Monday 4/12/10 Commodity Ideas

Opening Note:
This weekend a deal was struck between Greece and other members of the EU to provide financial support causing the market to open gapped higher in many supportive markets. The Euro opened over a full point higher above it's range for the last couple weeks on the bailout news. Friday saw a strong weekly closing rally in the sector strength of Equities as the Dow eclipsed the 11,000 level for the first time in 18 months. However, overnight and into this morning much of the market has weakened closing much of the gap created over the weekend leaving a number of Currencies and Crude Oil lower on the day already. This weakness has me concerned with buying the market today because opening with a gap was a strong sign that has all but given up when it should have supported higher prices. I think that there is potential for Commodities and Equities to continue lower today on this cautionary creep and recommend looking for stronger sales today rather than buys.


Buys to Watch:

Sells to Watch:

Cotton- Cotton has a bearish cup and handle pattern that was set off Friday below the breakout of 79.27 with a projection to 75.58. On Friday prices traded below all of the range trade since late February and as open interest has continued to rise over this time it appears that there are a number of large long positions that may be caught if prices continue to fall. Prices were supported on a rally after the open yesterday evening, but have traded in a tight sideways range since for most of the night. Above the highs for the day there is a low volume traded zone for short entry from 79.44 to 79.60 with moderate resistance higher from 79.62 to 79.84. It is necessary to use a tight stop on execution at this level though as there is another large low volume zone that stretches for nearly a full cent above this area.

Crude Oil- This morning Crude was one of the first Commodities to poke it's head lower on the day after a higher open and strength overnight. On Friday I thought that Crude could come under pressure if it was unable to rally above resistance from 86.38 to 86.82, which it did after the resistance provided a top on the day. This failure negated the possibility of a rally to higher prices after a brief consolidation and now looks like it has provided a top on a moderate break. The biggest story in the Crude market right now is the spreads involving the front month of May. They have completely fallen off of a cliff over the last week, which is a bearish signal for the front month outright. Stochastics also produced a sell signal on Friday in over-bought territory that is looking for confirmation today. Right now I do not have a good projection for Crude, but think that it is likely heading for a test of $80 on the bottom end of the previous consolidation range. While a moderate low volume area provided the highs on the rally on yesterday evening's opening I do not have a good short entry area right now, so I recommend using intraday charts and indicators for entry for right now. I believe that Crude is the best sale right now.

Put on the Radar:

Euro- The Euro opened on a gap higher overnight that was above the range that it has traded for the last two weeks setting off a bullish cup and handle pattern. The pattern has a breakout of 1.3593 with a projection to 1.3903. Although it was higher overnight the rally in the Euro has given up on European trading hours and has now reentered the top of it's consolidation range. Because the Euro is trading Greece news and rumors it has been a volatile and at times unpredictable market trading whatever the emotion is for the day. Because of this weakness and the rumor driven trade I do not recommend long entry in the market for right now, but to be aware of the pattern if it is reconfirmed and shows new strength.

Gold- I am still waiting for a close above the old high trade for this year in Gold of $1164.1 to move it to the buy list. The Gold has a large bullish head and shoulders pattern on the daily chart that has a projection to $1244. Overnight the Gold traded above this level, but has failed to maintain gains like much of the market as it is making new lows after it's morning open. The chart is still very strong technically with a nice up-trend on it's recent move and open interest continuing to pile into the market. However, both RSI and Stochastics are now in over-bought territory. I still recommend waiting for a close above this $1164 level for long entry into the market to confirm the larger move.

Notes:

Copper- I like to take special note when occurrences like this happen as the Copper had a large stop clearing rally above the market last evening around 6 pm. There is a disturbing trend over the last year of these blow outs in thinner markets during off hours. It is possible that this was just a margin call liquidation of a position, but I have seen it happen too many times to believe that this is just normal market action. I do not like to buy into many conspiracy theories, but there is a strong possibility that big money is coming into these thin markets with an idea of where stops lay and manipulating the markets for their advantage.