Tuesday 4/20/10 Commodity Ideas

Opening Note:
After a weaker opening Sunday night and into Monday morning the macro market was able to find support by mid-day yesterday fueling a rally in supportive Commodities and Equities that has continued into this morning. While a number of larger bearish projections were set off, namely in Crude Oil and the Australian Dollar, these moves only were able to fulfill a move to halfway or less on their projections before negating these patterns overnight. Looking at the individual daily charts across the market sectors, Equities still look the strongest and remain the best buy on breaks along with the Soybean Complex. However, Energies and Metals still look as though they have formed a top on their extended rallies and look like a sale on pullback rallies, which there are plenty of. The main goal right now is to avoid getting chopped up in these volatile swings right now and to try to pick your spots carefully by using less risk and exiting quickly if the market does not hold your entry price. While all of the intraday resistance levels I noted for initiation yesterday held temporarily for at least a couple hours they were not pivot points on a bigger continuation down in the markets. Right now waiting for 1 1/2 to 2 1/2 day pullbacks for continuation is the more prudent method for initiation as most Commodities have not seen liquidation in open interest and instead continue to see maintenance if not in increase in positions.

Buys to Watch:

July Soybean Meal- Overnight my largest traded contract switched in Meal from May to July, so I recommend trading July and will refer to it going further. The Meal has the strongest individual chart of any of the Grains right now and has a sizable bullish head and shoulders pattern for July that was initiated Thursday and confirmed by the rally yesterday. The pattern had a breakout value on Thursday of $278.3 with a projection to $307.5. Open Interest continues to rise in the Meal and Stochastics maintains a positive mode for momentum in the market. Right now I do not have great entry levels in the Meal but view support over the last two days from 280.0 to 282.8 as a base for initiation on a price break.

November Soybeans- The Soybean contract is what is providing strength to it's Meal component and right now the November contract has the strongest bullish technical chart. After it's breakout rally out of consolidation above $9.49 1/4 last week the November contract now has a projection from $9.86 to $9.92 1/2. Like Meal Soybeans have continued to see a rise in open interest on the 2 week rally, but do have a troublesome indicator as the daily Stochastics is now sitting in overbought territory and dangerously close to setting off a sell signal. Despite the possible momentum sell signal I still feel the Soybeans have strong continuation prospects on their rally. Yesterday the market briefly entered the low volume buy zone from $9.48 3/4 to $9.51 1/2 before rallying with conviction into this morning. Like the Meal I do not have a good entry zone today, but look at the support from $9.54 1/4 to 9.57 as support to purchase against. Note: The July-November Soybean spread is not working well on rallies currently, which should be taken as a non-supportive indicator on the rally as it tends to work on strong demand driven rallies.

Sells to Watch:


Put on the Radar:

Sell Metals- After a devastating break on Friday and some continuation lower in prices into Monday morning the Metals found a supportive rally led by long entry in the Gold market. The Gold, Silver, and Copper charts all continue to look bearish on their daily charts, but the strength of the 24 hour rally has caused me to move them from the sell column into the Radar. Each market has a decent low volume area for price rejection that has indicated the highs on the day thus far, but the characteristics of the Silver market still lead me to believe that it is the best sale of the group. The low volume price traded areas are as follows: Gold $1143.0 - 11.46.5, Silver $18.01 - 18.15, Copper $3.5380 - 3.5570. Gold had the largest open increase yesterday as it appears that risk aversion is causing some to enter the Gold market for safety. Furthermore, although the Gold to Silver ratio (Gold - Silver/2) was weaker yesterday it still is definitely not a sale right now on the daily chart, which should support Gold prices over those of Silver. Copper does also appear to have a bearish top, but also experienced and increase in open interest yesterday while Silver only had a slight increase, making Silver the best sale at these levels in my opinion still. Because the recent rally was fierce I recommend waiting for a rally into the upper half of these zones and exiting short positions quickly if the market is not cooperating.

Sell Crude Oil- Crude Oil found support yesterday in the extended low volume price traded zone from $81.32 to 82.16 that correlated price-wise to the initial target zone I had for the May contract last week. The support was followed by a creeping but strong rally into this morning thus far, negating the bearish cup and handle pattern temporarily as it has traded above the $83.75 breakout. There is a moderate low price traded zone from $84.82 to 85.08 that has decent resistance from $85.08 to 85.38 from previous days' trade. I am waiting for prices to reach this level before attempting to a sale as the market still seems more than willing to continue buying Crude despite the bearish mode of it's chart. Open Interest slightly increased again and is back near the highs for the year as it has increased even on breaks in the market. Right now nearly 60,000 outstanding longs that have purchased throughout April are net losers on their position and I believe that this leaves a strong potential for a long covering break if prices continue to decrease, so I am still waiting to play the sell side of the trade.

Notes:

Australian Dollar- In what now appears to have been a big bait and switch the Australian Dollar market has rallied over 160 ticks off it's lows from yesterday morning negating the bearish head and shoulders pattern after reversing above the .9160 breakout. The market has already eclipsed any low volume resistance zones and could possibly be a buy on a new leg with a continuation rally above earlier resistance, making it a no trade for right now and definitely not a sell.

Cocoa- July Cocoa now has over a month and a half of technical base on it's daily chart and with a rally above $3033 has a projection to $3231 on the cup and handle pattern. Daily and weekly stochastics both have recent buy signals and maintain a positive mode for momentum on the rally. Although open interest has decreased month over month in the Cocoa this chart looks similar to the Soybeans where technicals may be able to override any fundamental story and lead prices higher.