Tuesday 4/27/10 Commodity Ideas

Opening Note:
A strong weekly close on Friday was followed yesterday by very quiet markets that had low volatility and seemed to just sag lower throughout the day. It appears that the inflow of money is taking a temporary break as the FOMC meeting today and announcement tomorrow take center stage for the markets. No more than a week and a half ago Bernacke repeated the "Extremely low, Extended period of time" keywords in a speech and based on the continued rise in open interest and prices across the market I assume that the majority of the market is expecting The Fed to keep the same stance on their rate and economic policy. The Fed does not appear to be in the business of shocking the market right now, and if they were to suddenly change policy without warning I would expect a huge windfall of long positions, so I believe that after the announcement Wednesday that we will be back in the game of take Commodities and Equities higher for the month of May. Although there is the Consumer Confidence number at 9 a.m. today, I would lower expectations on the market adding positions until after Wednesday and lower long exposure for the time being, as basically the entire market is lower already this morning and could continue to creep downward as the market reduces exposure.

Buys to Watch:

Gold- The large head and shoulders pattern is still intact on the daily chart that has a projection to $1244 with a neckline of $1129 today. Open interest continues to rise in the Gold, even on a day lower like yesterday, and much more so than in any of the other metal markets. Stochastics now has a confirmed buy signal on the daily chart from two days ago, but after yesterday's slight break does not look as strong as it potentially did the day prior. I have a good low volume "single print" zone for long entry on my market profile from $1144.5 to $1152.2 with some stronger initial support below from $1140 to $1143. On a note of caution though, options expiration is today for the May Gold and high volume traded prices like $1150 tend to act like a magnet for prices near expiration. With the FOMC announcement tomorrow as well I only recommend putting on a small initial position on the lower end of the zone if prices trade there today or tomorrow, as the rally potential is diminished until Thursday, and holding a position through the FOMC announcement is very risky.

Sells to Watch:

Put on the Radar:

Japanese Yen- The Yen has set off a bearish cup and handle pattern on it's weekly chart with a breakout level of 106.79 and a projection to 100.12. As the Yen is tied to the U.S. interest rate market on an exchange rate investment trade the market has shown topping action much like the Fixed Incomes have. The monthly Yen chart uptrend of the past two and a half years was negated last month and Stochastics for the monthly, weekly, and daily charts all remain in a negative mode as well. The low volume resistance zone for short entry sits from 106.55 to 106.81 with stronger initial resistance above this from 107.02 to 107.16. This has provided the highs for the day thus far, but like I stated earlier, I do not like the Yen as a sell right now if it holds a rally above the 107.16 level for any extended time frame. Note of caution: The FOMC announcement is tomorrow and holding positions through the announcement is risky. If The Fed uses the same language as it has this could have a slight rally effect on the Yen, but like the Fixed Income markets it has continued to weaken and have less of a rally effect for the market each time the Fed has taken the same stance.

Buy Stock Indexes- The S&P 500 negated the breakout on it's continuation triangle with a lower close yesterday afternoon, but the Dow still remains broken out as the strength of the sector over the last two days on it's similar pattern. Like I stated in the opening note, I believe that prices could continue to weigh lower across the market for the next day and a half as some longs are covered prior to the FOMC announcement. The Dow however still is maintaining prices above the 11,098 breakout level today for the June futures and still has a projection to 11,278. The S&P, which I recommended as a buy yesterday negated the 1209 breakout and has traded back into the triangle formation with boundaries of 1192.75 and 1208.5 today. I am holding off on purchasing any Equities until after the FOMC for now, but keep them on your radar as they should continue to perform strong if The Fed renews it's policy for another month.

July Soy Meal and Soybeans- Both markets have basically negated their daily uptrends over the last two weeks unless they close drastically higher today. Stochastics for each market has also produced a sell signal in overbought territory as the rally continuation higher has stalled. I recommend reducing long exposure in these markets for right now as they need a break in prices prior to continuation higher. However, I do have good support zones on my market profile just below the markets this morning that could provide good risk/reward on long entry on the two day pullback. The Soybeans have a low volume zone from $9.98 1/4 to 10.01 1/2 with initial support to 9.96 and the Meal has a low volume zone that correlates to the Beans from $288.2 to 290.5 with initial support to 286.7. I still prefer buying the Soy Meal over the Soybeans for the time being as the projection in the Meal to $307.5 on the daily head and shoulders still stands with higher potential than the Soybeans. Also note that these trades are on the radar because they have a compelling setup for entry, but the overall trend and momentum has potentially turned negative for the markets, so take this into consideration when determining size and risk on the trades.

Notes:

Cotton- I can not say that the chart looks terrible since the breakout on the daily and weekly rally patterns, but I also can not say that it looks great as of right now either. Because of this I recommend reducing your long exposure for the time being, while also maintaining my opinion that options are the best way to play the market on the potential rally. Cotton has stalled out twice on the rally higher with two spike failure days in the last week. The daily cup and handle projection to 89.08 and weekly new leg higher projection to the 95 cent level both are still intact with prices maintaining above the previous consolidation ranges high trade of 84.24 cents. However, I still do not have a great area for long entry or support and believe that upward momentum has been greatly reduced.