Friday 4/23/10 Commodity Ideas

Opening Note:
After opening much weaker yesterday morning the macro market staged an incredible recovery with Equities and Energies finding a way to close higher on the day. This was one of the strongest reversals of any during the recovery period of the last two and a half months as a 15 minute chart trend was formed around 9 a.m. and slowly rallied it's way back to the highs on the day. While pretty much every bone in my body was telling me to sell Crude Oil on it's technical weakness prior to yesterday I am left perplexed today. The markets appear to be in a state of sideways volatility right now as markets that appear tired of the bullish run and show weakness are battling with new allocation money that continues to buy new lows with strength whenever the market is on the verge of larger weakness. I know that I am not alone when I say that holding anything longer than 24 hours right now is iffy at best right now and I believe that this mentality among position traders is leading into these strong reversals that seem to pop up everyday in some market. Equities are now sitting just off their highs and are positioned to continue their rally, as they tend to clear out any shorts each time they enter the market, still making them the strongest sector and the best buy. I am leaving Energies off of my "tradeable" markets list for right now until the market conditions change to make them less volatile with more direction.

Buys to Watch:

July Soybean Meal- The breakout on the head and shoulders pattern has not had a down day since initiation as the market has built a strong base trend higher toward the $307.5 projection. The base trend today has a value of $290.9, which should provide support for the market. The low volume zone that I was waiting for on initiation from 288.2 and 290.5 was only barely ticked into on overnight trade and was not pulled into yesterday. This zone is below the trend value today, so I am using the larger profile support from 290.4 to 293 as a base on entry in the low volume traded area from 294 to 294.2 as a smaller risk trade. If the uptrend on the Meal is rejected I would take a flat position in the market for the time being, but still watch the lower volume zone from the 288.2 to 290.5 range for indication on support at this level to buy or if there will be continuation lower. Note of Caution: Both Stochastics and RSI are now in overbought territory on the daily chart indicating that momentum higher may be waning as a pullback may be necessary soon.

Cotton- I have come to the conclusion that the best way to play the Cotton rally is by using options as a violent two day pullback wiped out a number of longs, but still held the market's bullish breakout. Although the market came close to rejecting the pattern yesterday, the bullish breakout on the daily chart above 84.24 has a projection to 89.08 and the weekly continuation pattern has a new leg projection off of a flag pattern to the 95 cent level. The market recovered later in the day yesterday after the break and is strong again this morning as longs have entered on the open. The market likely needed this break in momentum prior to continuation, but I now recommend looking at longer date options to capture both the daily and weekly projections.

Cocoa- Cocoa is entering the home stretch on it's bullish daily chart projection on the cup and handle pattern of $3231. The market has continued to climb higher each day on the upwards trending rally. Overnight the market entered the low volume zone from 3101 to 3131 and rallied above it. There is a smaller base of higher volume traded support from 3133 to 3143 and as the market is nearing it's projection I recommend moving your stop to just below the 3133 level to give the market room to continue, but to not allow profits to escape. A re-entry into the low volume zone does not provide as much support the second time, so I would exit near the top and ring the cash register if it trades into this area.

Sells to Watch:

Put on the Radar:

S&P 500 Triangle- The S&P has been weighed down in comparison to the Nasdaq on the Goldman Sachs news and has failed to make new highs yet over the last week. There is a small triangle that has formed on the daily chart over the last 7 days of trade that has a topside breakout value of 1209.00 today and a base of 1188.50. Above the 1209.50 swing the market projects to 1232.25 on the continuation pattern, but a close below the base would signify a top. With the Nasdaq already climbing to new highs I believe that the prospects of bullish continuation are stronger on the triangle.


Notes:

Ten Year Note- The Ten Year Note rejected it's bullish daily trend with a close below the daily value yesterday. Further weakness this morning has set off a smaller double top pattern on the daily chart with a breakout already established below the 116.185 level that has a projection to 115.235. The fixed income market has acted non-decisive as of late and I believe is a better sale on the prospects of higher interest rates going forward.

Euro Currency- In what could be another case of the protection game against another leg down, the Euro traded below the previous low trade of 1.3266, but staged an impressive recovery into this morning thus far. A close below the previous low trade would likely mean continuation on a new leg down for the Euro with a projection from 1.2750 to 1.28. I know during the previous low two weeks ago that foreign entities stepped in to purchase Euro around this level, so it is likely that there will be another battle here today as a protection attempt is made.