Thursday 4/1/10 Commodity Ideas

Opening Note:
While many traders may be checking out mentally with Passover underway, Easter approaching, and Butler fans pumped for the Final Four this weekend, the market is preparing for new money allocation and the Unemployment Report tomorrow as we begin the second quarter. I have believed for the last few months now that the Unemployment Report is less important in the larger recovery picture at this point and is playing second fiddle to the FOMC announcement later this month on April 28th. The last few Unemployment Reports have not impacted the market much based on the number, so unless there is an outlying surprise I believe that the Report should come and go tomorrow. With many of the always long Commodity Funds struggling to turn a profit this year there are reports that money is not flowing into them at the same rate and may begin to exit. Because of this I do not expect the same fury of money to flow into the market over the next few days that we have seen at the beginning of the month over the last year. Despite less new allocation it looks clear that both Energies and Metals are advancing on a moderate leg up with Heating Oil and Copper leading the way and the RBOB and Gold lagging. Equities have had low volatility over the last week in a sideways holding pattern that, for the first time in a long time, does not look strong. The Stock Indexes look primed to come under pressure over the next week if the money flow does not rally them to new highs. The Currency sector is kind of a wash right now and a difficult position trade as the Dollar Index, which a week ago looked bullish, looks like it may be ready to travel sideways for a bit longer. Finally, after a bearish report across the board that caught many longs off guard, the Grain sector looks like it will continue to weaken on a counter-seasonal trend this spring.

*Note: Despite the Unemployment Report tomorrow the Grains and many other markets will not be open because of Good Friday. Most of the high volume markets will be open tomorrow, but check the exchange websites for closings and plan accordingly if you intend to hold positions over the long weekend.

Buys to Watch:

Crude Oil or Heating Oil- Although the Crude is strong and usually on most people's radar the Heating Oil is the leader in the Energy sector right now. I know many people only trade the Crude and not it's products so I will give the Crude trade levels, but if you have not traded Heating Oil I recommend putting the two charts next to each other to compare and strongly consider executing in the Heat. The Crude has a double bottom (or W) pattern in motion right now that had a breakout of $83.36 and a projection to $87.18. I have a low volume zone for long entry in the Crude from acceleration on the European open overnight from 83.58 to 84.10 with support from 83.25 to 83.57. The Crude will encounter stronger resistance on the rally with the previous high contract close of 84.86, the psychological $85 level, and the high contract trade of 85.43. For Heating Oil the breakout on the same pattern was 215.63 cents with a projection to 225.13. If the market catches a break I have a low volume zone that correlates to the Crude levels from 217.45 to 218.70 with a larger support zone that ranges from 215.45 to 217.35. Resistance lies at the old high close of 221.87 and the high trade of 222.68 on it's way to 225 cents. I like the Heating Oil better right now because the Heat Crack spread also has a bullish pattern right now as it gains on the Crude. Also, the Heat has a similar bullish pattern as it continues to gain over the RBOB.

Copper- Copper has finally eclipsed the high trade resistance level at $3.55 and has a small triangle continuation pattern that projects from $3.72 to $3.75. I have a low volume zone to buy on a break from 3.5740 to 3.5900 that has support from 3.5590 to 3.5720. Below this support level there also is a small zone near the 3.55 breakout that could be a good buy opportunity. Open Interest in Copper continues to skyrocket on this breakout move and it continues to be the strength in the Metal sector, making it good buy.

Silver- As I have stated over the last few days, I am looking for a strong breakout rally for the Silver. After a few attempts at a rally above $17.60 the Silver finally has momentum this morning after it's open making it a buy. Both RSI and Stochastics momentum indicators remain positive for the market right now and the Gold to Silver ratio (Gold - Silver/2) is continuing a new leg down showing Silver strength. I am a little concerned however that Open Interest has not risen much lately in Silver like I had expected it to. The breakout for Silver was $17.60 and has a projection to $18.65. I have a low volume buy zone from $17.61 to 17.66 with support from 17.48 to 17.59, but after the strong opening rally this morning it is unlikely that it will reach these levels again. Stay tuned for more entry levels as they become clear.


Sells to Watch:

Japanese Yen- The breakout on the topping projection was 108.60 and has a projection to 104.10. While many of the currencies are sideways or unclear, the Yen is in a strong leg down right now and is the only Currency that I believe is in play. The market has resistance from 107.06 to 107.25 on the high end of it's range today for stop placement if you are already short. I do not have great sell entry points today so enter at your own risk or wait for better entry levels to emerge.

Put on the Radar:

Gold- Gold is the laggard of the Metal sector right now, but it looks to be potentially forming a large bottom head and shoulders pattern. Draw a neckline connecting the highs from January 11th and March 3rd to form the pattern. The breakout level on the pattern today is $1136.6 and will continue to decrease each day. Keep an eye on this pattern because if the Gold starts a strong bullish pattern as the weakest in the sector then Silver and Copper could be headed for all-time highs.

Euro/Yen Cross- I am a big fan of using the Euro/Yen cross as an indicator for Commodity and Equity strength. Right now the cross is in a bullish cup and handle pattern that should continue to support the market. Using the YR symbol CQG chart the breakout level of 125.13 has a projection to 129.26. Keep this on your radar screens as continuation means further support.

Notes:

Cocoa- Although Cocoa managed to close higher somehow yesterday and is slightly stronger today I am taking Cocoa off of my buys list. Yesterday's action was unnecessarily volatile on a downside move. Looking to catch a move of only $100 - $150 does not have a good risk/reward when you need to risk $80 - $100 to capture it, so I do not recommend executing this trade right now.

Corn- I did not put this as a sell today because the Corn break was not as strong as the other Grains and I still believe Wheat is the weakest in the Grain sector. The head and shoulders pattern on the May Corn has a projection to $3.30 1/2. I have a low volume sell zone from 3.48 1/2 to 3.52 with the portion from 3.50 1/2 to 3.52 being the gap from yesterday's 7:15 close to the open. There is stronger resistance above this from 3.52 to 3.54 for stop placement. Corn is not my favorite sale overall right now, but if you are just trading grains I think it is the best with beans in a range and Wheat having nearly met it's initial projection.

Wheat- Be cautious if you are still short Wheat. Yesterday was a smooth transition to lower prices on the day so there is not a good volume traded resistance level until $4.64. The market could have an easy time beginning a short covering rally.