to report. For the last two weeks it has sat in a range between 121 and 125 on the YR symbol CQG chart. This has been a very tight range in comparison to the volatility in the market since the start of the New Year. The market is still sitting in the range from the move from Feb. 4th to 5th. With the currency markets being flatter relative to commodity and equity markets this is not odd action for the market. Equities tend to mimic the cross with a month or two of lag. The large move down in the Euro/Yen began after the first week of January. It has acted as a fairly reliable indicator over history, but we could be seeing an occasion where commodities and equities hold higher values while currencies move much more.
Notes:
**The metals and softs have shown weakness since they have opened. It does not look like there will be fund buying or allocation out of the box this morning in some of the other markets as well.
On Friday the buying that began in the morning continued throughout the afternoon with commodities and equities finishing with strong gains throughout the day and week in most cases. Overnight thus far, commodities are only up slightly with a little buying coming in after the European opening. It has been fairly consistent during the commodity rally over the last two weeks that strong buying around 1 a.m. has been followed by buying on the U.S. open and throughout the morning. The most effective trade has been to wake up around 1 a.m., buy your commodity of choice, and sell it at noon later that day. The reason this trade has worked so well is because a lot of this rally has been more about money flow than anything else. The majority of this money is coming in during this time frame with larger orders consistently moving the market after there has been buying on Europe's open. Despite this strong rally the volume over the last two weeks is lower on average than the weeks prior when the market was breaking and open interest has not had much of an increase or decrease in the markets either. These are not typical symptoms of a healthy bull market, but with the rally still intact across the board I suggest that buying and looking for momentum on a day trade level is the best way to make money right now.
Buys to Watch:
Canadian Dollar vs. British Pound- The trade continued to rally Friday, but with little movement to report today. I still believe that buying Canada's resource based economy against the European weakness is a trade that will continue to work. The Canadian, again, has lower downside volatility than the rest of the currencies, while the Pound has lower upside volatility than the others, giving this trade increased value. The cup and handle weekly breakout above -6249 projects to -5188 with only a spike of resistance to -5656 from last January. There is a low volume support level from -6000 to -5920. I would look to abandon the trade below -6050.
Sells to Watch:
5 Year Note or 10 Year Note- The fixed income market turned negative right after The Fed hiked the discount rate, but has sat mostly sideways for the last day and a half. Looking at the chart from a purely technical standpoint I like the 5 year and 10 year head and shoulder charts as a better sell than the other markets. They also may be a safer bet to continue downwards as it is uncertain if the yield curve will continue to steepen with the two year gaining price on the bonds, or if the trade will unwind a bit. The 5 year has a breakout of 116.09 with a projection to 115.08. A low volume sell zone sits from 116.05 and 116.085, and if sold a stop should be placed at or above 116.13. The 10 year note has a breakout of 117.16 with a projection to 116.00. A low volume sell zone sits between 117.10 and 117.145 and a stop should be placed above the resistance around 117.23. Note: The head and shoulders pattern is the most recognizable and also one of the least reliable ones lately. Furthermore, the 30 year bonds rejected a close beneath the neckline and rallied off of the neckline value on Friday.
Wheat or Soybeans- With option expiration on Friday there was low volatility on the day with prices gravitating towards higher volume traded option levels. With a bleak fundamental story in each market I am looking for opportunities to sell both markets. The daily Stochastics indicator on the wheat has given a sell signal today and the soybeans Stochastics appears to be on the verge of doing so as well. Open interest has also leveled off and began to decrease slightly for the first time since 2010 began, signalling that cyclical speculative money has stopped flowing into the grains for the growing season. I believe that beans should test their support level of $8.90 and wheat it's $4.72 support level within the next couple weeks. For soybeans I have a small low volume zone to sell at 9.68 and in the wheat I have one at 5.14. The low volume rejection zones have not worked well lately in markets where money is flowing in, but it appears that this may not be the case in the grains anymore.
Put on the Radar:
Euro/Yen Cross- I have not written much about it lately because there has not been a lot to report. For the last two weeks it has sat in a range between 121 and 125 on the YR symbol CQG chart. This has been a very tight range in comparison to the volatility in the market since the start of the New Year. The market is still sitting in the range from the move from Feb. 4th to 5th. With the currency markets being flatter relative to commodity and equity markets this is not odd action for the market. Equities tend to mimic the cross with a month or two of lag. The large move down in the Euro/Yen began after the first week of January. It has acted as a fairly reliable indicator over history, but we could be seeing an occasion where commodities and equities hold higher values while currencies move much more.
Notes:
**The metals and softs have shown weakness since they have opened. It does not look like there will be fund buying or allocation out of the box this morning in some of the other markets as well.
Friday, February 19, 2010
Friday 2/19/10 Commodity Ideas
Opening Note:
Right before yesterday's 3:00 p.m. (CT) stock market close The Fed announced that they were raising the discount rate (rate for emergency bank loans) a quarter percent. Equities, commodities and foreign currencies plummeted in the last 15 minutes of trade as the move was unexpected and caused a negative reaction in fixed income prices as well. This was a move that many believed was on the horizon as stimulus would be pulled back as the economic recovery has advanced, but few thought that the move would come this soon. Further worry has entered the market that The Fed may begin to raise the Fed Funds rate sooner than expected as well, with the market now betting it will begin at least before September. This move in the discount rate is only moderately bearish for the time being in commodities and equities, mostly for bank stocks, but the long covering was more of a fear trade based on future expectations from The Fed. The biggest story here may come from the yield curve as the steepening of the yield curve trade (long 2 and 5 year vs. short 10 and 30 year) is tested. Huge money has been riding this trade and the potential for a massive swing correction is now out there.
Despite the huge break before the close and continuation into the late evening there appears to be signs of recovery as buying since the European open has come into commodities and equities. With bullish trendlines maintained in many of these markets speculative and fund money has support to buy off of and may be taking this break as an opportunity to buy lower. Be cautious getting short outright commodities today as European buying has signaled large long money coming into the market around the opens for the last two weeks. However, with Crude coming within 35 cents of the $80 price target on a $10 rally over the last 10 days, gold failing to hold it's upwards trendline, and many markets heading into overbought territory on the daily stochastics I imagine that some long profit taking is coming after the V bottom swing rally. I also have a difficult time believing that this commodity rally can continue at it's current pace. This Fed move has created a lot of new opportunities so I will briefly cover some of them below, but weighing the best opportunity right now is tricky. Please respond if you have any incite or ideas you would like to look at as I am interested in discussing what this move could mean.
Buys to Watch:
Canadian Dollar vs. British Pound- What I thought might be a 2 month trade is looking like it could be a 2 week trade if the momentum of the move keeps up. Today the British Pound is the worst thing on my board with a decisive breakout below the consolidation range over the last 2 weeks. Although the Canadian is not stellar today either, it has served very well as a consistent strength with small downside volatility. The breakout on the cup and handle pattern at -6249 maintains it's projection to -5188 and with the market currently sitting around -5875 is approaching the halfway there point. A weekly spike close at -5656 from last January is the only point of resistance that stands in it's way for the rest of the move as it is at all-time highs. The buy zone of -6070 to -6040 worked perfectly yesterday as well and there is another one from -6000 to -5960 if the market pulls back there. It is safe now to move a stop to just below -6125, or if you would like to lock in more profit then just below -6030.
Sells to Watch:
Beans or Wheat- I believe that it is take your pick of which story or chart you believe more, but both look like decent trades. With soybeans recovering to $9.70 and with each report on the South American crop increasing yields, beans have little bullish news to hang their hat on right now. Furthermore, it appears that speculative and fund positions on U.S. wheat have kept prices much higher than the cash/fundamental situation, as European wheat traded to contract lows two days ago, making the U.S. wheat non-competitive with the rest of the world. Large long speculative positions have come into the grains for most of 2010 and with the recent topping action I see little reason for more to come in. I have sell zones on the May beans of 956-957 and above that at 968, and I believe that they will break to test their $8.90 support level in the coming weeks. In wheat I have sells from 496-497 and above that from 503 to 505, on a move that should test the 472 contract low and continue to around $4.50. I believe that selling corn right now is more of a battle to the downside than these two markets right now.
Fixed Income- The Fed move to raise the discount rate yesterday had caused a severe bearish reaction in the fixed income sector with many of the markets gapping lower after the move. Technically, topping head and shoulders patterns were set off in basically all of the fixed income charts that I watch. Here is a list of some of a couple of the pattern's breakouts, entry points and projections: Five Year - Breakout: 116.08, Pullback Entry: 116.05 to 116.08, with a stop above 116.13, Projection: 115.08 Ten Year- Breakout: 117.06, Pullback Entry: 117.10 to 117.15 with stop between 117.20 and 117.25, Projection: 116.00
The bonds and two years also have the similar topping head and shoulders. The entire world is long the short term 2's and 5's while short the 10's and 30's, betting on a steepening yield curve. The move yesterday and continuation today looks like a slight unwinding on the trade, so I would lean towards shorting the 2's or 5's rather than the 10's or 30's as there could be momentum for a much larger unwinding of the trade, giving you a bigger edge. Another question is, is this a fake-out scare where the market momentum could swing upwards to new highs (like the crude below $72 two weeks ago) or is this a real move. I am often skeptical of head and shoulders as they are the most widely recognized pattern and therefore one of the easiest to get screwed on. I would recommend looking at these charts under your own eye before just taking my word and executing as I am not the best fundamental fixed income trader under the sun.
Put on the Radar:
Gold (as a sale of other metals)- The gold is basically the first (similar moving to the stock market) commodity that has violated it's uptrend from the last two weeks. Gold was one of the strengths over the last year and the beginning of the recent V bottom. It looks like it was spread long against other commodity shorts, like silver, and the unwinding has pushed silver higher with gold lower. I look at the failure of the gold as an indicator that commodities may have trouble continuing the pace of this rally. Furthermore, Copper and Silver, depending on where you draw it, have bounced off of their trendlines anywhere from 4 to 8 times in the last 10 days. While this has been a great fade as a day trade I have found that markets that continually do this usually slam out of the bottom hard as positions have accumulated along the move on the over-confidence that the trendline continues to hold. If commodities break I am looking at selling silver and copper off of gold weakness, but again I am waiting for confirmation of trendline failure.
Dow - Crude Oil- I had this listed as an indicator on Wednesday as well, looking at the difference between the stock indexes and commodities/energies. The triangle/wedge pattern now has a clear reversal downside breakout, indicating that stock indexes could begin to lose on a move compared to commodities. As I stated above, I believe that crude will have a difficult time above $80, so this differential indicator could swing the other way. I would not put this on as a trade, but keep it on the radar as a continuation on the downside move could indicate the stock indexes as a better sell or commodities a better buy directionally.
Notes:
Crude Oil / British Pound- I had this chart up on Wednesday in the put on the radar section, but took it out yesterday as I felt that the crude/commodity rally was a bit overdone. But, with crude on a destiny trade to $80 and the British Pound breakout to the downside the trade projection has been completed to 5140. I would take this as a sign as well that Crude may have trouble holding a rally above $80 as the Pound looks like it will continue downwards, meaning for the ratio to break Crude would have to as well. Side-note: Although natural gas has moved contrary to the crude oil for some of 2010 the chart looks poor and if crude fails at $80 natural gas could be the best sell on a commodity break.
Cotton- I do not know the fundamental story on the Cotton, but directly after the supply and demand report from February the market exploded upwards. It looks like it could be a similar, but opposite, story to the corn report in January where big money was caught the wrong way on a poor looking chart, fueling a massive short covering rally.
Right before yesterday's 3:00 p.m. (CT) stock market close The Fed announced that they were raising the discount rate (rate for emergency bank loans) a quarter percent. Equities, commodities and foreign currencies plummeted in the last 15 minutes of trade as the move was unexpected and caused a negative reaction in fixed income prices as well. This was a move that many believed was on the horizon as stimulus would be pulled back as the economic recovery has advanced, but few thought that the move would come this soon. Further worry has entered the market that The Fed may begin to raise the Fed Funds rate sooner than expected as well, with the market now betting it will begin at least before September. This move in the discount rate is only moderately bearish for the time being in commodities and equities, mostly for bank stocks, but the long covering was more of a fear trade based on future expectations from The Fed. The biggest story here may come from the yield curve as the steepening of the yield curve trade (long 2 and 5 year vs. short 10 and 30 year) is tested. Huge money has been riding this trade and the potential for a massive swing correction is now out there.
Despite the huge break before the close and continuation into the late evening there appears to be signs of recovery as buying since the European open has come into commodities and equities. With bullish trendlines maintained in many of these markets speculative and fund money has support to buy off of and may be taking this break as an opportunity to buy lower. Be cautious getting short outright commodities today as European buying has signaled large long money coming into the market around the opens for the last two weeks. However, with Crude coming within 35 cents of the $80 price target on a $10 rally over the last 10 days, gold failing to hold it's upwards trendline, and many markets heading into overbought territory on the daily stochastics I imagine that some long profit taking is coming after the V bottom swing rally. I also have a difficult time believing that this commodity rally can continue at it's current pace. This Fed move has created a lot of new opportunities so I will briefly cover some of them below, but weighing the best opportunity right now is tricky. Please respond if you have any incite or ideas you would like to look at as I am interested in discussing what this move could mean.
Buys to Watch:
Canadian Dollar vs. British Pound- What I thought might be a 2 month trade is looking like it could be a 2 week trade if the momentum of the move keeps up. Today the British Pound is the worst thing on my board with a decisive breakout below the consolidation range over the last 2 weeks. Although the Canadian is not stellar today either, it has served very well as a consistent strength with small downside volatility. The breakout on the cup and handle pattern at -6249 maintains it's projection to -5188 and with the market currently sitting around -5875 is approaching the halfway there point. A weekly spike close at -5656 from last January is the only point of resistance that stands in it's way for the rest of the move as it is at all-time highs. The buy zone of -6070 to -6040 worked perfectly yesterday as well and there is another one from -6000 to -5960 if the market pulls back there. It is safe now to move a stop to just below -6125, or if you would like to lock in more profit then just below -6030.
Sells to Watch:
Beans or Wheat- I believe that it is take your pick of which story or chart you believe more, but both look like decent trades. With soybeans recovering to $9.70 and with each report on the South American crop increasing yields, beans have little bullish news to hang their hat on right now. Furthermore, it appears that speculative and fund positions on U.S. wheat have kept prices much higher than the cash/fundamental situation, as European wheat traded to contract lows two days ago, making the U.S. wheat non-competitive with the rest of the world. Large long speculative positions have come into the grains for most of 2010 and with the recent topping action I see little reason for more to come in. I have sell zones on the May beans of 956-957 and above that at 968, and I believe that they will break to test their $8.90 support level in the coming weeks. In wheat I have sells from 496-497 and above that from 503 to 505, on a move that should test the 472 contract low and continue to around $4.50. I believe that selling corn right now is more of a battle to the downside than these two markets right now.
Fixed Income- The Fed move to raise the discount rate yesterday had caused a severe bearish reaction in the fixed income sector with many of the markets gapping lower after the move. Technically, topping head and shoulders patterns were set off in basically all of the fixed income charts that I watch. Here is a list of some of a couple of the pattern's breakouts, entry points and projections: Five Year - Breakout: 116.08, Pullback Entry: 116.05 to 116.08, with a stop above 116.13, Projection: 115.08 Ten Year- Breakout: 117.06, Pullback Entry: 117.10 to 117.15 with stop between 117.20 and 117.25, Projection: 116.00
The bonds and two years also have the similar topping head and shoulders. The entire world is long the short term 2's and 5's while short the 10's and 30's, betting on a steepening yield curve. The move yesterday and continuation today looks like a slight unwinding on the trade, so I would lean towards shorting the 2's or 5's rather than the 10's or 30's as there could be momentum for a much larger unwinding of the trade, giving you a bigger edge. Another question is, is this a fake-out scare where the market momentum could swing upwards to new highs (like the crude below $72 two weeks ago) or is this a real move. I am often skeptical of head and shoulders as they are the most widely recognized pattern and therefore one of the easiest to get screwed on. I would recommend looking at these charts under your own eye before just taking my word and executing as I am not the best fundamental fixed income trader under the sun.
Put on the Radar:
Gold (as a sale of other metals)- The gold is basically the first (similar moving to the stock market) commodity that has violated it's uptrend from the last two weeks. Gold was one of the strengths over the last year and the beginning of the recent V bottom. It looks like it was spread long against other commodity shorts, like silver, and the unwinding has pushed silver higher with gold lower. I look at the failure of the gold as an indicator that commodities may have trouble continuing the pace of this rally. Furthermore, Copper and Silver, depending on where you draw it, have bounced off of their trendlines anywhere from 4 to 8 times in the last 10 days. While this has been a great fade as a day trade I have found that markets that continually do this usually slam out of the bottom hard as positions have accumulated along the move on the over-confidence that the trendline continues to hold. If commodities break I am looking at selling silver and copper off of gold weakness, but again I am waiting for confirmation of trendline failure.
Dow - Crude Oil- I had this listed as an indicator on Wednesday as well, looking at the difference between the stock indexes and commodities/energies. The triangle/wedge pattern now has a clear reversal downside breakout, indicating that stock indexes could begin to lose on a move compared to commodities. As I stated above, I believe that crude will have a difficult time above $80, so this differential indicator could swing the other way. I would not put this on as a trade, but keep it on the radar as a continuation on the downside move could indicate the stock indexes as a better sell or commodities a better buy directionally.
Notes:
Crude Oil / British Pound- I had this chart up on Wednesday in the put on the radar section, but took it out yesterday as I felt that the crude/commodity rally was a bit overdone. But, with crude on a destiny trade to $80 and the British Pound breakout to the downside the trade projection has been completed to 5140. I would take this as a sign as well that Crude may have trouble holding a rally above $80 as the Pound looks like it will continue downwards, meaning for the ratio to break Crude would have to as well. Side-note: Although natural gas has moved contrary to the crude oil for some of 2010 the chart looks poor and if crude fails at $80 natural gas could be the best sell on a commodity break.
Cotton- I do not know the fundamental story on the Cotton, but directly after the supply and demand report from February the market exploded upwards. It looks like it could be a similar, but opposite, story to the corn report in January where big money was caught the wrong way on a poor looking chart, fueling a massive short covering rally.
Thursday, February 18, 2010
Thursday 2/18/10 Commodity Ideas
Opening Note:
While the majority of commodities sat flat to slightly down yesterday the European and other foreign currencies had a sizable break, contributing to a large reversal rally in the Dollar Index, which was beginning to look weak. The break in the European currencies confirmed my opinion yesterday that the Tuesday rally in them was not a vote of confidence for Europe, but rather more of a concessionary rally because they "are supposed to rally" along with commodities and equities. The bearish action and continuation of the move overnight has again left the Euro, Pound, and Swiss Franc charts looking weak and at or below the lows of their consolidation range over nearly the last two weeks. Standing alone these have the weakest looking charts with a fundamental story to back them up. Despite the European weakness, commodities and equities have held fairly steadfast with the metals, grains, and sugar showing a bit more weakness over the last 24 hours. Early last evening through the European opening commodities appeared to have some downward momentum, but have rallied since early today. With the Mardi Gras and Carnival season now over and Chinese New Year celebrations waning, more participants will be returning to the market. It is looking more likely that the Tuesday rally was a bit overdone and with the strength of metals like gold looking weaker, these returning participants may step in to sell the rally. With uptrends in many of the commodity markets and other entry points to buy off of I am still sitting flat on longer term trade entry. I am however looking for these previous strength markets to show more weakness in the coming days. As the short term bull trendlines in many cases have had multiple successful bounce rallies off of them I would look at confirmed violation of these lines as a sell signal. I wrote extensively yesterday about the commodity rally that has gained greatly over the European and other currencies. While I believe the relationship charts I suggested yesterday are ones to still keep on the radar, I am now feeling less certain that this is a trend that will continue if commodities turn weak as they can have large volatility and with confirmed weakness would be a better sell as an outright than as a spread.
Buys to Watch:
Canadian Dollar vs. British Pound- Since yesterday morning the trade has rallied nearly 175 ticks fueled mostly by British Pound weakness. Despite the large break in most of the foreign currencies, the Canadian Dollar was only down slightly and currently is positive on the day. This confirms to me that the Canadian side of the equation has less downside volatility than the other currencies with similar movement, adding to the value of the spread. The weekly cup and handle chart breakout was -6249 and has a projection to -5188. There is another entry point buy zone from -6070 to -6040, but this may be one of the last opportunities to buy it with a decent risk to reward ratio over the life of the trade if the upward momentum continues. If you are already long I would look at moving your stop up to just below the -6225 level that held yesterday, as you no longer need to give it to -6350 as I suggested yesterday.
Sells to Watch:
- Right now I am waiting for confirmation on trendline violation before entering short positions.
Put on the Radar:
Gold / Euro - Looking at the gold against the weakness of the Euro paints a picture that is not as apparent when viewed against the Dollar. It is currently sitting just off of the all time high close that it set yesterday. A bullish triangle/wedge breakout pattern continues to be set off with a projection to 8770. I do not believe this is a great trade to initiate right now though as the gold has shown weakness after failing to hold a rally above it's $1126 swing high against the Dollar. I would use this chart as more of an indicator right now because if it shows weakness it is a good signal that commodities are weak even against the awful European currencies and prime to sell.
Euro/Yen Cross Rate- The cup and handle bullish reversal pattern that broke out yesterday failed miserably as the Euro fell apart as the day went on. It is still sitting in a range, but obviously looks weaker today. With a little more momentum it looks like it is heading out the bottom of the range after the rally failure. I am looking for a move to 118 on the YR symbol CQG chart, which would be a bearish sign for equities and commodities.
Notes:
Metals- After being the strength of the rally on Tuesday the metals have taken a much different tone over the last 36 hours. Gold failed to hold prices above it's $1126.4 swing high and it appears that it was bought as a spread against silver and other commodities, with profits being taken starting Tuesday. Gold, Silver, and Copper all had bounce rallies off of their short-term bull trendlines this morning and have rallied back to near their highs for the session. I still have a close eye on the silver as it tends to perform the weakest during commodity breaks. I believe that the rally Tuesday and into Tuesday night in the silver was panic/mania and that it went a little too far. It is still sitting in my old sell zone of $15.70 to $16.10, but I am waiting to sell it. I would look at a violation of the metal trendlines as an opportunity to enter a short with the weekly head and shoulders projection still sitting in the low $14's.
Grains- When asked about a month ago how I felt about selling grains I responded that I was looking for the March Wheat to rally into the $5.07 to $5.11 area to wait to sell it and other grains. Extrapolated to the volume traded May contract that is values between $15.18 to $15.23 roughly. Tuesday Wheat rallied right into this zone, held, and rejected sharply out of it yesterday. With the reports on the South American crop continuing to improve and with soybeans reaching my recovery level of $9.60 to $9.70 I believe that it is better to sell rallies in the grains than buy dips going forward.
While the majority of commodities sat flat to slightly down yesterday the European and other foreign currencies had a sizable break, contributing to a large reversal rally in the Dollar Index, which was beginning to look weak. The break in the European currencies confirmed my opinion yesterday that the Tuesday rally in them was not a vote of confidence for Europe, but rather more of a concessionary rally because they "are supposed to rally" along with commodities and equities. The bearish action and continuation of the move overnight has again left the Euro, Pound, and Swiss Franc charts looking weak and at or below the lows of their consolidation range over nearly the last two weeks. Standing alone these have the weakest looking charts with a fundamental story to back them up. Despite the European weakness, commodities and equities have held fairly steadfast with the metals, grains, and sugar showing a bit more weakness over the last 24 hours. Early last evening through the European opening commodities appeared to have some downward momentum, but have rallied since early today. With the Mardi Gras and Carnival season now over and Chinese New Year celebrations waning, more participants will be returning to the market. It is looking more likely that the Tuesday rally was a bit overdone and with the strength of metals like gold looking weaker, these returning participants may step in to sell the rally. With uptrends in many of the commodity markets and other entry points to buy off of I am still sitting flat on longer term trade entry. I am however looking for these previous strength markets to show more weakness in the coming days. As the short term bull trendlines in many cases have had multiple successful bounce rallies off of them I would look at confirmed violation of these lines as a sell signal. I wrote extensively yesterday about the commodity rally that has gained greatly over the European and other currencies. While I believe the relationship charts I suggested yesterday are ones to still keep on the radar, I am now feeling less certain that this is a trend that will continue if commodities turn weak as they can have large volatility and with confirmed weakness would be a better sell as an outright than as a spread.
Buys to Watch:
Canadian Dollar vs. British Pound- Since yesterday morning the trade has rallied nearly 175 ticks fueled mostly by British Pound weakness. Despite the large break in most of the foreign currencies, the Canadian Dollar was only down slightly and currently is positive on the day. This confirms to me that the Canadian side of the equation has less downside volatility than the other currencies with similar movement, adding to the value of the spread. The weekly cup and handle chart breakout was -6249 and has a projection to -5188. There is another entry point buy zone from -6070 to -6040, but this may be one of the last opportunities to buy it with a decent risk to reward ratio over the life of the trade if the upward momentum continues. If you are already long I would look at moving your stop up to just below the -6225 level that held yesterday, as you no longer need to give it to -6350 as I suggested yesterday.
Sells to Watch:
- Right now I am waiting for confirmation on trendline violation before entering short positions.
Put on the Radar:
Gold / Euro - Looking at the gold against the weakness of the Euro paints a picture that is not as apparent when viewed against the Dollar. It is currently sitting just off of the all time high close that it set yesterday. A bullish triangle/wedge breakout pattern continues to be set off with a projection to 8770. I do not believe this is a great trade to initiate right now though as the gold has shown weakness after failing to hold a rally above it's $1126 swing high against the Dollar. I would use this chart as more of an indicator right now because if it shows weakness it is a good signal that commodities are weak even against the awful European currencies and prime to sell.
Euro/Yen Cross Rate- The cup and handle bullish reversal pattern that broke out yesterday failed miserably as the Euro fell apart as the day went on. It is still sitting in a range, but obviously looks weaker today. With a little more momentum it looks like it is heading out the bottom of the range after the rally failure. I am looking for a move to 118 on the YR symbol CQG chart, which would be a bearish sign for equities and commodities.
Notes:
Metals- After being the strength of the rally on Tuesday the metals have taken a much different tone over the last 36 hours. Gold failed to hold prices above it's $1126.4 swing high and it appears that it was bought as a spread against silver and other commodities, with profits being taken starting Tuesday. Gold, Silver, and Copper all had bounce rallies off of their short-term bull trendlines this morning and have rallied back to near their highs for the session. I still have a close eye on the silver as it tends to perform the weakest during commodity breaks. I believe that the rally Tuesday and into Tuesday night in the silver was panic/mania and that it went a little too far. It is still sitting in my old sell zone of $15.70 to $16.10, but I am waiting to sell it. I would look at a violation of the metal trendlines as an opportunity to enter a short with the weekly head and shoulders projection still sitting in the low $14's.
Grains- When asked about a month ago how I felt about selling grains I responded that I was looking for the March Wheat to rally into the $5.07 to $5.11 area to wait to sell it and other grains. Extrapolated to the volume traded May contract that is values between $15.18 to $15.23 roughly. Tuesday Wheat rallied right into this zone, held, and rejected sharply out of it yesterday. With the reports on the South American crop continuing to improve and with soybeans reaching my recovery level of $9.60 to $9.70 I believe that it is better to sell rallies in the grains than buy dips going forward.
Wednesday, February 17, 2010
Wednesday 2/17/10 Commodity Ideas
Opening Note:
Commodities began yesterday on a positive note overnight and with large buying on the open and throughout the rest of the day closed with their largest gains in a single day as a group for 2010. Commodities having a nice day up was not surprising to me, but the magnitude of the day caught me off guard and with no explanation for why it happened or what was the real story behind it. The only time you will see me with the television on a financial station is if an important number is being released, yet I found myself turning to it just to hear what others were making of the move. It was when I analyzed the statement that I repeatedly heard, "Dollar weakness rallies commodities" that the light bulb came on. This was not a dollar story nor a vote of confidence for Europe, but rather it was a "Commodity Story". While many of the physical commodity markets were opening the Euro and Pound were sitting only in slightly positive territory while Crude and Copper were rallying animal-style. Only at 9:30 a.m. yesterday did the European currencies really begin to rally, almost as just a concession to the commodity correlation "because it is supposed to". I do not believe that the rally yesterday was a true piling into the Euro, and the real story here is that people would rather own physical commodities rather than European currencies, or currencies at all for that matter. Spreading commodity markets against currencies can be tricky to chart and properly execute for the result you are seeking, but in the Put on the Radar section I discuss a few of the relationships that caught my eye.
Because I am confused by the V bottom commodities are making, and I believe that the market is just about as confused, I am staying flat other than relationship trades for the time being. Technicals have continually set off patterns or signals followed by rejections and points of support and resistance seem to have little significance within the market movement right now. The best technical trade honestly has been finding a trendline and buying or selling off of it, which I have learned the hard way over time is not a great strategy. Furthermore, trading a fundamental story has also been extremely difficult as the swings have been volatile and hard to withstand. I recommend taking profits on day trades if you have them and looking for intra-day momentum as these have been the most predictable moves to capture.
Buys to Watch:
Canadian Dollar - British Pound- This cross rate looked strong coming into yesterday morning as the Aussie and Canadian rallied while the European currencies sat fairly idle. However, this changed when the Euro and Pound began to rally at 9:30 a.m, giving back any gains on the day and closing lower. Despite the European currency rally the Pound still was the weakest gainer percentage wise to the Euro and Swiss Franc, which supports my theory that it has the weakest volatility on rallies, making this trade much more stable than versus the Euro. A weekly cup and handle "W" pattern remains intact above -6249 with a projection to -5188. I still believe that European currencies will remain the lagger of the currency sector with resource "commodity" rich economies like Canada's outperforming them. This should be looked at as a longer term trade that may take 2 or 3 months to complete. Below -6350 the trade does not look as promising for the time being and would be a good place to abandon it. The Canadian vs. Euro chart also looks strong with a better short term uptrend, but obviously with more painful volatility. Note: Stochastics gave a sell signal yesterday in overbought territory on the daily chart so take this into consideration.
Sells to Watch: You can get very hurt and run over selling individual commodity rallies right now, so I have nothing
Put on the Radar: If you would like further help charting or how to execute the trades below email me because it can be tricky to calculate tick size and expected volatility across commodities.
Gold/Euro- My officemate has talked up this chart for the last few weeks, but because there are about 4 different fundamental reasons to buy gold I have slightly ignored it as the reasoning behind it escaped me. Gold can be used as a currency substitute, a run to safety, an investment, and it actually has a couple physical uses. After the light bulb went off yesterday afternoon though I think I finally understand the chart a little better, as it is saying that commodities as an investment are stronger and better to own than European currencies. We had debated whether it was a buy or sell signal for commodities as a whole, but I think that it is saying right now that regardless of commodity price direction they are outperforming the Euro. The market is sitting just off of it's all time highs of 8185 and with an elongated triangle/wedge breakout projects to about 8770 if it can close above the old highs.
Crude Oil/British Pound- I looked at the Crude vs. Euro initially, but I like the technical look of this chart better. A double bottom pattern was set off with yesterdays action above the 4845 close on Feb. 3rd. It has a projection to 51.40. Looking at Crude Oil alone I am not a big fan of the chart technically, as the reversal pattern that it is setting up has a lower bottom on the most recent leg down, whereas this chart has a double bottom. I have found that the projections are not as strong or accurate when this second bottom is lower than the first, so this chart looks like a potentially better way to play crude oil as well as the commodity vs. European currency story.
Dow- Crude Oil- I am putting this chart in the put on the radar section as it appears on the verge of a convincing break out of a reversal triangle formation. Draw the top from Dec. 14th to Jan. 21st and the bottom from Jan. 6th to Feb. 2nd for the best view. Commodities, and especially crude oil, have rallied hard over the last week, but this chart is showing that a bigger move could continue as commodities gain strength on equities.
Euro/Yen Cross- Fueled by a fairly large Yen break today the Cross is up again today after a large rally yesterday. On the YR symbol CQG chart it has set off a bullish cup and handle projection that projects to about 126.90 or just near the top of the swing high from Feb. 3rd. I still have the trendline though from the low of Feb. 5th to Feb 9th on my chart as it may have difficulty rallying above it at 125 today. This is a bullish signal for commodities and equities for the short time being.
Notes:
Sugar- Sugar has gone from one of the better looking charts over the beginning of the year to one of the worst looking charts right now in about two weeks. It is severely under performing the other commodities for right now and is down again today while most of my board is slightly green. If there is one you are going to sell then look at this one.
Silver- Basically everything that could have gone wrong against this trade did go wrong yesterday. The Gold vs. Silver ratio had it's first significant down day in a while, the silver rallied straight through the sell zone on the tails of gold and the rest of commodity world, and a 20 cent rally at 8:30 p.m. last night on Asian buying or a margin blowout took out a number of good stop areas. This is one that stings for me because it looked like a great setup, but the conditions all over were just not right.
Commodities began yesterday on a positive note overnight and with large buying on the open and throughout the rest of the day closed with their largest gains in a single day as a group for 2010. Commodities having a nice day up was not surprising to me, but the magnitude of the day caught me off guard and with no explanation for why it happened or what was the real story behind it. The only time you will see me with the television on a financial station is if an important number is being released, yet I found myself turning to it just to hear what others were making of the move. It was when I analyzed the statement that I repeatedly heard, "Dollar weakness rallies commodities" that the light bulb came on. This was not a dollar story nor a vote of confidence for Europe, but rather it was a "Commodity Story". While many of the physical commodity markets were opening the Euro and Pound were sitting only in slightly positive territory while Crude and Copper were rallying animal-style. Only at 9:30 a.m. yesterday did the European currencies really begin to rally, almost as just a concession to the commodity correlation "because it is supposed to". I do not believe that the rally yesterday was a true piling into the Euro, and the real story here is that people would rather own physical commodities rather than European currencies, or currencies at all for that matter. Spreading commodity markets against currencies can be tricky to chart and properly execute for the result you are seeking, but in the Put on the Radar section I discuss a few of the relationships that caught my eye.
Because I am confused by the V bottom commodities are making, and I believe that the market is just about as confused, I am staying flat other than relationship trades for the time being. Technicals have continually set off patterns or signals followed by rejections and points of support and resistance seem to have little significance within the market movement right now. The best technical trade honestly has been finding a trendline and buying or selling off of it, which I have learned the hard way over time is not a great strategy. Furthermore, trading a fundamental story has also been extremely difficult as the swings have been volatile and hard to withstand. I recommend taking profits on day trades if you have them and looking for intra-day momentum as these have been the most predictable moves to capture.
Buys to Watch:
Canadian Dollar - British Pound- This cross rate looked strong coming into yesterday morning as the Aussie and Canadian rallied while the European currencies sat fairly idle. However, this changed when the Euro and Pound began to rally at 9:30 a.m, giving back any gains on the day and closing lower. Despite the European currency rally the Pound still was the weakest gainer percentage wise to the Euro and Swiss Franc, which supports my theory that it has the weakest volatility on rallies, making this trade much more stable than versus the Euro. A weekly cup and handle "W" pattern remains intact above -6249 with a projection to -5188. I still believe that European currencies will remain the lagger of the currency sector with resource "commodity" rich economies like Canada's outperforming them. This should be looked at as a longer term trade that may take 2 or 3 months to complete. Below -6350 the trade does not look as promising for the time being and would be a good place to abandon it. The Canadian vs. Euro chart also looks strong with a better short term uptrend, but obviously with more painful volatility. Note: Stochastics gave a sell signal yesterday in overbought territory on the daily chart so take this into consideration.
Sells to Watch: You can get very hurt and run over selling individual commodity rallies right now, so I have nothing
Put on the Radar: If you would like further help charting or how to execute the trades below email me because it can be tricky to calculate tick size and expected volatility across commodities.
Gold/Euro- My officemate has talked up this chart for the last few weeks, but because there are about 4 different fundamental reasons to buy gold I have slightly ignored it as the reasoning behind it escaped me. Gold can be used as a currency substitute, a run to safety, an investment, and it actually has a couple physical uses. After the light bulb went off yesterday afternoon though I think I finally understand the chart a little better, as it is saying that commodities as an investment are stronger and better to own than European currencies. We had debated whether it was a buy or sell signal for commodities as a whole, but I think that it is saying right now that regardless of commodity price direction they are outperforming the Euro. The market is sitting just off of it's all time highs of 8185 and with an elongated triangle/wedge breakout projects to about 8770 if it can close above the old highs.
Crude Oil/British Pound- I looked at the Crude vs. Euro initially, but I like the technical look of this chart better. A double bottom pattern was set off with yesterdays action above the 4845 close on Feb. 3rd. It has a projection to 51.40. Looking at Crude Oil alone I am not a big fan of the chart technically, as the reversal pattern that it is setting up has a lower bottom on the most recent leg down, whereas this chart has a double bottom. I have found that the projections are not as strong or accurate when this second bottom is lower than the first, so this chart looks like a potentially better way to play crude oil as well as the commodity vs. European currency story.
Dow- Crude Oil- I am putting this chart in the put on the radar section as it appears on the verge of a convincing break out of a reversal triangle formation. Draw the top from Dec. 14th to Jan. 21st and the bottom from Jan. 6th to Feb. 2nd for the best view. Commodities, and especially crude oil, have rallied hard over the last week, but this chart is showing that a bigger move could continue as commodities gain strength on equities.
Euro/Yen Cross- Fueled by a fairly large Yen break today the Cross is up again today after a large rally yesterday. On the YR symbol CQG chart it has set off a bullish cup and handle projection that projects to about 126.90 or just near the top of the swing high from Feb. 3rd. I still have the trendline though from the low of Feb. 5th to Feb 9th on my chart as it may have difficulty rallying above it at 125 today. This is a bullish signal for commodities and equities for the short time being.
Notes:
Sugar- Sugar has gone from one of the better looking charts over the beginning of the year to one of the worst looking charts right now in about two weeks. It is severely under performing the other commodities for right now and is down again today while most of my board is slightly green. If there is one you are going to sell then look at this one.
Silver- Basically everything that could have gone wrong against this trade did go wrong yesterday. The Gold vs. Silver ratio had it's first significant down day in a while, the silver rallied straight through the sell zone on the tails of gold and the rest of commodity world, and a 20 cent rally at 8:30 p.m. last night on Asian buying or a margin blowout took out a number of good stop areas. This is one that stings for me because it looked like a great setup, but the conditions all over were just not right.
Tuesday, February 16, 2010
Tuesday 2/16/10 Commodity Ideas
Opening Note:
Over the last couple years one of my new favorite market indicators has not been a market, a currency cross rate, or a chart, but rather has been China's economic policy. China always seems to be a couple months ahead of the U.S. and the rest of the world in their central bank and government action. Whether it was cutting lending rates in 2007 before the rest of the world, beginning a stockpiling program of commodities last spring, cutting off commodity buying before the highs during the fall, or raising reserve requirements for banks twice recently they have acted well before it was popular in the rest of the world. Last Wednesday I received news of their second reserve requirement ratio increase for the year as they look to cut riskier asset and market speculation as well as lending. The Chinese obviously see another round of trouble coming economically and are proactively trying to set themselves up for prosperity in the long term and to limit the damage accumulated in the short term. I view their actions as a negative indicator for equities and commodities in the coming months as they have correctly front-run a lot of the general market price moves over the last few years, and is another reason I remain fundamentally bearish on the market for the next year.
Getting to market action over yesterday's holiday and overnight; as could be expected the markets were relatively quiet yesterday, but cumulatively with overnight action have seen a slight rally with Gold, Crude oil, and Copper leading the way. This is a continuation of the action from Friday afternoon that saw strong 15 minute chart patterns in equities facilitate rallies into high closes. While commodities appeared weaker during the equity rally this is not the case today as many have recovered ground against the stock market indexes. I still see flag consolidation patterns waiting to be set off across many of the sectors that have strong bearish projections, but with many of the markets failing to hold new lows it appears that they could also be setting up cup and handle reversal patterns to fuel a rally. I would continue to use caution while trading the markets as more than a day trade as they continue to sit in a consolidation range with news and money flow causing the majority of volatility across the board. I still maintain however that unless these markets show a rally breakout above their consolidation ranges (W or cup and handle patterns) that the best opportunity going forward is selling commodities and equities.
Buys to Watch:
Canadian Dollar vs. British Pound- I have been talking this trade up since last Thursday and I still really like it from a technical and fundamental perspective. On a weekly chart a cup and handle "W" pattern has been set off above -6249 that has a projection to -5188 with only a spike of resistance left on the chart at -5656 from it's highs in last January. This is a trade on the idea that Europe is bad while Canada is not as bad, and because of the markets chosen, has less detrimental volatility. Although the Canadian Dollar may not be the strength on foreign currency rallies it is often the strength on foreign currency breaks with a lower percentage decrease than the Australian Dollar it often moves similar to. Furthermore, the British Pound has continued to be the lagger among the foreigns with very little upside volatility on positive sector days. This is a good longer term trade with the move likely coming over the next few months. A break back into the -6170 to -6150 range would be optimal for entry, with a move below -6225 likely leading to -6300, so you can place fairly tight stops.
Sells to Watch:
Silver- It is convincingly in it's sell zone from $15.70 to $16.10 right now. Silver has rallied largely over the last two days on gold's strength, but this is a strong sell zone that I have kept an eye on for the last six or seven days. Much of the silver action could depend on Gold as it approaches a reversal pattern breakout at $1126.4. The gold reversal move seems a little forced to me so I do not have a high confidence that it will hold this breakout if it continues, but if it does silver should rally out of the top of the sell zone. To be fair to the trade i think that a reasonable buy stop should be placed at $16.27 at least. I believe that this is the best rally to sell currently. If you would like some protection you can also buy gold with it and sell off the gold side when the market breaks out of the sell zone, as gold should remain stronger than silver if it set off it's bullish reversal pattern.
Put on the Radar:
Dollar Index- The price action over the last few days in the market has caused me more concern so I would not recommend immediate entry but wait for confirmation before entering. Along with the Euro, the Dollar Index led some of the currency sector with moves out of their consolidation formation. Friday's close confirmed the rally breakout, but after testing it's highs the market failed to hold them and closed well off them by the end of the day. Today it is again performing weaker and a close below 8000 would be alarming to me as I would no longer look to sell. I do not see good entry points in the market right now as well and a new consolidation low close would set off a small double top pattern, so more reasons to watch this one and wait for entry till later.
Euro- The Euro has moved very similar to the Dollar Index (opposite direction of course) in that it led the foreign currencies with a downside breakout of consolidation. However, it also tested it's lows during the consolidation and failed to hold them and has shown some strength over the last couple days. Fundamentally this is likely the weakest currency, but I would hold off on entry right now because I do not see good points like the Dollar. I see a small single print reversal zone from 136.98 to 137.05 on the market profile chart as the best sell zone above to watch though. A rally above 138.40 would take this off of the sell list as a cup and handle breakout. If you are already short I would consider lightening your position or waiting for above 138.40 for your stop.
Euro/Yen Cross Rate- Like the rest of the currencies it is sideways to up slightly today while continuing to sit in a consolidation range. It has broken it's bottom trendline setting off a projection to 118 on it's flag pattern, but still looks to be in a sideways range. Just keep this one on your radar right now for incite into future stock market action as it tends to lead equity moves.
S&P 500- The 1080 level was fairly critical on the chart and a 1 a.m. rally went straight through it with little regard. I had a sell zone from 1077.5 to 1083.5 and the market is currently sitting just above it. I would hold off on selling the stock indexes right now as they have acted strong lately and have one of the largest buying money flows. The S&P and the Dow have also shown sector weakness compared to the NASDAQ so these are the one's to trade if you are going to sell.
Notes:
July - November Soybean Spread- With a rally above 40 cents overnight I am officially out of my short on the spread. It has had volatile swings over the last week with continued buying pressure up to the 40 cent level. This is at least the fourth time it has tested this resistance and it is clear that there are enough people that want to own it on the basis that bean supplies in the U.S. will be tightened some time this spring. I would step out of the way on this if you are trying to short it and look for another spot later in the spring to try again.
Over the last couple years one of my new favorite market indicators has not been a market, a currency cross rate, or a chart, but rather has been China's economic policy. China always seems to be a couple months ahead of the U.S. and the rest of the world in their central bank and government action. Whether it was cutting lending rates in 2007 before the rest of the world, beginning a stockpiling program of commodities last spring, cutting off commodity buying before the highs during the fall, or raising reserve requirements for banks twice recently they have acted well before it was popular in the rest of the world. Last Wednesday I received news of their second reserve requirement ratio increase for the year as they look to cut riskier asset and market speculation as well as lending. The Chinese obviously see another round of trouble coming economically and are proactively trying to set themselves up for prosperity in the long term and to limit the damage accumulated in the short term. I view their actions as a negative indicator for equities and commodities in the coming months as they have correctly front-run a lot of the general market price moves over the last few years, and is another reason I remain fundamentally bearish on the market for the next year.
Getting to market action over yesterday's holiday and overnight; as could be expected the markets were relatively quiet yesterday, but cumulatively with overnight action have seen a slight rally with Gold, Crude oil, and Copper leading the way. This is a continuation of the action from Friday afternoon that saw strong 15 minute chart patterns in equities facilitate rallies into high closes. While commodities appeared weaker during the equity rally this is not the case today as many have recovered ground against the stock market indexes. I still see flag consolidation patterns waiting to be set off across many of the sectors that have strong bearish projections, but with many of the markets failing to hold new lows it appears that they could also be setting up cup and handle reversal patterns to fuel a rally. I would continue to use caution while trading the markets as more than a day trade as they continue to sit in a consolidation range with news and money flow causing the majority of volatility across the board. I still maintain however that unless these markets show a rally breakout above their consolidation ranges (W or cup and handle patterns) that the best opportunity going forward is selling commodities and equities.
Buys to Watch:
Canadian Dollar vs. British Pound- I have been talking this trade up since last Thursday and I still really like it from a technical and fundamental perspective. On a weekly chart a cup and handle "W" pattern has been set off above -6249 that has a projection to -5188 with only a spike of resistance left on the chart at -5656 from it's highs in last January. This is a trade on the idea that Europe is bad while Canada is not as bad, and because of the markets chosen, has less detrimental volatility. Although the Canadian Dollar may not be the strength on foreign currency rallies it is often the strength on foreign currency breaks with a lower percentage decrease than the Australian Dollar it often moves similar to. Furthermore, the British Pound has continued to be the lagger among the foreigns with very little upside volatility on positive sector days. This is a good longer term trade with the move likely coming over the next few months. A break back into the -6170 to -6150 range would be optimal for entry, with a move below -6225 likely leading to -6300, so you can place fairly tight stops.
Sells to Watch:
Silver- It is convincingly in it's sell zone from $15.70 to $16.10 right now. Silver has rallied largely over the last two days on gold's strength, but this is a strong sell zone that I have kept an eye on for the last six or seven days. Much of the silver action could depend on Gold as it approaches a reversal pattern breakout at $1126.4. The gold reversal move seems a little forced to me so I do not have a high confidence that it will hold this breakout if it continues, but if it does silver should rally out of the top of the sell zone. To be fair to the trade i think that a reasonable buy stop should be placed at $16.27 at least. I believe that this is the best rally to sell currently. If you would like some protection you can also buy gold with it and sell off the gold side when the market breaks out of the sell zone, as gold should remain stronger than silver if it set off it's bullish reversal pattern.
Put on the Radar:
Dollar Index- The price action over the last few days in the market has caused me more concern so I would not recommend immediate entry but wait for confirmation before entering. Along with the Euro, the Dollar Index led some of the currency sector with moves out of their consolidation formation. Friday's close confirmed the rally breakout, but after testing it's highs the market failed to hold them and closed well off them by the end of the day. Today it is again performing weaker and a close below 8000 would be alarming to me as I would no longer look to sell. I do not see good entry points in the market right now as well and a new consolidation low close would set off a small double top pattern, so more reasons to watch this one and wait for entry till later.
Euro- The Euro has moved very similar to the Dollar Index (opposite direction of course) in that it led the foreign currencies with a downside breakout of consolidation. However, it also tested it's lows during the consolidation and failed to hold them and has shown some strength over the last couple days. Fundamentally this is likely the weakest currency, but I would hold off on entry right now because I do not see good points like the Dollar. I see a small single print reversal zone from 136.98 to 137.05 on the market profile chart as the best sell zone above to watch though. A rally above 138.40 would take this off of the sell list as a cup and handle breakout. If you are already short I would consider lightening your position or waiting for above 138.40 for your stop.
Euro/Yen Cross Rate- Like the rest of the currencies it is sideways to up slightly today while continuing to sit in a consolidation range. It has broken it's bottom trendline setting off a projection to 118 on it's flag pattern, but still looks to be in a sideways range. Just keep this one on your radar right now for incite into future stock market action as it tends to lead equity moves.
S&P 500- The 1080 level was fairly critical on the chart and a 1 a.m. rally went straight through it with little regard. I had a sell zone from 1077.5 to 1083.5 and the market is currently sitting just above it. I would hold off on selling the stock indexes right now as they have acted strong lately and have one of the largest buying money flows. The S&P and the Dow have also shown sector weakness compared to the NASDAQ so these are the one's to trade if you are going to sell.
Notes:
July - November Soybean Spread- With a rally above 40 cents overnight I am officially out of my short on the spread. It has had volatile swings over the last week with continued buying pressure up to the 40 cent level. This is at least the fourth time it has tested this resistance and it is clear that there are enough people that want to own it on the basis that bean supplies in the U.S. will be tightened some time this spring. I would step out of the way on this if you are trying to short it and look for another spot later in the spring to try again.
Friday, February 12, 2010
Friday 2/12/10 Midday Update
Coming into today commodities and equities have given up a bit of yesterday's rally and many are sitting at or near the bases of their consolidation rally trendline from this week. On a 15 minute chart the stock indexes and other markets have tried to establish an uptrend and bullish patterns since their open off of this base to facilitate a rally, and while stocks have had a little more success today than others, many have not shown significant upside. The question of the day is whether the people sitting long are willing to go home over the long weekend with their positions or if the market will break the base causing what I believe should be further long liquidation, and potentially massive. With Stochastic indicators giving buy signals earlier in the week to the trend followers, cyclical traders adding longs as they believe the market should rally into the spring, and funds getting back in the market long again after liquidating two weeks ago I believe that there is new ammo for this large liquidation in the near future.
This intraday rally may occur as money looks to protect it's position with a place to buy against. However, the breakout of some of the currencies below this consolidation rally is a telling indicator as they have front run most of the large equity and commodity moves this year. The market must continue to rally to hold this base that it has built and new money does not seem to be buying that. Large flag patterns will be set off to the downside as the market extended the rally off of the timely Greece rumor that hit the market Tuesday.
I strongly recommend not going home long over the extended weekend. Unless you have inside information on a Greece over the weekend (if you do please let me know), I see little else that is going to save the market. If the breakout below consolidation does not happen today I feel fairly confident that it will early next week without the blockbuster save or new stimulus plans.
This intraday rally may occur as money looks to protect it's position with a place to buy against. However, the breakout of some of the currencies below this consolidation rally is a telling indicator as they have front run most of the large equity and commodity moves this year. The market must continue to rally to hold this base that it has built and new money does not seem to be buying that. Large flag patterns will be set off to the downside as the market extended the rally off of the timely Greece rumor that hit the market Tuesday.
I strongly recommend not going home long over the extended weekend. Unless you have inside information on a Greece over the weekend (if you do please let me know), I see little else that is going to save the market. If the breakout below consolidation does not happen today I feel fairly confident that it will early next week without the blockbuster save or new stimulus plans.
Friday 2/12/10 Commodity Ideas
*There will be no newletter Monday due to President's Day and some markets closed
Opening Note:
Boy do they not make this an easy game to play. Coming into yesterday the commodity and equity markets were showing signs of moderate strength after bouncing off their bottom side trendline. The currency market however, was painting a different picture as the Euro, Dollar Index, and Euro/Yen Cross all broke out of consolidation formations giving a bearish commodity and equity signal. Despite the currencies displaying market weakness, commodities and equities set up a base on a 15 minute intraday chart and rallied above an upside breakout point fueling a massive long entry and short covering rally that had little regard for resistance and in some cases continued more than 3 times the small intraday projection (see Copper and Nasdaq). Furthermore, contrary to what one might expect, there was little to no break off of this large rally into the close, which signals to me that there was minimal profit taking on the long side. Fast forward to today, the currencies I listed above have not only maintained their breakouts, but gained bearish market momentum causing commodities and equities to already give back a significant portion of yesterday's rally. I was trying to rationalize yesterday how the market could take the weakness of the Euro and turn it into bullish sentiment, but failed to find a way that you can sensibly do this. Whether it is a story of the EU devaluing the Euro by printing money to save Greece, an isolated lending problem that will only affect Greece (I doubt it), or that it is only Europe in trouble and the U.S. is fine I can not rationally buy into the idea. We do not live in an isolationist country and as the global economy goes so does the U.S. (we kind of messed up Europe on the subprime blowout). Either the currencies or the commodity market has to give at some point, and I lean towards believing the currencies as I see money being thrown at the other markets and psychological tactics to fuel rallies and to scare shorts. I still do not recommend picking tops to sell, but rather waiting for a breakout below consolidation to sell as the manic bull money can move it when it wants and has plenty of spots to buy off of, but I do not encourage buying on more than a day trade level as I think that the currencies will again lead the way down.
Buys to Watch:
Dollar Index- The dollar index had quite a scary break on the equity and commodity rally this last week, but despite yesterday's action has held up fairly well. Today it has convincingly broken out of the topside consolidation trendline of 8010 and actually rallied off of it on the low end of it's range. The only thing left to take out is the 8082 high trade, which it has tested today. The currencies have the best story of all the sectors right now, with less two-sided volatility, and I belive that the Dollar Index will continue to form a new leg above the last weeks consolidation. I am looking at this formation as a flag on the rally from the prior two weeks with a 3 point rally from it's base giving a projection of roughly 82.80.
Canadian Dollar vs. British Pound- I put this in the put on the radar section yesterday, but the more I look at it the more I like this trade as a hedged "Europe is bad" position that has some nuances adding to it's value. Although the Euro has had the worst action over the last two days I look at the British Pound chart as the worst because it had only a small rally off it's lows over the last week and also suffers when the Euro does. The Canadian has sat in mostly a sideways range while many of it's comparables like the Aussie have shown weaker action and higher volatilty. Because the Canadian has less downside volatility and the Pound looks like a ton of bricks with little upside volatility I believe this is a way to play a deflating Europe story with minimal risk (it works on days the pound rallies even, like yesterday). I am looking at a cup and handle "W" pattern on the weekly chart with a 6249 breakout and a projection to 5188. The spread is currently sitting at 6104 so you can look for entry on a pullback and other than a spike of resistance at 5656, halfway to it's projection, the trade is basically in open water. Because I think this is a pound is bad story I would also consider weighting the pound side slightly more, so I would sell 2 pounds for each Canuck, making it $12.50 for each pound tick and $10 for each Canadian tick.
Sells to Watch:
Euro- This is the weakest thing on the board right now as the European lending crisis unfolds further. It saw a decent rally on the Greece bailout news, but I believe the trade has sold the fact that the EU is going to have to shell out to solve the problem, and it is very probable that other countries face similar troubles. News can cause big short covering rallies in this so be mindful and have a stop in when short. Be mindful that like the Dollar Index it still needs to take out and hold prices below the 135.84 previous low. I am looking at this as more than just a pullback on the chart despite holding it's downtrend and more as a consolidation continuation like the Dollar with a projection to around 129. I would wait for a pullback for entry as it could give some jiggles and I see 136.00 as a decent spot and between 136.35 and 136.50 an even better one.
Silver- The silver has been awful compared to the gold and finally rallied into the $15.70 to $16.10 low volume sell range that I have been touting for the last week. Silver has led the way down on the commodity break, as one of the first indicators, and should continue to perform poorly as the highly speculated inflation trade unwinds. If it rallies into the sell zone again I would sell it there, but I believe that it may not reach that point again. Instead I would look at selling silver against buying gold for entry and removing the gold portion of the trade as it shows weakness. Look for a pullback to the 311 price on the gold vs silver chart as a possible entry point (Gold - Silver/2). The weekly head and shoulders top projection stands in the low $14 range still as it has not been met.
Put on the Radar:
Euro/Yen Cross- The cross has shown a little strength this morning on a Yen break, causing a rally off of its lows. It remains broken out to the downside below it's consolidation formation with a trendline level of 123.40 today on the YR symbol CQG chart. I do not think this is the best chart to trade however, as I have given a number of other currency plays, but is the one to watch as an indicator of future market action as equities tend to follow it.
July- November Soybean Spread- It was kind of a heartattack trade but my 42 1/4 buy stop did not get hit as the spread rallied above 40 but failed. It gave one last try before the close yesterday but sold off in the last fifteen minutes to close at 36. More long covering took place overnight breaking the price to 33 cents. The spread held it's topside trendline with an unviolating close and it looks to be in a downward channel as it continues to make lower highs and lower lows. I would look at taking some shorts off around the 20 cent price level as there should be support, but given five or six days to break the down channel bottom sits around 10 to 12 cents, which would be a nice price target to cover. If the spread catches a bid and tests the 40 cent level again I would likely cover it as I think it is more trouble than the reward.
S&P 500- The 1080 level on the chart looks to be a large resistance point. I am looking for the market to hold this level with a sell zone between 1077.50 and 1083.50. It may test it again, but I believe it should hold with the currencies giving red flashing sell signals. This is not a good sector to try and pick the top on though so I would keep this on your radar and wait for confirmation. The S&P has been the weakest of the indicators as the financials struggle to catch a bid so I would avoide the Nasdaq for right now even though it can give better volatility.
Notes:
Grains- The grains appear to be on another planet from the rest of the world. While the market fell apart at the end of January the grains sat in a tight sideways range, and again during the last week's rally have sat in a choppy sideways range, refusing to catch a significant bid. There is very little coorellation to outside factors so the trade appears to be focused on fundamentals as the planting season ensues.
Bean Oil vs. Soy Meal- The trade is tired and can not hold an upside breakout despite a soybean and energy rally. Without more bullish fundamental news I believe it is a dead story and would not focus on it anymore as there are better moves happening.
Opening Note:
Boy do they not make this an easy game to play. Coming into yesterday the commodity and equity markets were showing signs of moderate strength after bouncing off their bottom side trendline. The currency market however, was painting a different picture as the Euro, Dollar Index, and Euro/Yen Cross all broke out of consolidation formations giving a bearish commodity and equity signal. Despite the currencies displaying market weakness, commodities and equities set up a base on a 15 minute intraday chart and rallied above an upside breakout point fueling a massive long entry and short covering rally that had little regard for resistance and in some cases continued more than 3 times the small intraday projection (see Copper and Nasdaq). Furthermore, contrary to what one might expect, there was little to no break off of this large rally into the close, which signals to me that there was minimal profit taking on the long side. Fast forward to today, the currencies I listed above have not only maintained their breakouts, but gained bearish market momentum causing commodities and equities to already give back a significant portion of yesterday's rally. I was trying to rationalize yesterday how the market could take the weakness of the Euro and turn it into bullish sentiment, but failed to find a way that you can sensibly do this. Whether it is a story of the EU devaluing the Euro by printing money to save Greece, an isolated lending problem that will only affect Greece (I doubt it), or that it is only Europe in trouble and the U.S. is fine I can not rationally buy into the idea. We do not live in an isolationist country and as the global economy goes so does the U.S. (we kind of messed up Europe on the subprime blowout). Either the currencies or the commodity market has to give at some point, and I lean towards believing the currencies as I see money being thrown at the other markets and psychological tactics to fuel rallies and to scare shorts. I still do not recommend picking tops to sell, but rather waiting for a breakout below consolidation to sell as the manic bull money can move it when it wants and has plenty of spots to buy off of, but I do not encourage buying on more than a day trade level as I think that the currencies will again lead the way down.
Buys to Watch:
Dollar Index- The dollar index had quite a scary break on the equity and commodity rally this last week, but despite yesterday's action has held up fairly well. Today it has convincingly broken out of the topside consolidation trendline of 8010 and actually rallied off of it on the low end of it's range. The only thing left to take out is the 8082 high trade, which it has tested today. The currencies have the best story of all the sectors right now, with less two-sided volatility, and I belive that the Dollar Index will continue to form a new leg above the last weeks consolidation. I am looking at this formation as a flag on the rally from the prior two weeks with a 3 point rally from it's base giving a projection of roughly 82.80.
Canadian Dollar vs. British Pound- I put this in the put on the radar section yesterday, but the more I look at it the more I like this trade as a hedged "Europe is bad" position that has some nuances adding to it's value. Although the Euro has had the worst action over the last two days I look at the British Pound chart as the worst because it had only a small rally off it's lows over the last week and also suffers when the Euro does. The Canadian has sat in mostly a sideways range while many of it's comparables like the Aussie have shown weaker action and higher volatilty. Because the Canadian has less downside volatility and the Pound looks like a ton of bricks with little upside volatility I believe this is a way to play a deflating Europe story with minimal risk (it works on days the pound rallies even, like yesterday). I am looking at a cup and handle "W" pattern on the weekly chart with a 6249 breakout and a projection to 5188. The spread is currently sitting at 6104 so you can look for entry on a pullback and other than a spike of resistance at 5656, halfway to it's projection, the trade is basically in open water. Because I think this is a pound is bad story I would also consider weighting the pound side slightly more, so I would sell 2 pounds for each Canuck, making it $12.50 for each pound tick and $10 for each Canadian tick.
Sells to Watch:
Euro- This is the weakest thing on the board right now as the European lending crisis unfolds further. It saw a decent rally on the Greece bailout news, but I believe the trade has sold the fact that the EU is going to have to shell out to solve the problem, and it is very probable that other countries face similar troubles. News can cause big short covering rallies in this so be mindful and have a stop in when short. Be mindful that like the Dollar Index it still needs to take out and hold prices below the 135.84 previous low. I am looking at this as more than just a pullback on the chart despite holding it's downtrend and more as a consolidation continuation like the Dollar with a projection to around 129. I would wait for a pullback for entry as it could give some jiggles and I see 136.00 as a decent spot and between 136.35 and 136.50 an even better one.
Silver- The silver has been awful compared to the gold and finally rallied into the $15.70 to $16.10 low volume sell range that I have been touting for the last week. Silver has led the way down on the commodity break, as one of the first indicators, and should continue to perform poorly as the highly speculated inflation trade unwinds. If it rallies into the sell zone again I would sell it there, but I believe that it may not reach that point again. Instead I would look at selling silver against buying gold for entry and removing the gold portion of the trade as it shows weakness. Look for a pullback to the 311 price on the gold vs silver chart as a possible entry point (Gold - Silver/2). The weekly head and shoulders top projection stands in the low $14 range still as it has not been met.
Put on the Radar:
Euro/Yen Cross- The cross has shown a little strength this morning on a Yen break, causing a rally off of its lows. It remains broken out to the downside below it's consolidation formation with a trendline level of 123.40 today on the YR symbol CQG chart. I do not think this is the best chart to trade however, as I have given a number of other currency plays, but is the one to watch as an indicator of future market action as equities tend to follow it.
July- November Soybean Spread- It was kind of a heartattack trade but my 42 1/4 buy stop did not get hit as the spread rallied above 40 but failed. It gave one last try before the close yesterday but sold off in the last fifteen minutes to close at 36. More long covering took place overnight breaking the price to 33 cents. The spread held it's topside trendline with an unviolating close and it looks to be in a downward channel as it continues to make lower highs and lower lows. I would look at taking some shorts off around the 20 cent price level as there should be support, but given five or six days to break the down channel bottom sits around 10 to 12 cents, which would be a nice price target to cover. If the spread catches a bid and tests the 40 cent level again I would likely cover it as I think it is more trouble than the reward.
S&P 500- The 1080 level on the chart looks to be a large resistance point. I am looking for the market to hold this level with a sell zone between 1077.50 and 1083.50. It may test it again, but I believe it should hold with the currencies giving red flashing sell signals. This is not a good sector to try and pick the top on though so I would keep this on your radar and wait for confirmation. The S&P has been the weakest of the indicators as the financials struggle to catch a bid so I would avoide the Nasdaq for right now even though it can give better volatility.
Notes:
Grains- The grains appear to be on another planet from the rest of the world. While the market fell apart at the end of January the grains sat in a tight sideways range, and again during the last week's rally have sat in a choppy sideways range, refusing to catch a significant bid. There is very little coorellation to outside factors so the trade appears to be focused on fundamentals as the planting season ensues.
Bean Oil vs. Soy Meal- The trade is tired and can not hold an upside breakout despite a soybean and energy rally. Without more bullish fundamental news I believe it is a dead story and would not focus on it anymore as there are better moves happening.
Thursday, February 11, 2010
Commodity Ideas Thursday 2/11/10
Opening Note:
Overnight commodities and equities have shown moderate strength with Copper, Aussie Dollar, Crude and Soybeans showing the most. It appears right now that the real game going on is more money flow than reason, making whatever the funds decide to come into long the real story for the day. The currencies, copper, crude, and to a lesser degree the stock indexes also seem to have a pretty good game of buy against the low uptrend going on right now. Despite some strong buying coming back into the market most of these rallies have done little to make up the difference in last week's losses across the board and currencies, which originally were the catalyst for the market break this year, look more like a triangle consolidation formation than a true rally. I have my eyes focused more on the currencies right now as they could again start a breakout to reluctantly lead the rest of the market. As long as the bulls have levels to buy against they will continue to, and often times with market running size. I would not focus on picking a top to sell in the market right now, but would hold out for downside breakouts from consolidation to wait to execute, as going with the money is much easier in this environment. I remain bearish on the overall market still and would only recommend buying against support on a day trade level as I believe that this rally does not look or feel like the ones from last year that really swung the market to new highs. Be cautious as news from the EU on the Greece bailout should continue to come out, which could be the catalyst either way out of this consolidation.
Buys to Watch:
Bean Oil vs. Soy Meal- The trade is becoming tired and reluctant to hold higher moves. Support still rests at 1050 with resistance at the November 16th high of 1177. As soybeans and crude have rallied I believed that the bean oil should have been supported more along with it's fundamental story, but the spread has sat mostly sideways to slightly up. I am close to taking this off the buys list as I believe that time can be focused better elsewhere in the coming days.
Sells to Watch:
July- November Soybean Spread- Depending on what you snap your topside trendline to it sits at 39 1/2 or 37 3/4 today. After failing hard on Monday and Tuesday against these levels, Wednesday painted a different picture as a strong rally all day ended with a close of 39 cents, just off the highs. Overnight the market rallied to 40 1/4, but fell back a cent and half before the 7:15 a.m. close. I do not feel as good about this trade as I did yesterday and I have my stop at 42 1/4. Above this level it should continue to rally and it is time to forget about it for a while. I believe that the fundamentals are bearish overall for the spread though as Chinese demand will likely begin to wane and with an enormous South American crop there is little reason to tighten the U.S. supplies. This will be one to revisit later in the spring if it rallies above 42 cents right now.
Put on the Radar:
Canadian Dollar vs. British Pound- The leader and the lagger in the currency market seems to change on a daily basis, but these two currencies have remained consistently strong and weak with less counter-move volatility. Looking at the weekly differential chart, other than a couple spikes the current level is above almost all of the price action for the last year, and basically in traded history. Like it did during the equity break in '08, the British Pound continues to be weak with the worries about Europe also spreading to the U.K. this is basically in open water right now historically and has a nice steady uptrend with the Canadian being relatively stable among the currencies. I believe this is a great relationship play on further market downside with minimal longer term risk.
Euro/Yen Cross- As I am writing this the Euro is breaking out below it's consolidation bottom trendline of 137.12 today and the Euro/Yen is resting on it's own at 12286. I believe the Euro/Yen should at least replicate it's move from Feb. 3rd to Feb. 5th if it holds it's breakout taking it to around 118 on the YR symbol CQG chart. With the Japanese Yen nearing the deflate the currency, government intervention 115 level I expect most of the Euro/Yen move to come from Euro downside and not Yen gains. As stocks tend to follow this spread, with about a month lag, a continuation downwards projects awfully for equities.
Notes:
I had a breakfast meeting this morning and am running out of time now, but I wanted to list a couple more resistance levels across the board for reference if they hold. I still recommend waiting for downside consolidation breakouts instead of trying to sell highs, but if you catch a long momentum run these are also levels to take profits. Please send me a message if you would like me to look at an individual market or chart as I did not have a lot of time to cover the board today.
NASDAQ (to sell S&P off of)- Resistance remains from 1757 to 1768 as the market had difficulty rallying into and holding these levels.
Silver- 15.70 to 16.10 is a large sell zone
Copper- $3.06 to $3.08
Crude Oil- A small sell zone at $76.10 with larger resistance at $76.75 - $76.80
Overnight commodities and equities have shown moderate strength with Copper, Aussie Dollar, Crude and Soybeans showing the most. It appears right now that the real game going on is more money flow than reason, making whatever the funds decide to come into long the real story for the day. The currencies, copper, crude, and to a lesser degree the stock indexes also seem to have a pretty good game of buy against the low uptrend going on right now. Despite some strong buying coming back into the market most of these rallies have done little to make up the difference in last week's losses across the board and currencies, which originally were the catalyst for the market break this year, look more like a triangle consolidation formation than a true rally. I have my eyes focused more on the currencies right now as they could again start a breakout to reluctantly lead the rest of the market. As long as the bulls have levels to buy against they will continue to, and often times with market running size. I would not focus on picking a top to sell in the market right now, but would hold out for downside breakouts from consolidation to wait to execute, as going with the money is much easier in this environment. I remain bearish on the overall market still and would only recommend buying against support on a day trade level as I believe that this rally does not look or feel like the ones from last year that really swung the market to new highs. Be cautious as news from the EU on the Greece bailout should continue to come out, which could be the catalyst either way out of this consolidation.
Buys to Watch:
Bean Oil vs. Soy Meal- The trade is becoming tired and reluctant to hold higher moves. Support still rests at 1050 with resistance at the November 16th high of 1177. As soybeans and crude have rallied I believed that the bean oil should have been supported more along with it's fundamental story, but the spread has sat mostly sideways to slightly up. I am close to taking this off the buys list as I believe that time can be focused better elsewhere in the coming days.
Sells to Watch:
July- November Soybean Spread- Depending on what you snap your topside trendline to it sits at 39 1/2 or 37 3/4 today. After failing hard on Monday and Tuesday against these levels, Wednesday painted a different picture as a strong rally all day ended with a close of 39 cents, just off the highs. Overnight the market rallied to 40 1/4, but fell back a cent and half before the 7:15 a.m. close. I do not feel as good about this trade as I did yesterday and I have my stop at 42 1/4. Above this level it should continue to rally and it is time to forget about it for a while. I believe that the fundamentals are bearish overall for the spread though as Chinese demand will likely begin to wane and with an enormous South American crop there is little reason to tighten the U.S. supplies. This will be one to revisit later in the spring if it rallies above 42 cents right now.
Put on the Radar:
Canadian Dollar vs. British Pound- The leader and the lagger in the currency market seems to change on a daily basis, but these two currencies have remained consistently strong and weak with less counter-move volatility. Looking at the weekly differential chart, other than a couple spikes the current level is above almost all of the price action for the last year, and basically in traded history. Like it did during the equity break in '08, the British Pound continues to be weak with the worries about Europe also spreading to the U.K. this is basically in open water right now historically and has a nice steady uptrend with the Canadian being relatively stable among the currencies. I believe this is a great relationship play on further market downside with minimal longer term risk.
Euro/Yen Cross- As I am writing this the Euro is breaking out below it's consolidation bottom trendline of 137.12 today and the Euro/Yen is resting on it's own at 12286. I believe the Euro/Yen should at least replicate it's move from Feb. 3rd to Feb. 5th if it holds it's breakout taking it to around 118 on the YR symbol CQG chart. With the Japanese Yen nearing the deflate the currency, government intervention 115 level I expect most of the Euro/Yen move to come from Euro downside and not Yen gains. As stocks tend to follow this spread, with about a month lag, a continuation downwards projects awfully for equities.
Notes:
I had a breakfast meeting this morning and am running out of time now, but I wanted to list a couple more resistance levels across the board for reference if they hold. I still recommend waiting for downside consolidation breakouts instead of trying to sell highs, but if you catch a long momentum run these are also levels to take profits. Please send me a message if you would like me to look at an individual market or chart as I did not have a lot of time to cover the board today.
NASDAQ (to sell S&P off of)- Resistance remains from 1757 to 1768 as the market had difficulty rallying into and holding these levels.
Silver- 15.70 to 16.10 is a large sell zone
Copper- $3.06 to $3.08
Crude Oil- A small sell zone at $76.10 with larger resistance at $76.75 - $76.80
Wednesday, February 10, 2010
Wednesday 2/10/10 Commodity Ideas
Opening Note:
After overnight action yesterday that was strong and steady up, the stock market and commodities opened near their highs in the morning Tuesday. But, after repeated attempts at dip buying failed the market reversed to a lower trend before slipping in some Greece at around 10:30 AM. I am not one to validate conspiracy theories and tend to keep my own to myself, but no more than five minutes after I said to a friend, "If they take out the intraday low one more time this is going to get ugly" did the rumor news of the EU bailing out Greece come to light. The news came as downside momentum was building and immediately caused a short covering rally that brought stocks and commodities to new highs on a large Euro rally and Dollar Index break. Looking back on it, the overnight uptrend that went from Monday's low close straight to above it's highs seems oddly foreboding of the news, and the timing of the rumor release could not have come at a better time for bulls holding losers on the precipice of a larger break. Information is evenly disseminated though, so we know this is obviously just coincidence....just saying. Done with my rant now; overnight many of the markets have held gains despite a break before the close. The market is watching news on a Greece bailout closely and because I am not a specialist on trading rumors I myself am staying flat as an increasingly volatile market tries to figure out which direction it is heading in what I will call volatile consolidation. Because I am technically and fundamentally bearish right now I can not recommend buying into the rally yet, but would strongly discourage fighting money flow. Other than copper, which flew out of the top, a number of the sell zones that I listed yesterday have held strong despite the news and I will continue to list some as points of reference and entry if you choose. But, while flight itineraries can swing the market I would wait until things become more clear and would advise that unless they are in the Buys or Sells to Watch category they are do at your own risk for right now.
Buys to Watch:
Bean Oil vs. Soy Meal- The oil share had a nice rally yesterday as it eclipsed the Jan. 7th high of 1054 and despite a break overnight I am still looking for places to buy as the chart is breaking out. Crude oil saving itself from a downward projection to $60 should be looked at as more bullish the oil due to the energy relationship. The supply/demand report yesterday confirmed a bearish overtone and subsequent market reaction for soybeans, which I believe hurts the spread's possibilities for upside potential. As long as the beans maintain there $8.90 support level though the oil share should fine. The next resistance level is 1177 from the Nov. 16th high close and I would use 1050 now as support.
Sells to Watch:
July-November Soybean Spread- This one may be in the one day too late category for optimal entry as I noticed it a half hour after the newsletter was sent yesterday. Including yesterday's high the inter-crop spread now has a four point top trendline from it's highs on December 15th, which is a good reference for stop placement as it sits today at 38 1/4. With the supply and demand report for grains released yesterday and an adequate amount of soybeans to prevent a supply shortage on top of the huge South American crop I am bearish the spread. With the March-May and May-July spreads sitting at a carry it is odd to me that July-Nov remains at such a premium. I know there are some fundamental/cash traders and analysts that believe there still is a possible shortage this year, which has held it up, but I believe that it should roll at a carry. Be aware that on days that outright soybeans rally the spread often rallies off of this action, whether it is right, wrong, or even fundamentally bearish the spread.
Put on the Radar:
S&P 500- The S&P 500 was again the loser in gains among the stock indexes yesterday. The rally on the Greece rumor reached 1077, just below my sell zone from 1077.5 to 1083.5. The NASDAQ however traced my sell zone from 1757 to 1768 nearly perfectly before breaking out of it. With the NASDAQ being the strength on buying days I would pay attention to it's sell zones closely and use them to execute in the S&P 500 as the financial sector continues to weigh the S&P down, giving it less upside pop and failure at reaching it's own sells. As I said in the opening note be cautious here as the news can change direction quickly, but after failing to hold larger gains yesterday this is one of the better sells. It is looking like a buy the rumor, sell the fact that fundamentals are still not good.
Silver or Copper- After being hammered for the past two weeks the metals have had a nice rally rebound over the last three days. Silver has almost reached my low volume sell zone from $15.70 to $16.10 and should continue to be one of the weakest commodities if they break. The silver was propped up on inflation speculation over the last year and has a lot of room still to break. The head and shoulders weekly top projection still maintains to the low $14's The copper, which I believed yesterday should lead the way down in commodities, ran above my sell zone from 2.93 to 2.96 on the Greece news. The trade looked to be working well however until the short covering took hold in this thinner market. I have a small sell zone around 3.035 and another from 3.06 to 3.08. I am looking at this 3 to 4 day rally as a possible flag on the move from Jan. 27th to Feb. 5th that broke over 50 cents. Depending on where the rally stops would put the flag projection at 2.50 to 2.40 as long speculation unwinds further.
Euro/Yen Cross- A two day rally in the Euro/Yen took the spread into 124 on the YR CQG chart, but still held the psychological 125 resistance level. It is down over 100 ticks again today to the around 122.50 and looks like it may have the ability to continue out of the bottom. Until there is an actual plan to save Greece I am selling the fact that the Euro's fundamentals remain weak. Even if there is a Greece bailout the EU is setting a dangerous precedence that could leave them caught when Ireland and Portugal show up with palms open. Bailing out Greece in my mind is similar to the U.S. government bailing out Ohio, and because the EU countries' economies, like the states, are intertwined this is only a band-aid on the bigger picture. the next support level is the 120.68 low and the psychological 120 level. Continue to keep this on your screen as a proxy for where equities are heading in the coming months.
Notes:
Australian Dollar and Crude Oil- This has turned into pretty much an identical frustrating and tough trade. The markets both set off their breakout downside patterns with the Aussie projection to 8055 and Crude to $60, but both rallied out of the top of their patterns and look like they are creating a small right shoulder on their trek downwards. Crude resistance sits from $74.00 to $74.50 and the Aussie has resistance at 87.50 to 87.70. Both held these zones, but the rallies after their breakouts have been strong as money is willing to own them. I would take these off your list of things to trade right now because they can be volatile and I do not think the environment is right to try and predict where they will quit rallying. Wait for the double top breakout again to look for a place to sell.
After overnight action yesterday that was strong and steady up, the stock market and commodities opened near their highs in the morning Tuesday. But, after repeated attempts at dip buying failed the market reversed to a lower trend before slipping in some Greece at around 10:30 AM. I am not one to validate conspiracy theories and tend to keep my own to myself, but no more than five minutes after I said to a friend, "If they take out the intraday low one more time this is going to get ugly" did the rumor news of the EU bailing out Greece come to light. The news came as downside momentum was building and immediately caused a short covering rally that brought stocks and commodities to new highs on a large Euro rally and Dollar Index break. Looking back on it, the overnight uptrend that went from Monday's low close straight to above it's highs seems oddly foreboding of the news, and the timing of the rumor release could not have come at a better time for bulls holding losers on the precipice of a larger break. Information is evenly disseminated though, so we know this is obviously just coincidence....just saying. Done with my rant now; overnight many of the markets have held gains despite a break before the close. The market is watching news on a Greece bailout closely and because I am not a specialist on trading rumors I myself am staying flat as an increasingly volatile market tries to figure out which direction it is heading in what I will call volatile consolidation. Because I am technically and fundamentally bearish right now I can not recommend buying into the rally yet, but would strongly discourage fighting money flow. Other than copper, which flew out of the top, a number of the sell zones that I listed yesterday have held strong despite the news and I will continue to list some as points of reference and entry if you choose. But, while flight itineraries can swing the market I would wait until things become more clear and would advise that unless they are in the Buys or Sells to Watch category they are do at your own risk for right now.
Buys to Watch:
Bean Oil vs. Soy Meal- The oil share had a nice rally yesterday as it eclipsed the Jan. 7th high of 1054 and despite a break overnight I am still looking for places to buy as the chart is breaking out. Crude oil saving itself from a downward projection to $60 should be looked at as more bullish the oil due to the energy relationship. The supply/demand report yesterday confirmed a bearish overtone and subsequent market reaction for soybeans, which I believe hurts the spread's possibilities for upside potential. As long as the beans maintain there $8.90 support level though the oil share should fine. The next resistance level is 1177 from the Nov. 16th high close and I would use 1050 now as support.
Sells to Watch:
July-November Soybean Spread- This one may be in the one day too late category for optimal entry as I noticed it a half hour after the newsletter was sent yesterday. Including yesterday's high the inter-crop spread now has a four point top trendline from it's highs on December 15th, which is a good reference for stop placement as it sits today at 38 1/4. With the supply and demand report for grains released yesterday and an adequate amount of soybeans to prevent a supply shortage on top of the huge South American crop I am bearish the spread. With the March-May and May-July spreads sitting at a carry it is odd to me that July-Nov remains at such a premium. I know there are some fundamental/cash traders and analysts that believe there still is a possible shortage this year, which has held it up, but I believe that it should roll at a carry. Be aware that on days that outright soybeans rally the spread often rallies off of this action, whether it is right, wrong, or even fundamentally bearish the spread.
Put on the Radar:
S&P 500- The S&P 500 was again the loser in gains among the stock indexes yesterday. The rally on the Greece rumor reached 1077, just below my sell zone from 1077.5 to 1083.5. The NASDAQ however traced my sell zone from 1757 to 1768 nearly perfectly before breaking out of it. With the NASDAQ being the strength on buying days I would pay attention to it's sell zones closely and use them to execute in the S&P 500 as the financial sector continues to weigh the S&P down, giving it less upside pop and failure at reaching it's own sells. As I said in the opening note be cautious here as the news can change direction quickly, but after failing to hold larger gains yesterday this is one of the better sells. It is looking like a buy the rumor, sell the fact that fundamentals are still not good.
Silver or Copper- After being hammered for the past two weeks the metals have had a nice rally rebound over the last three days. Silver has almost reached my low volume sell zone from $15.70 to $16.10 and should continue to be one of the weakest commodities if they break. The silver was propped up on inflation speculation over the last year and has a lot of room still to break. The head and shoulders weekly top projection still maintains to the low $14's The copper, which I believed yesterday should lead the way down in commodities, ran above my sell zone from 2.93 to 2.96 on the Greece news. The trade looked to be working well however until the short covering took hold in this thinner market. I have a small sell zone around 3.035 and another from 3.06 to 3.08. I am looking at this 3 to 4 day rally as a possible flag on the move from Jan. 27th to Feb. 5th that broke over 50 cents. Depending on where the rally stops would put the flag projection at 2.50 to 2.40 as long speculation unwinds further.
Euro/Yen Cross- A two day rally in the Euro/Yen took the spread into 124 on the YR CQG chart, but still held the psychological 125 resistance level. It is down over 100 ticks again today to the around 122.50 and looks like it may have the ability to continue out of the bottom. Until there is an actual plan to save Greece I am selling the fact that the Euro's fundamentals remain weak. Even if there is a Greece bailout the EU is setting a dangerous precedence that could leave them caught when Ireland and Portugal show up with palms open. Bailing out Greece in my mind is similar to the U.S. government bailing out Ohio, and because the EU countries' economies, like the states, are intertwined this is only a band-aid on the bigger picture. the next support level is the 120.68 low and the psychological 120 level. Continue to keep this on your screen as a proxy for where equities are heading in the coming months.
Notes:
Australian Dollar and Crude Oil- This has turned into pretty much an identical frustrating and tough trade. The markets both set off their breakout downside patterns with the Aussie projection to 8055 and Crude to $60, but both rallied out of the top of their patterns and look like they are creating a small right shoulder on their trek downwards. Crude resistance sits from $74.00 to $74.50 and the Aussie has resistance at 87.50 to 87.70. Both held these zones, but the rallies after their breakouts have been strong as money is willing to own them. I would take these off your list of things to trade right now because they can be volatile and I do not think the environment is right to try and predict where they will quit rallying. Wait for the double top breakout again to look for a place to sell.
Tuesday, February 9, 2010
Tuesday 2/9/10 Commodity Ideas
Opening Note:
After showing some strength early yesterday, facilitated by momentum changing bottom buying, the stock market fell from it's highs later in the day to make anyone that was a buyer for the day a loser by the close. As I noted early yesterday the momentum swinging, quick bottom buying was in the market for the first half of the day. Take a peak at a 15 minute NASDAQ chart and notice the spiky bottoms anytime the market broke. Overnight the sentiment of the market has obviously changed from yesterday though. A fairly straight uptrend was established across the board that led many markets above yesterday's highs in a manner that looked like the market was eager to run short-covering buy stops. The foreign currency sector was one of the leaders in the charge with sizable corrections in most of the markets. The next two days should show whether this is just a couple day pullback to sell or an extended period of consolidation around these levels. While Crude and the Aussie violated their pattern breakout's a couple markets have entered their sell zones with a couple more close by. I would take a smaller shot at selling this two and a half day pullback while waiting to see if the market is in for a longer correction with new money stepping up to the plate.
Buys to Watch:
Bean Oil vs. Soymeal- The spread closed right below the Jan. 7th close of 1054, which when above I believe should gain momentum. The weekly chart looks highly bullish and the fundamental story is supportive of bean oil as well. With the market undergoing a bullish correction the grains have been able to post gains in an oversold market. I believe soybeans should correct to between $9.60 and $9.70, and the gains in the market should favor the oil vs. the meal.
Sells to Watch:
Copper- What was one of the weaker markets since mid-January became a warning signal of strength on Friday and now has a two and a half day rally pullback. It is currently sitting in a low volume sell zone between 2.93 and 2.96, but I believe an accurate stop should be put above 2.98. Copper has led the moves so if this is a two day pullback I would expect copper to be one of the first markets to show it. This is currently my number one sell today as a barometer for the rest of the market and because a fairly tight risk can be put on it. Other markets have sell zones slightly higher, but copper should show weakness here if those are to be sold. It is day 10 now after the breakout, so if this is a 20 day move this is a great spot to sell it.
S&P 500- The S&P 500 chart appears to be barely eking out the Dow as the worst looking index chart right now. The financials continue to be the most worrisome sector of the stocks and should have more of the bearish news story as the year goes on. The S&P has a low volume sell zone from 1077.50 to 1083.50, but I am looking more at the upside leading NASDAQ for a spot to sell the S&P against. The NASDAQ has low volume price action from 1757 to 1768 and as this has been the leader on strong days I would look at this spot to sell the S&P against as it may not reach it's own sell zone.
Put on the Radar:
Crude Oil- As I suspected it might, crude oil went and took out it's pattern breakout of $72.40. This has been a theme in crude over the last year with downside moves followed by small ranges and volatile upswings. I put a lot less credence in this upswing than the ones in the past though. Last week the market was unable to hold a rally into the up channel that crude has travelled in for the second half of last year and I believe it is only a matter of time till the new buyers become losers as crude travels to $60. A low volume sell zone sits between $74.00 and $74.50 if the market rallies to it, but the trade obviously needs to clean out a few more shorts before it moves lower.
Australian Dollar- This is pretty much the same story as the crude oil with the chart looking fairly identical. The downside breakout of 8655 was violated but I still believe that it is a matter of time before the move to 8055 continues after some shorts are removed from the market. It is currently sitting in a low volume sell zone from the break last Thursday that extends to 8750. If you are looking to sell this one I would put a stop around 8790 to give a little room, but beware as buying is strong today and crude may have more room to lead the Aussie upward.
Euro/Yen- Finally the cross has a decent sized rally correction. Short covering in the Euro after reaching it's second leg projection of 136.50 has led the correction in the spread. I have low volume sell zones in the Euro from 137.90 to 138.20 and from 138.55 to 138.70 so I look for the correction to continue to around these levels. The downside move on the Euro/Yen still is significant and I expect that a rally pullback and continuation down will follow.
Notes:
Silver- If the commodity break continues I still expect silver to be one of the weakest markets. I have a low volume sell zone between $15.70 and $16.10, which could be reached on running stops if crude rallies into the $74 range. The head and shoulders projection to the low $14's is still in place as it has not been reached.
Meats- I do not follow the meats closely and do not have a great grasp on the fundamentals of the market, but if you have a chart that you would like me to look at technically shoot me an email. With the market still heavily pit traded I have kept it off my radar on the screen other than the swine flu hog market.
Summary:
Keep an eye on the Copper today as it should be an indicator and leader of the next move as it was on the rally the last two days. It it holds above 2.98 a larger rally correction and consolidation is in order and I would hold off on selling the other pullback zones as other markets reach them.
After showing some strength early yesterday, facilitated by momentum changing bottom buying, the stock market fell from it's highs later in the day to make anyone that was a buyer for the day a loser by the close. As I noted early yesterday the momentum swinging, quick bottom buying was in the market for the first half of the day. Take a peak at a 15 minute NASDAQ chart and notice the spiky bottoms anytime the market broke. Overnight the sentiment of the market has obviously changed from yesterday though. A fairly straight uptrend was established across the board that led many markets above yesterday's highs in a manner that looked like the market was eager to run short-covering buy stops. The foreign currency sector was one of the leaders in the charge with sizable corrections in most of the markets. The next two days should show whether this is just a couple day pullback to sell or an extended period of consolidation around these levels. While Crude and the Aussie violated their pattern breakout's a couple markets have entered their sell zones with a couple more close by. I would take a smaller shot at selling this two and a half day pullback while waiting to see if the market is in for a longer correction with new money stepping up to the plate.
Buys to Watch:
Bean Oil vs. Soymeal- The spread closed right below the Jan. 7th close of 1054, which when above I believe should gain momentum. The weekly chart looks highly bullish and the fundamental story is supportive of bean oil as well. With the market undergoing a bullish correction the grains have been able to post gains in an oversold market. I believe soybeans should correct to between $9.60 and $9.70, and the gains in the market should favor the oil vs. the meal.
Sells to Watch:
Copper- What was one of the weaker markets since mid-January became a warning signal of strength on Friday and now has a two and a half day rally pullback. It is currently sitting in a low volume sell zone between 2.93 and 2.96, but I believe an accurate stop should be put above 2.98. Copper has led the moves so if this is a two day pullback I would expect copper to be one of the first markets to show it. This is currently my number one sell today as a barometer for the rest of the market and because a fairly tight risk can be put on it. Other markets have sell zones slightly higher, but copper should show weakness here if those are to be sold. It is day 10 now after the breakout, so if this is a 20 day move this is a great spot to sell it.
S&P 500- The S&P 500 chart appears to be barely eking out the Dow as the worst looking index chart right now. The financials continue to be the most worrisome sector of the stocks and should have more of the bearish news story as the year goes on. The S&P has a low volume sell zone from 1077.50 to 1083.50, but I am looking more at the upside leading NASDAQ for a spot to sell the S&P against. The NASDAQ has low volume price action from 1757 to 1768 and as this has been the leader on strong days I would look at this spot to sell the S&P against as it may not reach it's own sell zone.
Put on the Radar:
Crude Oil- As I suspected it might, crude oil went and took out it's pattern breakout of $72.40. This has been a theme in crude over the last year with downside moves followed by small ranges and volatile upswings. I put a lot less credence in this upswing than the ones in the past though. Last week the market was unable to hold a rally into the up channel that crude has travelled in for the second half of last year and I believe it is only a matter of time till the new buyers become losers as crude travels to $60. A low volume sell zone sits between $74.00 and $74.50 if the market rallies to it, but the trade obviously needs to clean out a few more shorts before it moves lower.
Australian Dollar- This is pretty much the same story as the crude oil with the chart looking fairly identical. The downside breakout of 8655 was violated but I still believe that it is a matter of time before the move to 8055 continues after some shorts are removed from the market. It is currently sitting in a low volume sell zone from the break last Thursday that extends to 8750. If you are looking to sell this one I would put a stop around 8790 to give a little room, but beware as buying is strong today and crude may have more room to lead the Aussie upward.
Euro/Yen- Finally the cross has a decent sized rally correction. Short covering in the Euro after reaching it's second leg projection of 136.50 has led the correction in the spread. I have low volume sell zones in the Euro from 137.90 to 138.20 and from 138.55 to 138.70 so I look for the correction to continue to around these levels. The downside move on the Euro/Yen still is significant and I expect that a rally pullback and continuation down will follow.
Notes:
Silver- If the commodity break continues I still expect silver to be one of the weakest markets. I have a low volume sell zone between $15.70 and $16.10, which could be reached on running stops if crude rallies into the $74 range. The head and shoulders projection to the low $14's is still in place as it has not been reached.
Meats- I do not follow the meats closely and do not have a great grasp on the fundamentals of the market, but if you have a chart that you would like me to look at technically shoot me an email. With the market still heavily pit traded I have kept it off my radar on the screen other than the swine flu hog market.
Summary:
Keep an eye on the Copper today as it should be an indicator and leader of the next move as it was on the rally the last two days. It it holds above 2.98 a larger rally correction and consolidation is in order and I would hold off on selling the other pullback zones as other markets reach them.
Monday, February 8, 2010
Monday 2/8/10 Commodity Ideas
Opening Note:
After posting lower closes throughout the second half of last week in many of the commodity sectors, fueled by money flow, the stock market and currencies led a sharp short covering rally at 2 P.M. Friday that erased much of the losses for the day. The velocity and size of the rally caught me off guard as I believed that market participants would not be willing to carry new long positions over the weekend with the increased skepticism and volatility coming into the market. However, with currencies like the Euro and Dollar Index completing their second leg downward projections and the metal sector taking a serious hit on the chin over the last couple weeks it is possible that the market may have found another temporary consolidation point in some of the sectors as money is willing to own commodities at these levels. After the fact, I made note of some of the potential warning signs of the short covering rally that occurred that I think should be looked at going forward as indicators. Some of the strength markets on the recovery since last March like Copper, NASDAQ, and Australian Dollar all displayed strength among their sector throughout the morning and afternoon despite most markets breaking midday, and being some of the weaker markets over the past weeks. I would keep an eye on these individual markets as an indicator of a potential rally if they are acting unusually strong. Even with the rally late Friday Crude Oil and the Australian Dollar have set off large downside patterns that could lead the rest of the market down as the month continues, but I would be more cautious with which markets you short with some of the weakest reaching their projections. Watching the markets while I am writing this I also have noted that as markets made new lows at 6:30 A.M. the bottom buying kicked in hard to take most of the markets back to the middle of their overnight ranges, so an added note of caution today. I still feel there are fundamental problems in the global economy and believe that selling rallies is the profitable path to maintain.
Buys to Watch:
Sells to Watch:
Crude Oil- A large topping projection below $72.40 was set off on Friday, despite bullish unemployment data, that quickly ran stops down to $69.50. The late rally saw Crude make up most of these losses however with prices overnight rallying all the way back to $72.39 overnight. The energies have mimicked much of the stock market action over the past weeks so an equity rally could cause a temporary failure on the move. Still, with the pattern holding I believe Crude will continue downwards to it's $60 projection. The market has been held up during the recovery by fund money and speculation well above what fundamentalists believe is a fair price and the strength of energies should fade over the coming weeks.
Australian Dollar- A doublee top pattern was set off similar to Crude Oil below the 8665 price level. The downside projection is to 8055. With Australia's economy largely based on resources and commodities the continuation of the move should be viewed as a sign of further weakness in the market. Overnight price traded above the 8665 level briefly, but this is a strong pattern that I believe should be sold. Like Crude, an equity rally could hold up the market providing a fake out on the break however.
Put on the Radar:
Euro/Yen Cross- As one of the best indicators of future stock market action the Euro/Yen Cross looks extremely troubling. After a large downward move on Thursday the market only slightly recovered losses on the Friday equity rally. The weekly close was the lowest since February 16th of last year. Psychological levels of 130 and 125 have shown support on the YR CQG chart, so I believe 120 is the next level of support as the Cross nears levels from the bottom of last year's stock break. I have written more about the Japanese Yen side of the equation below.
Copper- Despite showing some strength on Friday I still like Copper as a short going forward in the market. Metals have suffered a serious draw down in price over the last two weeks as the weakest sector, but Copper still has a lot of room to liquidate speculative long positions. I believe that halfway back on the recovery move around 2.30 to 240 is not unreasonable to reach in the near future. Overnight prices rallied into the 2.90 to 2.96 range that I have as a low volume sell zone. Above this another low volume sell zone sits between 3.03 and 3.07, but I do not think that prices will rally that high.
Silver- If you have been sitting short silver with a profit I think that it is time to take profits on at least half of your position. The downward projection from the weekly $17 head and shoulders breakout is to the low $14's, but with nearly a $4 break in silver over the last three weeks the battle to take prices lower becomes a bit harder. If the Crude and Aussie projections hold true silver should continue to be an overall market weakness, but may need a little room to breathe right now. I do not see a good low volume sell zone in the market until $15.70 to $16.10 so I would rely on 15 minute chart indicators for entry.
Notes:
Euro and Dollar Index- The Euro reached it's second leg down projection of 136.50 and the Dollar Index reached it's initial second leg up projection of 80.50. It appears that these currency markets could have difficulty continuing their move and could be heading toward a consolidation period after being one of the best movers. Fundamentally I see the Euro as the weakest currency still so I would still be willing to take a shot selling it on rallies. The next good low volume sell I have is 137.90 to 138.20 and above that 138.55 to 138.70. I believe that a third leg down still exists for the Euro with an estimate projection from 125 to 128.
Japanese Yen- If you look at a weekly chart you will notice that each time the Yen has moved toward 115 against the U.S. Dollar that a curious spike followed by a break has occurred. This is not coincidental as the Japanese government has picked these levels to intervene and preserve the global value of it's exports by devaluing it's currency. Sitting around 112 we are approaching this area again so I would caution against holding longs near 115. If the Euro/Yen cross continues downward the downside move on the Euro should be the driving factor as it continues.
Grains- The grains have been the strongest sector out of any over the last two weeks. With amplified moves across the commodity world the seasonal money flow and reallocation into the grains has held prices steady to up in contrast to the rest of the markets movement. This is why I am not looking for places to sell grains right now and they have not been on my radar lately. It has been a small range and tough trade as the markets rest at an equilibrium. The Bean Oil vs. Soymeal chart does look strong however and above the January 7th 1054 close could show more momentum as the fundamentals strongly support the oil.
After posting lower closes throughout the second half of last week in many of the commodity sectors, fueled by money flow, the stock market and currencies led a sharp short covering rally at 2 P.M. Friday that erased much of the losses for the day. The velocity and size of the rally caught me off guard as I believed that market participants would not be willing to carry new long positions over the weekend with the increased skepticism and volatility coming into the market. However, with currencies like the Euro and Dollar Index completing their second leg downward projections and the metal sector taking a serious hit on the chin over the last couple weeks it is possible that the market may have found another temporary consolidation point in some of the sectors as money is willing to own commodities at these levels. After the fact, I made note of some of the potential warning signs of the short covering rally that occurred that I think should be looked at going forward as indicators. Some of the strength markets on the recovery since last March like Copper, NASDAQ, and Australian Dollar all displayed strength among their sector throughout the morning and afternoon despite most markets breaking midday, and being some of the weaker markets over the past weeks. I would keep an eye on these individual markets as an indicator of a potential rally if they are acting unusually strong. Even with the rally late Friday Crude Oil and the Australian Dollar have set off large downside patterns that could lead the rest of the market down as the month continues, but I would be more cautious with which markets you short with some of the weakest reaching their projections. Watching the markets while I am writing this I also have noted that as markets made new lows at 6:30 A.M. the bottom buying kicked in hard to take most of the markets back to the middle of their overnight ranges, so an added note of caution today. I still feel there are fundamental problems in the global economy and believe that selling rallies is the profitable path to maintain.
Buys to Watch:
Sells to Watch:
Crude Oil- A large topping projection below $72.40 was set off on Friday, despite bullish unemployment data, that quickly ran stops down to $69.50. The late rally saw Crude make up most of these losses however with prices overnight rallying all the way back to $72.39 overnight. The energies have mimicked much of the stock market action over the past weeks so an equity rally could cause a temporary failure on the move. Still, with the pattern holding I believe Crude will continue downwards to it's $60 projection. The market has been held up during the recovery by fund money and speculation well above what fundamentalists believe is a fair price and the strength of energies should fade over the coming weeks.
Australian Dollar- A doublee top pattern was set off similar to Crude Oil below the 8665 price level. The downside projection is to 8055. With Australia's economy largely based on resources and commodities the continuation of the move should be viewed as a sign of further weakness in the market. Overnight price traded above the 8665 level briefly, but this is a strong pattern that I believe should be sold. Like Crude, an equity rally could hold up the market providing a fake out on the break however.
Put on the Radar:
Euro/Yen Cross- As one of the best indicators of future stock market action the Euro/Yen Cross looks extremely troubling. After a large downward move on Thursday the market only slightly recovered losses on the Friday equity rally. The weekly close was the lowest since February 16th of last year. Psychological levels of 130 and 125 have shown support on the YR CQG chart, so I believe 120 is the next level of support as the Cross nears levels from the bottom of last year's stock break. I have written more about the Japanese Yen side of the equation below.
Copper- Despite showing some strength on Friday I still like Copper as a short going forward in the market. Metals have suffered a serious draw down in price over the last two weeks as the weakest sector, but Copper still has a lot of room to liquidate speculative long positions. I believe that halfway back on the recovery move around 2.30 to 240 is not unreasonable to reach in the near future. Overnight prices rallied into the 2.90 to 2.96 range that I have as a low volume sell zone. Above this another low volume sell zone sits between 3.03 and 3.07, but I do not think that prices will rally that high.
Silver- If you have been sitting short silver with a profit I think that it is time to take profits on at least half of your position. The downward projection from the weekly $17 head and shoulders breakout is to the low $14's, but with nearly a $4 break in silver over the last three weeks the battle to take prices lower becomes a bit harder. If the Crude and Aussie projections hold true silver should continue to be an overall market weakness, but may need a little room to breathe right now. I do not see a good low volume sell zone in the market until $15.70 to $16.10 so I would rely on 15 minute chart indicators for entry.
Notes:
Euro and Dollar Index- The Euro reached it's second leg down projection of 136.50 and the Dollar Index reached it's initial second leg up projection of 80.50. It appears that these currency markets could have difficulty continuing their move and could be heading toward a consolidation period after being one of the best movers. Fundamentally I see the Euro as the weakest currency still so I would still be willing to take a shot selling it on rallies. The next good low volume sell I have is 137.90 to 138.20 and above that 138.55 to 138.70. I believe that a third leg down still exists for the Euro with an estimate projection from 125 to 128.
Japanese Yen- If you look at a weekly chart you will notice that each time the Yen has moved toward 115 against the U.S. Dollar that a curious spike followed by a break has occurred. This is not coincidental as the Japanese government has picked these levels to intervene and preserve the global value of it's exports by devaluing it's currency. Sitting around 112 we are approaching this area again so I would caution against holding longs near 115. If the Euro/Yen cross continues downward the downside move on the Euro should be the driving factor as it continues.
Grains- The grains have been the strongest sector out of any over the last two weeks. With amplified moves across the commodity world the seasonal money flow and reallocation into the grains has held prices steady to up in contrast to the rest of the markets movement. This is why I am not looking for places to sell grains right now and they have not been on my radar lately. It has been a small range and tough trade as the markets rest at an equilibrium. The Bean Oil vs. Soymeal chart does look strong however and above the January 7th 1054 close could show more momentum as the fundamentals strongly support the oil.
Friday, February 5, 2010
Friday 2/5/10 Midday Update Alert!
Another huge down day across the board (hello grains?) led by a continually monster move in the euro/yen cross. Crude oil broke the $72.40 level and went immediately to $69.50, stocks continue to make new lows as the day goes on and money flow buying fails, and silver proves it is awful with another 60 cents down.
I would recommend that if you already have a profit in your short positions to hold at least some of them over the weekend. Before the big break in crude and the further collapse of equities Asia was already in bed and Europe was closing. As it happens with most crashes, we usually have an "Oh shit, why did I go home long Monday" where the Dow opens 500 lower. With half the world closed before these large moves today it is very possible that they wake up Sunday evening and run for the hills. I expect further liquidation Monday so I believe that unless the government comes out with another stimulus plan tomorrow there is little risk staying short.
I would recommend that if you already have a profit in your short positions to hold at least some of them over the weekend. Before the big break in crude and the further collapse of equities Asia was already in bed and Europe was closing. As it happens with most crashes, we usually have an "Oh shit, why did I go home long Monday" where the Dow opens 500 lower. With half the world closed before these large moves today it is very possible that they wake up Sunday evening and run for the hills. I expect further liquidation Monday so I believe that unless the government comes out with another stimulus plan tomorrow there is little risk staying short.
Commodity Ideas Friday 2/5/10 From 7:15 AM (Late Post)
Opening Note:
With a huge downside move in the Euro/Yen cross yesterday and continued liquidation in metals, equities, and most other commodities it has become very clear to me that a large scale exodus out of riskier assets is under way. One of the more interesting notes on the action yesterday is that despite a $50 fall in gold, over a $4 drop in crude oil, and a 35 point lower close in the S&P 500, that the markets had little to no rally bounce off of their lows intra-day. Gartman often states that even a dead cat bounces when dropped, but yesterday was evidence that sometimes it just lies flat. Markets like crude and the stock indexes found support at their lows from last Friday's close as large protective buy orders flowed into the market to save the closes. This money action leads me to believe that there is some big money that was not expecting a break of this magnitude this early in the year and that many of them are caught with large open long positions left to liquidate as the market falls further. The only thing that the bulls have left to hold onto right now is this morning's unemployment report, which I believe whether bullish or bearish will likely set off further liquidation today as markets fail at key levels. Just for repetition's sake, I do not encourage holding long positions in commodities or equities other than the Dollar Index, Japanese Yen, and Treasuries.
Buys to Watch:
Dollar Index- The Dollar Index continued it's climb yesterday with a strong two day rally out of a low volume pullback. It has already reached my minimal projection of 8050 but I still have a projection to 8200 and I believe that if stubborn commodity markets like crude oil fail below critical levels that 8200 is still a modest projection as market participants run to the safety of the Dollar.
Sells to Watch:
Silver- In one of the more brutal moves I have seen in a long time silver added another $1 down to it's 2 day continuation out of a rally pullback, bringing the 2 day break to $1.40. As I stated in my opening note, I believe metals are currently the weakest sector with their continued drop in open interest. As bear markets develop metals are often one of the leaders down and I expect the break in silver to continue. A head and shoulders weekly formation projects to the low $14 range, which like the dollar index, is a modest projection if the other commodities begin large liquidation.
Australian Dollar or Euro- Again, it is take your pick of which currency is worse. The Australian Dollar sneakily had a larger percentage down day yesterday than the Euro, but I believe you can not go wrong shorting either one. The Aussie set off a weekly double top below 8665 that projects to 8055. The Euro has reached my initial projection of 136.50 and without having a reliable pattern projection I believe that the Euro continues to between 125 and 128 by extrapolating the Aussie projection.
NASDAQ- It is definitely the most volatile index of the bunch and I believe that it has the most downside potential. Like the currencies above I do not think you will go wrong picking any of the indexes to short though. The NASDAQ closed right near it's low from last Friday of 1731.75 and after this support is breached it is in free fall.
Crude Oil- Energies have been one of the more resilient performers with a large bounce off of their swing low during the beginning of the week but with an easy breakout entry point I put this one in the sells now. Below 72.40 on the March contract a top formation quickly leads the market back to $60 and with a poor unemployment number entry should be easy.
Copper- Pretty much no bounce in the market as it continues to have concrete shoes on. From the rumors I hear there are more longs with large positions caught in this market than the others, which is evidence from the large open interest drop and continued sliding. Look for half day pullbacks to sell this as it appears to have little bullish news to rally on.
Put on the Radar:
Euro/Yen Cross- I already covered it in my midday update yesterday, but one of the largest moves ever in the euro/yen. It looks like it has the potential to continue back down to the base levels it set in January and February of last year as it bottomed prior to the end of the stock market crash, and should not find much support until then.
Treasuries- A bullish reversal yesterday as commodities and equities headed into liquidation mode. I am not too confident that this will have the same momentum move as the other markets though as I believe the liquidation in commodities will be larger than the run into treasuries.
Notes:
Grains- I am running out of time so briefly I do not believe the rally in grains from yesterday will hold up. The grains were the only commodity that closed higher on my board yesterday and I believe it was due to fund money and reallocation out of energies and metals that caused it. Beans have a support level of $8.90, but I think it is just a hope that it will hold as the rest of the world heads into liquidation. *If you are looking at buying the Bean Oil vs. Meal shoot me a response and I can give you my brief opinion on it as I had a couple requests yesterday to look at it.
With a huge downside move in the Euro/Yen cross yesterday and continued liquidation in metals, equities, and most other commodities it has become very clear to me that a large scale exodus out of riskier assets is under way. One of the more interesting notes on the action yesterday is that despite a $50 fall in gold, over a $4 drop in crude oil, and a 35 point lower close in the S&P 500, that the markets had little to no rally bounce off of their lows intra-day. Gartman often states that even a dead cat bounces when dropped, but yesterday was evidence that sometimes it just lies flat. Markets like crude and the stock indexes found support at their lows from last Friday's close as large protective buy orders flowed into the market to save the closes. This money action leads me to believe that there is some big money that was not expecting a break of this magnitude this early in the year and that many of them are caught with large open long positions left to liquidate as the market falls further. The only thing that the bulls have left to hold onto right now is this morning's unemployment report, which I believe whether bullish or bearish will likely set off further liquidation today as markets fail at key levels. Just for repetition's sake, I do not encourage holding long positions in commodities or equities other than the Dollar Index, Japanese Yen, and Treasuries.
Buys to Watch:
Dollar Index- The Dollar Index continued it's climb yesterday with a strong two day rally out of a low volume pullback. It has already reached my minimal projection of 8050 but I still have a projection to 8200 and I believe that if stubborn commodity markets like crude oil fail below critical levels that 8200 is still a modest projection as market participants run to the safety of the Dollar.
Sells to Watch:
Silver- In one of the more brutal moves I have seen in a long time silver added another $1 down to it's 2 day continuation out of a rally pullback, bringing the 2 day break to $1.40. As I stated in my opening note, I believe metals are currently the weakest sector with their continued drop in open interest. As bear markets develop metals are often one of the leaders down and I expect the break in silver to continue. A head and shoulders weekly formation projects to the low $14 range, which like the dollar index, is a modest projection if the other commodities begin large liquidation.
Australian Dollar or Euro- Again, it is take your pick of which currency is worse. The Australian Dollar sneakily had a larger percentage down day yesterday than the Euro, but I believe you can not go wrong shorting either one. The Aussie set off a weekly double top below 8665 that projects to 8055. The Euro has reached my initial projection of 136.50 and without having a reliable pattern projection I believe that the Euro continues to between 125 and 128 by extrapolating the Aussie projection.
NASDAQ- It is definitely the most volatile index of the bunch and I believe that it has the most downside potential. Like the currencies above I do not think you will go wrong picking any of the indexes to short though. The NASDAQ closed right near it's low from last Friday of 1731.75 and after this support is breached it is in free fall.
Crude Oil- Energies have been one of the more resilient performers with a large bounce off of their swing low during the beginning of the week but with an easy breakout entry point I put this one in the sells now. Below 72.40 on the March contract a top formation quickly leads the market back to $60 and with a poor unemployment number entry should be easy.
Copper- Pretty much no bounce in the market as it continues to have concrete shoes on. From the rumors I hear there are more longs with large positions caught in this market than the others, which is evidence from the large open interest drop and continued sliding. Look for half day pullbacks to sell this as it appears to have little bullish news to rally on.
Put on the Radar:
Euro/Yen Cross- I already covered it in my midday update yesterday, but one of the largest moves ever in the euro/yen. It looks like it has the potential to continue back down to the base levels it set in January and February of last year as it bottomed prior to the end of the stock market crash, and should not find much support until then.
Treasuries- A bullish reversal yesterday as commodities and equities headed into liquidation mode. I am not too confident that this will have the same momentum move as the other markets though as I believe the liquidation in commodities will be larger than the run into treasuries.
Notes:
Grains- I am running out of time so briefly I do not believe the rally in grains from yesterday will hold up. The grains were the only commodity that closed higher on my board yesterday and I believe it was due to fund money and reallocation out of energies and metals that caused it. Beans have a support level of $8.90, but I think it is just a hope that it will hold as the rest of the world heads into liquidation. *If you are looking at buying the Bean Oil vs. Meal shoot me a response and I can give you my brief opinion on it as I had a couple requests yesterday to look at it.
Thursday, February 4, 2010
Thursday 2/4/10 Commodity Ideas
Opening Note:
For the first three days of February it is apparent from the rally of weak markets, the continued large open interest climb in grains, and the buying on the open of the stock market that a large amount of new long money has entered the market from the sidelines. What is interesting to note is that while the grain markets have continued a slower and steady break on the large increase in open interest the metal markets have seen a a moderate to sizable decline in open interest with more volatile downside moves. Since January 7th copper's open interest has declined over 18% leading the exodus out of the metals. Although part of this decrease can be attributed to the fund reallocation one of the indicators of a healthy bear market is a decrease in open interest with the decrease in price. This action makes me look at the metals as the weakest in the commodity world because people clearly would rather own grains, equities, and energies than metals. Make sure to keep an eye on the open interest across the sectors as we head out of winter and into spring as it is much more difficult to break markets when big money is grabbing and holding it. Despite the open interest increase in many of the commodities the prices continue to fall meaning an even larger increase in selling and that the bears are in the lead moving the markets. Continue to sell pullback rallies as I suspect that this is merely the top forming on a larger bear correction.
Buys to Watch:
Gold vs. Weakness- The price of gold has fallen the last day and a half after a decent sized short covering rally after failing to hold new lows. Some new longs also likely entered the market expecting a volatility swing out of the top of the range like the market had succeeded in doing for much of last year. The market's failure to do so on new money allocation is another sign that money is now unable to remove the bearish mentality of the market and that a decline in price should continue. Gold continues to stay in a fairly flat downward channel while the other metals and many other markets continue downside breakouts. Gold should not have the downside volatility of these other markets so it makes it the optimal spreading tool
Dollar Index- After a slightly troubling break starting at the beginning of the month the dollar has impressively recovered to it's highs on the move. It should continue to rally as money flows out of riskier assets and into the safety of cash. Depending on which pattern projection you choose to rely on I have a second leg move going continuing between 8050 and 8200 modestly.
Sells to Watch:
Copper- I covered much of the open interest story in the opening note and with continued troubling price action I believe copper is just beginning a large correction in a market that was largely over speculated in. The market, like a rubber band, was stretched the most of any during the recovery and should continue liquidation as large long positions that were accumulated on the rally unwind.
Silver- Silver should continue to encounter some support today on the lows from last week in the low $16 range. This support should not last for long though as I maintain a projection to the low $14 range on the weekly head and shoulders top. There is also a slight pullback today in the gold vs. silver ratio so as silver is held up I would look for entry into the market around low volume price trade at 288 and 281.50 to 283. (Gold - Silver/2 to get the chart).
Australian Dollar or Euro- It is pretty much your pick on which chart you prefer, the topping action of the Aussie or the continuation on the down leg of the Euro. On a weekly chart the Aussie sets off a double bop below 8665 that projects to 8055 and the Euro has a second leg projection to 136.50 modestly. Both have poor fundamental stories with Europe leading the way back down and Australia having an economy based on falling commodity prices so I do not think you can go wrong with either.
Put on the Radar:
Euro/Yen Cross- Like I stated in the dollar index the euro/yen had a more volatile correction than I had expected but with a large move so far today is sitting back near it's lows from last week around 125 (on the YR chart). I expect some support from it at these levels but like silver I expect it to easily continue downward shortly.
NASDAQ and NASDAQ vs. S&P 500- I moved this out of sells to watch to put on the radar as money flow into the stock market continued yesterday, and has been the trend over the last 11 months the money flowed more into the NASDAQ than the other markets. I believe like copper that the NASDAQ rubber band has been stretched more than others so I expect more downside potential than the S&P or Dow. With the rally in the NASDAQ yesterday and with the S&P staying relatively flat I believe today is a good opportunity to enter the short NASDAQ vs. S&P trade with minimal risk on a three day pullback.
Notes:
Grains: After a strong outside day down in the grain markets I believe the price will continue to fall, but as I stated earlier the large continued gain in open interest is propping up the markets for the time being.
Sugar: One of the stronger markets over the last few months is on the verge of setting off a double top below 2816. After it's open this morning the breakout was attempted but temporarily failed. The projection is to 2632.
For the first three days of February it is apparent from the rally of weak markets, the continued large open interest climb in grains, and the buying on the open of the stock market that a large amount of new long money has entered the market from the sidelines. What is interesting to note is that while the grain markets have continued a slower and steady break on the large increase in open interest the metal markets have seen a a moderate to sizable decline in open interest with more volatile downside moves. Since January 7th copper's open interest has declined over 18% leading the exodus out of the metals. Although part of this decrease can be attributed to the fund reallocation one of the indicators of a healthy bear market is a decrease in open interest with the decrease in price. This action makes me look at the metals as the weakest in the commodity world because people clearly would rather own grains, equities, and energies than metals. Make sure to keep an eye on the open interest across the sectors as we head out of winter and into spring as it is much more difficult to break markets when big money is grabbing and holding it. Despite the open interest increase in many of the commodities the prices continue to fall meaning an even larger increase in selling and that the bears are in the lead moving the markets. Continue to sell pullback rallies as I suspect that this is merely the top forming on a larger bear correction.
Buys to Watch:
Gold vs. Weakness- The price of gold has fallen the last day and a half after a decent sized short covering rally after failing to hold new lows. Some new longs also likely entered the market expecting a volatility swing out of the top of the range like the market had succeeded in doing for much of last year. The market's failure to do so on new money allocation is another sign that money is now unable to remove the bearish mentality of the market and that a decline in price should continue. Gold continues to stay in a fairly flat downward channel while the other metals and many other markets continue downside breakouts. Gold should not have the downside volatility of these other markets so it makes it the optimal spreading tool
Dollar Index- After a slightly troubling break starting at the beginning of the month the dollar has impressively recovered to it's highs on the move. It should continue to rally as money flows out of riskier assets and into the safety of cash. Depending on which pattern projection you choose to rely on I have a second leg move going continuing between 8050 and 8200 modestly.
Sells to Watch:
Copper- I covered much of the open interest story in the opening note and with continued troubling price action I believe copper is just beginning a large correction in a market that was largely over speculated in. The market, like a rubber band, was stretched the most of any during the recovery and should continue liquidation as large long positions that were accumulated on the rally unwind.
Silver- Silver should continue to encounter some support today on the lows from last week in the low $16 range. This support should not last for long though as I maintain a projection to the low $14 range on the weekly head and shoulders top. There is also a slight pullback today in the gold vs. silver ratio so as silver is held up I would look for entry into the market around low volume price trade at 288 and 281.50 to 283. (Gold - Silver/2 to get the chart).
Australian Dollar or Euro- It is pretty much your pick on which chart you prefer, the topping action of the Aussie or the continuation on the down leg of the Euro. On a weekly chart the Aussie sets off a double bop below 8665 that projects to 8055 and the Euro has a second leg projection to 136.50 modestly. Both have poor fundamental stories with Europe leading the way back down and Australia having an economy based on falling commodity prices so I do not think you can go wrong with either.
Put on the Radar:
Euro/Yen Cross- Like I stated in the dollar index the euro/yen had a more volatile correction than I had expected but with a large move so far today is sitting back near it's lows from last week around 125 (on the YR chart). I expect some support from it at these levels but like silver I expect it to easily continue downward shortly.
NASDAQ and NASDAQ vs. S&P 500- I moved this out of sells to watch to put on the radar as money flow into the stock market continued yesterday, and has been the trend over the last 11 months the money flowed more into the NASDAQ than the other markets. I believe like copper that the NASDAQ rubber band has been stretched more than others so I expect more downside potential than the S&P or Dow. With the rally in the NASDAQ yesterday and with the S&P staying relatively flat I believe today is a good opportunity to enter the short NASDAQ vs. S&P trade with minimal risk on a three day pullback.
Notes:
Grains: After a strong outside day down in the grain markets I believe the price will continue to fall, but as I stated earlier the large continued gain in open interest is propping up the markets for the time being.
Sugar: One of the stronger markets over the last few months is on the verge of setting off a double top below 2816. After it's open this morning the breakout was attempted but temporarily failed. The projection is to 2632.
Wednesday, February 3, 2010
Wednesday 2/3/10 Commodity Ideas
Opening Note:
With another strong rally yesterday in equities and commodities, especially crude oil and gold, I am cautiously looking for opportunities to re-enter short positions in the market. Led by the energy sectors failure to hold new lows below it's swing lows from mid December, the macro market has had two consecutive days of short covering rallies keeping many of the markets in what still appears to be a topping range. With increased volatility since the new year the swings in these markets have become more violent than the market has become accustomed to over the previous eight months. What I believe is key to focus on right now is the strength and weakness of particular sectors and markets versus one another,because despite the wild changes in sentiment in individual markets it is clear that certain ones have performed better than others. Crude oil and gold have shown individual strength and an unwillingness to make and hold new lows, while copper, the currency sector, silver, and the NASDAQ have all displayed lower volatility and an unwillingness to strongly rally. I will discuss a few of these relationships more in depth, but I always like to chart the strength and weaknesses across these sectors against each other to see if a new story or a better chart to trade emerges from their correlation. As we go forward these relationships will be a good way to play market movement with an extra edge and without being as susceptible to quick directional changes.
Buys to Watch:
Gold vs. Weakness- When the market and commodities break gold is always one of the strengths among the group as it has buying money flow in as a run to safety out of riskier assets or unreliable currencies. By charting the gold versus silver ratio (Gold - Silver/2 to get it in dollar terms) you can see that since January 19th the ratio has rallied over $80 (in gold terms). It was obvious that gold has been stronger than silver by looking at the two individual charts, but if you enjoy trading trending markets and looking for pullbacks this chart creates a market that is viable,but not necessarily on your radar. Gold vs. silver is not the only chart that exists like this so you can take any of the strengths and weaknesses listed in the opening note and play around with them to better see which markets are truly winning and losing the relationship battle. I believe the gold vs. silver chart continues back to the top of it's weekly range of $350 as commodities display more weakness throughout the spring.
Sells to Watch:
Copper- The market was the strongest volume traded market during the recovery and after violating it's uptrend last week has performed as the poorest in commodity land over the last week and a half. While even silver as a weakness had a decent sized rally off of it's bottom the last two days copper has barely budged. After showing some strength overnight it has completely given up going into it's open. I had a low volume sell zone between 315 and 320, which was nearly reached overnight. It can be difficult to find a perfect spot though so I would look for pullbacks similar to the one over the last 2 1/2 days as spots to sell.
Australian Dollar- With Australia's monetary system deciding to not raise rates any rally bounce in the Australian Dollar was squashed yesterday while similar markets like the Canadian and Euro rallied. With Australia's economy, like Canada's, based on resources and commodities more than others; as these markets break so does the Aussie. With the market rally yesterday ignored by the rate decision this chart is beginning to look like one of the better downtrends among the currencies.
NASDAQ vs. S&P 500- By looking at the weekly differential chart between the two you can see a strong uptrend that only failed two weeks ago. I have watched this chart most of the way throughout the recovery as the technology stocks led the rally over the financials and other large cap stocks. This market is clearly beginning a downtrend so I encourage selling the NASDAQ the most of the stock indexes. With greater tick volatility in the NASDAQ because of the larger index number you can sell more of the NASDAQ while purchasing some S&P or Dow as a spread to hedge against directional swings like we have seen the last two days. This is another good example of a viable market and different chart to trade other than the flat price of the equities.
Put on the Radar:
Euro/Yen Cross- This has been on the radar for the last couple weeks and should continue to be for the foreseeable future. It obviously has rallied over the last 2 1/2 days but has given up much of it's daily gains as the markets have opened. Watch this as an indicator for the magnitude of commodity and equity breaks.
Silver- Despite a sizable short covering rally over the last 2 1/2 days silver remains one of the weakest commodities out there and maintains it's head and shoulders weekly downside breakout of 17.10 today. I still look for the market to travel to the low $14 range, but with more caution now after the fast rally off of it's lows.
Notes:
Bean Oil- As crude oil has become more volatile over the past couple months while maintaining a price above $70, do not overlook the correlation between crude oil, palm oil, and bean oil as energy source alternatives. Despite soymeal breaking slowly throughout the soybeans break it was apparent yesterday that the nearly $3 rally in crude oil fed into the large bean oil rally along with soybeans. This leaves meal a move that is equivalent to the leftovers in the crush calculation between the three and the loser in the real story department.
*If you are interested in ideas on how to chart some of the inter-commodity strength and weaknesses shoot me an email and I can help you figure out how to best chart it in dollar terms and figure out a correct ratio to spread.
With another strong rally yesterday in equities and commodities, especially crude oil and gold, I am cautiously looking for opportunities to re-enter short positions in the market. Led by the energy sectors failure to hold new lows below it's swing lows from mid December, the macro market has had two consecutive days of short covering rallies keeping many of the markets in what still appears to be a topping range. With increased volatility since the new year the swings in these markets have become more violent than the market has become accustomed to over the previous eight months. What I believe is key to focus on right now is the strength and weakness of particular sectors and markets versus one another,because despite the wild changes in sentiment in individual markets it is clear that certain ones have performed better than others. Crude oil and gold have shown individual strength and an unwillingness to make and hold new lows, while copper, the currency sector, silver, and the NASDAQ have all displayed lower volatility and an unwillingness to strongly rally. I will discuss a few of these relationships more in depth, but I always like to chart the strength and weaknesses across these sectors against each other to see if a new story or a better chart to trade emerges from their correlation. As we go forward these relationships will be a good way to play market movement with an extra edge and without being as susceptible to quick directional changes.
Buys to Watch:
Gold vs. Weakness- When the market and commodities break gold is always one of the strengths among the group as it has buying money flow in as a run to safety out of riskier assets or unreliable currencies. By charting the gold versus silver ratio (Gold - Silver/2 to get it in dollar terms) you can see that since January 19th the ratio has rallied over $80 (in gold terms). It was obvious that gold has been stronger than silver by looking at the two individual charts, but if you enjoy trading trending markets and looking for pullbacks this chart creates a market that is viable,but not necessarily on your radar. Gold vs. silver is not the only chart that exists like this so you can take any of the strengths and weaknesses listed in the opening note and play around with them to better see which markets are truly winning and losing the relationship battle. I believe the gold vs. silver chart continues back to the top of it's weekly range of $350 as commodities display more weakness throughout the spring.
Sells to Watch:
Copper- The market was the strongest volume traded market during the recovery and after violating it's uptrend last week has performed as the poorest in commodity land over the last week and a half. While even silver as a weakness had a decent sized rally off of it's bottom the last two days copper has barely budged. After showing some strength overnight it has completely given up going into it's open. I had a low volume sell zone between 315 and 320, which was nearly reached overnight. It can be difficult to find a perfect spot though so I would look for pullbacks similar to the one over the last 2 1/2 days as spots to sell.
Australian Dollar- With Australia's monetary system deciding to not raise rates any rally bounce in the Australian Dollar was squashed yesterday while similar markets like the Canadian and Euro rallied. With Australia's economy, like Canada's, based on resources and commodities more than others; as these markets break so does the Aussie. With the market rally yesterday ignored by the rate decision this chart is beginning to look like one of the better downtrends among the currencies.
NASDAQ vs. S&P 500- By looking at the weekly differential chart between the two you can see a strong uptrend that only failed two weeks ago. I have watched this chart most of the way throughout the recovery as the technology stocks led the rally over the financials and other large cap stocks. This market is clearly beginning a downtrend so I encourage selling the NASDAQ the most of the stock indexes. With greater tick volatility in the NASDAQ because of the larger index number you can sell more of the NASDAQ while purchasing some S&P or Dow as a spread to hedge against directional swings like we have seen the last two days. This is another good example of a viable market and different chart to trade other than the flat price of the equities.
Put on the Radar:
Euro/Yen Cross- This has been on the radar for the last couple weeks and should continue to be for the foreseeable future. It obviously has rallied over the last 2 1/2 days but has given up much of it's daily gains as the markets have opened. Watch this as an indicator for the magnitude of commodity and equity breaks.
Silver- Despite a sizable short covering rally over the last 2 1/2 days silver remains one of the weakest commodities out there and maintains it's head and shoulders weekly downside breakout of 17.10 today. I still look for the market to travel to the low $14 range, but with more caution now after the fast rally off of it's lows.
Notes:
Bean Oil- As crude oil has become more volatile over the past couple months while maintaining a price above $70, do not overlook the correlation between crude oil, palm oil, and bean oil as energy source alternatives. Despite soymeal breaking slowly throughout the soybeans break it was apparent yesterday that the nearly $3 rally in crude oil fed into the large bean oil rally along with soybeans. This leaves meal a move that is equivalent to the leftovers in the crush calculation between the three and the loser in the real story department.
*If you are interested in ideas on how to chart some of the inter-commodity strength and weaknesses shoot me an email and I can help you figure out how to best chart it in dollar terms and figure out a correct ratio to spread.
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