Opening Note:
Following yesterday's huge rally in the macro market the range has been abnormally low overnight compared to recent action. The market is slightly stronger this morning, but it appears that most of the significant move and bookkeeping prior to the holiday weekend was done yesterday. I expect that the market will continue to rally today, but to a much lesser degree as shorts clean up positions heading into Memorial Day and the end of the month. Today's letter will be brief because unless you are already long the Australian Dollar, Nasdaq, or Crude Oil I believe that there is no reason to enter a position today prior to the long weekend and there's no harm in starting it a little early after a good month. I recommend just watching the action today and preparing for re-initiation of short positions towards the beginning of next month when this short covering rally shows signs of stalling out. I will provide some halfway back on the rally numbers to keep on your radar for next week. I personally plan on buying some puts on the market with some volatility a bit cheaper at these levels and recommend it if they are able to reach them.
*Roll your front month contract in the fixed income markets to September and your Gold to August.
Buys to Watch: If you are already holding a long position in the Aussie (or Euro or Canadian), Crude, or Nasdaq I believe that these will be the best performers to the upside today on a continuation of the short covering rally.
Sells to Watch:
Put on the Radar:
Projections on Rallies- The Australian Dollar has a bullish reversal pattern that has a projection range from .8625 to .8641. There is a lower volume area from .8406 to .8412 that should provide some support along with the higher volume pivot level that is now support at .8404. Also keep in mind that the weekly bearish cup and handle pattern had a breakout level of .8547, which could provide some interim resistance as it has for the highs thus far today. The Nasdaq has a rally projection range from 1914.5 to 1925 as the strongest Stock Index among the sector. There is a possibility if you take into account only yesterday's spike that you could have a base projection of 1898.25, but I still feel confident that the previous range is sufficient.
Halfway Back Numbers- I would rather error on the side of caution so for these numbers I am measuring the move from the highs in late April to the absolute low trade recently, while disregarding the "Flash Forward" spike if it was not reached in the described market. It is possible to also measure from the rally highs just after the Flash spike to the base this week, but you would get lower levels in most cases.
S&P 500 - 1126.75
Nasdaq - 1906.5
Crude Oil - $77.35
Aussie Dollar - .8665
I am using these numbers if they are reached as a point to purchase an initial short position in the options market. I would become concerned with this position if the markets rallied above the 61.8% retracement level as a mental stop for the trades. It is not necessary for the markets to rally this far prior to a move lower, so I will also look to execute a similar strategy if they show topping action. These markets have shown some of the largest short covering rallies over the last few days, which means they are likely to continue to be the most vulnerable as we move forward at much better initiation prices now.
Copper- Yesterday I provided my trendlines that I have on my Copper chart and as I suspected the lower top trendline for the triangle pattern was violated yesterday. Now I am looking for a move to the top trendline at 3.2280 today as a spot to watch and possibly attempt a small short position if the pattern appears that it will hold. If this happens today I still advise waiting until next Tuesday for initiation.
Notes:
Heating Oil and RBOB Crack Spreads- The Heating Oil completely rejected after touching the breakout of the bearish head and shoulders pattern yesterday, so it has not come into play yet. However, the RBOB Crack Spread did enter it's low volume zone from 1062 to 1106. Yesterday I provided a resistance range of 1116 to 1122 for stop placement above, but the market did trade to 1129 mid-day yesterday so there is a possibility that you were stopped out depending on the exact level. This morning the spread is back in the low volume zone after failing to continue lower. I recommend removing a position in the spread if you have one right now prior to the long weekend as the spread's performance is underwhelming thus far.
Euro- The Euro has had the most volatile trade among all of the markets overnight as the bulls and bears battle over the monthly close. My hunch is that the Euro will find a way to settle above the 1.2326 weekly lows from '08. However, I have to admit that the Euro's action has been extremely concerning and weak over the last few sessions. While other Currencies like the Aussie and Canadian and the Commodity and Equity markets have had short covering rallies the Euro has really had to work just to stay above this last major support level. My initial prediction is that it will not be able to hold above the 1.20 level as June progresses and we will see the slide to .95 begin. The Euro is the key to the longer term macro market move, which I already believe has a 4-5 month move lower underway just to catch up to the Euro's move thus far. If the Euro does fall to below par with the U.S. Dollar then all bets are off on where the market heads to, but it will likely be very disappointing to those who believe we made a bottom in March of '09.
Friday, May 28, 2010
Thursday, May 27, 2010
Thursday 5/27/10 Commodity Ideas
Opening Note:
After a sizable break on the close yesterday on rumors of Chinese liquidation of Euro holdings the market has rebounded strongly overnight on European gains and squashing of these initial Chinese rumors. Despite finally posting a close in the Dow below the psychological 10,000 level yesterday the market has found a way to rebound again off of the base that appears to be forming. With the February lows now tested in the S&P 500 and many other supportive markets and relentless bullish reversals off of this base I believe that if the market can clear the next level of strong resistance that there could be a decent rally recovery after the month long move lower.
I am specifically keeping my eye on some key technical levels in the Stock Indices, Fixed Income, and Currency markets to evaluate whether this is just a weak test before continuation lower or if the market has a little more bounce in store. With the Euro continuing to test the weekly lows from '08 near 1.23 and with a new low close for recent action yesterday I believe that this market may be the short term key. As I have speculated for the last week and a half, I feel that global governments and the EU are seeing the same thing that I am and will protect the Euro around this base, especially as we go into the monthly close tomorrow. A move below 1.20 signals a move to .95 to me, so I am expecting that the market should see a little bounce going forward with a move above the high trade last week of 1.2674 meaning a move to roughly 1.32.
However, I remain fundamentally bearish and believe that this protection plan for the Euro will likely come up short in the long run with a move lower on the horizon for the overall market. With such a violent swing down over the last month it is likely that the market needs a bounce to get new longs in the market and clean out some of the shorts. I am beginning to see the initial formation of some large topping patterns in both the Metal and Equity sectors that could use a larger rally here for facilitation of a better trade in the future. There should be a slowdown in some of the bearish global news, but I believe that the World has too many nations wrought with debt problems that will emerge as we go forward. I recommend lightening up on short positions for the time being until the magnitude of this short term rally is better understood, but still focusing on the larger bearish picture with a 4-5 month macro move lower underway as I see it now.
Buys to Watch:
Sells to Watch:
Heating Oil and RBOB Crack Spreads- I do not have any of the volatile outright markets on my trade list for the time being, but these Energy Crack Spreads have set up some good looking bearish patterns to trade in the meantime. If you have access to CQG to see the Heating Oil/Crude spread enter HOECLE and for the RBOB/Crude Oil enter RBECLE. Right now the Heat Crack Spread has a bearish head and shoulders pattern on it's daily chart with the neckline from the lows on May 10th to May 20th having a value of 924 today. A breakout below this level today projects a move to 622. The spread has already bounced off of this level today so it may need another day or two if it is to be set in motion. However, when you keep the same neckline dates of May 10th to May 20th on the RBOB/Crude Spread you can see that this market already has a breakout below 1147 yesterday with a projection to 802. For entry on this trade there is a good low volume zone from 1062 to 1106 with larger volume resistance near 1120 with another low volume area from 1140 to 1152 with larger volume resistance at 1175. This higher level has already been reached on the trade overnight, so I believe that entry on a rally into this lower zone is now a good level for short entry.
Put on the Radar:
Key Indicator Levels- I already discussed the important Euro level in the Opening Note, but I also have some other levels that should indicate whether this recent rally is just another small fakeout or if we could see a continuation higher to about halfway back on the recent break. For the S&P 500 the 1097 - 1105 level is important as it is a low volume reversal zone and also the 10% correction, 200 day moving average, and psychological 1100 level. A correlated level in the Nasdaq is from 1845.5 to 1857.5. I have a reversal breakout level for the Nasdaq at 1840 that has a projection range from 1914.5 to 1925, which would non-coincidentally fall into the range of a 50 to 61.8% correction on the recent break. The Nasdaq would likely be the strongest Equity Index on the recovery rally and I would not have a problem jumping on with some small size if the market rallies above this low volume zone and the larger volume 1865 level.
I have had the Bond market on a weekly cup and handle breakout above 123.25 with a projection to the 133 to 134 level for the last few days, but the market has now formed a bearish reversal and is testing this breakout level today. There is a large low volume level in Bonds from 123.01 to 123.31 that the market is sitting in currently. A break below 123 would signal to me that a pullback near the 120 level would be in order on a 50% pullback in conjunction with the Equity Indices.
Finally, I am watching the supportive Currency markets of the Australian and Canadian Dollars. The Canadian Dollar has already rejected it's weekly breakout level of .9274 over the last few days on a strong rally. The Aussie Dollar is in the midst of a large weekly bearish cup and handle pattern with the old breakout level of .8547, but now has a daily chart reversal above .8345 that has a projection range from .8625 to .8641. There is larger volume resistance for the Aussie around .8404 that has provided the highs for today, but I believe that it is a decent buy above this level with a smaller size on the rally continuation.
In Summary, watch these levels across the different sectors as an indicator for direction over the next couple weeks. If you are still looking to enter short positions these are all good levels to do it against, but I am waiting for confirmation at these levels to set up a game plan going forward for the next week and month. If the market macro market is able to rally through then I believe that we can expect a 50% correction on the recent break before becoming a good macro short again. If these levels continue to hold, then I expect a move below the February lows shortly in most of the supportive markets. As I said in the Opening Note, I am seeing the beginnings of some large topping patterns across the sectors and a 50% rally back would likely facilitate a better trade on a larger move lower.
Notes:
Copper- Refer to yesterday's newsletter for my explanation on why I want to short Copper and possibly use a Gold hedge. To help you get a similar picture to what I am seeing I wanted to provide the lines that I have on my Copper chart at the time being. On the daily chart connect:
High May 10th to High May 13th
High May 10th to Close May 13th
Low May 17th to Low May 21st
Low Feb 5th to Low May 17th
What you now have on your daily chart is an extremely large topping pattern similar to a head and shoulders as well as a bearish continuation triangle with two potential top trendlines. This shorter term triangle has had a bounce off of the lower top trendline for the last four days, but is threatening to rally above today and likely to the higher top trendline. It is a decent low risk trade to try a small initial sale against these top trendlines, especially if there is a rally to the next line for early entry on a possibly huge trade. A breakout below this triangle would set off the larger topping pattern that has an 81 cent projection, which points to the $2.10 to $2.15 level depending on the day. However, if this triangle does in fact fail on a larger macro rally I expect Copper to come back into play at a later date on a strong bearish head and shoulders pattern.
After a sizable break on the close yesterday on rumors of Chinese liquidation of Euro holdings the market has rebounded strongly overnight on European gains and squashing of these initial Chinese rumors. Despite finally posting a close in the Dow below the psychological 10,000 level yesterday the market has found a way to rebound again off of the base that appears to be forming. With the February lows now tested in the S&P 500 and many other supportive markets and relentless bullish reversals off of this base I believe that if the market can clear the next level of strong resistance that there could be a decent rally recovery after the month long move lower.
I am specifically keeping my eye on some key technical levels in the Stock Indices, Fixed Income, and Currency markets to evaluate whether this is just a weak test before continuation lower or if the market has a little more bounce in store. With the Euro continuing to test the weekly lows from '08 near 1.23 and with a new low close for recent action yesterday I believe that this market may be the short term key. As I have speculated for the last week and a half, I feel that global governments and the EU are seeing the same thing that I am and will protect the Euro around this base, especially as we go into the monthly close tomorrow. A move below 1.20 signals a move to .95 to me, so I am expecting that the market should see a little bounce going forward with a move above the high trade last week of 1.2674 meaning a move to roughly 1.32.
However, I remain fundamentally bearish and believe that this protection plan for the Euro will likely come up short in the long run with a move lower on the horizon for the overall market. With such a violent swing down over the last month it is likely that the market needs a bounce to get new longs in the market and clean out some of the shorts. I am beginning to see the initial formation of some large topping patterns in both the Metal and Equity sectors that could use a larger rally here for facilitation of a better trade in the future. There should be a slowdown in some of the bearish global news, but I believe that the World has too many nations wrought with debt problems that will emerge as we go forward. I recommend lightening up on short positions for the time being until the magnitude of this short term rally is better understood, but still focusing on the larger bearish picture with a 4-5 month macro move lower underway as I see it now.
Buys to Watch:
Sells to Watch:
Heating Oil and RBOB Crack Spreads- I do not have any of the volatile outright markets on my trade list for the time being, but these Energy Crack Spreads have set up some good looking bearish patterns to trade in the meantime. If you have access to CQG to see the Heating Oil/Crude spread enter HOECLE and for the RBOB/Crude Oil enter RBECLE. Right now the Heat Crack Spread has a bearish head and shoulders pattern on it's daily chart with the neckline from the lows on May 10th to May 20th having a value of 924 today. A breakout below this level today projects a move to 622. The spread has already bounced off of this level today so it may need another day or two if it is to be set in motion. However, when you keep the same neckline dates of May 10th to May 20th on the RBOB/Crude Spread you can see that this market already has a breakout below 1147 yesterday with a projection to 802. For entry on this trade there is a good low volume zone from 1062 to 1106 with larger volume resistance near 1120 with another low volume area from 1140 to 1152 with larger volume resistance at 1175. This higher level has already been reached on the trade overnight, so I believe that entry on a rally into this lower zone is now a good level for short entry.
Put on the Radar:
Key Indicator Levels- I already discussed the important Euro level in the Opening Note, but I also have some other levels that should indicate whether this recent rally is just another small fakeout or if we could see a continuation higher to about halfway back on the recent break. For the S&P 500 the 1097 - 1105 level is important as it is a low volume reversal zone and also the 10% correction, 200 day moving average, and psychological 1100 level. A correlated level in the Nasdaq is from 1845.5 to 1857.5. I have a reversal breakout level for the Nasdaq at 1840 that has a projection range from 1914.5 to 1925, which would non-coincidentally fall into the range of a 50 to 61.8% correction on the recent break. The Nasdaq would likely be the strongest Equity Index on the recovery rally and I would not have a problem jumping on with some small size if the market rallies above this low volume zone and the larger volume 1865 level.
I have had the Bond market on a weekly cup and handle breakout above 123.25 with a projection to the 133 to 134 level for the last few days, but the market has now formed a bearish reversal and is testing this breakout level today. There is a large low volume level in Bonds from 123.01 to 123.31 that the market is sitting in currently. A break below 123 would signal to me that a pullback near the 120 level would be in order on a 50% pullback in conjunction with the Equity Indices.
Finally, I am watching the supportive Currency markets of the Australian and Canadian Dollars. The Canadian Dollar has already rejected it's weekly breakout level of .9274 over the last few days on a strong rally. The Aussie Dollar is in the midst of a large weekly bearish cup and handle pattern with the old breakout level of .8547, but now has a daily chart reversal above .8345 that has a projection range from .8625 to .8641. There is larger volume resistance for the Aussie around .8404 that has provided the highs for today, but I believe that it is a decent buy above this level with a smaller size on the rally continuation.
In Summary, watch these levels across the different sectors as an indicator for direction over the next couple weeks. If you are still looking to enter short positions these are all good levels to do it against, but I am waiting for confirmation at these levels to set up a game plan going forward for the next week and month. If the market macro market is able to rally through then I believe that we can expect a 50% correction on the recent break before becoming a good macro short again. If these levels continue to hold, then I expect a move below the February lows shortly in most of the supportive markets. As I said in the Opening Note, I am seeing the beginnings of some large topping patterns across the sectors and a 50% rally back would likely facilitate a better trade on a larger move lower.
Notes:
Copper- Refer to yesterday's newsletter for my explanation on why I want to short Copper and possibly use a Gold hedge. To help you get a similar picture to what I am seeing I wanted to provide the lines that I have on my Copper chart at the time being. On the daily chart connect:
High May 10th to High May 13th
High May 10th to Close May 13th
Low May 17th to Low May 21st
Low Feb 5th to Low May 17th
What you now have on your daily chart is an extremely large topping pattern similar to a head and shoulders as well as a bearish continuation triangle with two potential top trendlines. This shorter term triangle has had a bounce off of the lower top trendline for the last four days, but is threatening to rally above today and likely to the higher top trendline. It is a decent low risk trade to try a small initial sale against these top trendlines, especially if there is a rally to the next line for early entry on a possibly huge trade. A breakout below this triangle would set off the larger topping pattern that has an 81 cent projection, which points to the $2.10 to $2.15 level depending on the day. However, if this triangle does in fact fail on a larger macro rally I expect Copper to come back into play at a later date on a strong bearish head and shoulders pattern.
Wednesday, May 26, 2010
Wednesday 5/26/10 Commodity Ideas
Opening Note:
Yesterday morning the Equity markets opened near their lows for the day on a test of the February and yearly lows. While the middle portion of the day saw the stock market crawl slightly higher it was a late day rally and continuation overnight that sealed a strong rejection of these February lows. The rest of the macro market had a strong reversal led by the Equities as many markets are now displaying two days in the last week with spiky lows that could be forming reversal patterns as shorts cover temporarily and dip buyers enter the market on the pullback. This rejection was not based on a specific news item, so I believe that it is just the market showing that it is currently oversold.
I have had a cautious approach at different times over the last week, but have been proven wrong as the rallies have remained minimal and the moves lower in conjunction with the direction that I would like to be positioned. However, this rejection yesterday and into this morning is different than the other ones throughout May. The strong technical and psychological level associated with the February lows looks like it will be able to hold the market flood lower for the time being as two strong rejections are now associated with the level. I do remain bearish the overall market for the next 4 - 5 months as the weekly charts for Equities have now reversed to a bear trend, but I recommend lightening short positions for the rest of the week if you are not a long term trader. Some markets like the Australian Dollar and Nasdaq do have nice bullish double bottom and cup and handle patterns that could be taken advantage of with a little more rally, but I will only attempt a minimal long position on the strongest patterns if they come into play. I am still focused on selling rallies in supportive Commodities as I believe that this will be a short term consolidation rally prior to a lower continuation as the global debt story unravels.
Buys to Watch:
Sells to Watch:
Put on the Radar: *This is a long explanation, but I will refer to this passage going forward for reference with comments on the trade's dynamics only in the future.
Sell Copper with a Long Gold Hedge- I mentioned this idea briefly yesterday, but the trade revolves around the weekly chart for Copper. The Copper market outperformed nearly every market on the recovery since March of '09, including Equities, and this was done on a historically large amount of open interest entering the market. About a month and a half ago when I warned of weakness in the Copper and Crude Oil markets that was based on this large amount of open interest that had entered late and was holding large losing positions and in some cases adding to them despite price drops. While the Copper market has basically cleaned all of these "bad buying" longs on the short term (Crude has not finished yet) I believe that if the weekly chart caves in that there could be a much larger liquidation of the all time highs in long positions. I believe that this wipe out on the weekly Copper chart is likely dependent on Equities falling below their February lows as well, so the trade should stay on the radar for the time being until better entry is available.
The Copper market has recently acted as a strength among the overall market in relation to other Commodities. This is a strong signal if the entire macro picture was strong as well. However, I believe that Copper is incorrectly being grouped with the precious metals of Gold and Silver as a long term store of value. I have commented in the past on why Silver is different than Gold because you have to carry 63 times as much for equal value, but with Gold at $1200/oz and Copper at $3.10/lb you need roughly 6,200 times the amount of Copper to equal Gold. Copper is a resource that has an industrial value, but it is not a strongly correlated market to the precious metals as it tends to fall much harder on larger macro breaks.
Because of this relationship I believe that you can use Gold as a hedge at least on an initial short in the Copper market to have an opportunity at a large long liquidation. To get a better view of what you are looking at use Gold/Copper on a weekly chart. If you notice in late '08 and early '09 a large spike formed in the ratio between the Commodities on the larger macro break as Gold held it's value much better than Copper. As I look around at the Currencies and other "run to safety" relationships and markets like Fixed Income I notice that some of these markets are projecting moves towards similar spikes in the market while this ratio is just beginning to breakout. I believe that there is a lag in this relationship right now with a great buying opportunity on a longer term trade.
For entry on the trade I am recommend using either a 1:1 or 3:2 Gold to Copper execution ratio to equal out the contract size and recent volatility in the market. The 1:1 will provide better opportunity on a large Copper break, but will not provide as much protection. Using the daily chart for Gold/Copper I believe that an initial small position can be entered on a pullback to the 3750 level, which is above all of the trade in the ratio since last July and the long consolidation range. I recommend this as an initial position only though and not as execution for the whole trade. I will be watching the outright Copper market for the next entry level in a spot that is a preferable short in the market. Because the magnitude of this trade is dependent on a larger macro break and a longer term position please take this into consideration when executing and establishing size.
Notes:
Australian Dollar- Yesterday I provided two aggressive short entry levels for the Australian Dollar market. Both low volume entry levels worked temporarily as they stalled the market and reversed prices lower, but the uptrend for the last 24 hours was strong and continued higher through both levels. Now the Aussie has a spiky bullish reversal pattern similar to a double bottom. The breakout for the pattern is .8345 and has a projection range from .8625 to .8641. This is in contradiction to the large weekly bearish cup and handle pattern that I have the market in right now that had a projection at .8547 and a projection to .7784. While I still believe that the Aussie is going lower over the next few months I do not want to fight a strong short term bullish pattern and believe that you may actually be able to make some quick money if some short covering momentum emerges. Note: There is a low volume zone from .8342 to .8380 with larger volume resistance at .8404 that could stall a rally and possibly create a new bearish reversal in the market. I recommend waiting until after this .8404 level if you are looking to join the bullish crowd.
Bonds- Late in the day the Bonds dipped into my low volume zone from 124.29 to 125.00 with larger volume resistance to 124.19. This level held well and actually worked a bit into the early morning, but with the reversal higher in the macro market continuing into the late morning the Bonds broke below this support. Two days ago I gave a large low volume zone for the bonds between 123.01 to 123.31 that should provide some support and possibly a bullish price reversal for the market. I still have the Bonds in a weekly bullish cup and handle pattern with the breakout at 123.25 and a projection range from 133 - 134. This recent reversal has been strong though and I recommend laying off buying for the time being unless the market enters this low volume zone and you have a strong opinion.
Nasdaq Bullish Reversal, but Caution- The Nasdaq has been the strongest Index on both rallies and breaks at times in the market lately, meaning a lot of two sided volatility. However, the bullish reversal pattern is strongest in this Index right now and should have the best rally potential. The breakout level for the pattern is 1840 with a projection range from 1914.5 to 1925. Use caution on execution if you decide to play the bullish side though. The Nasdaq has a low volume area from 1845.5 to 1857.5 that could stall or reject prices. The S&P 500 also has a low volume zone from 1097 to 1105 that could stall overall market prices as well. I believe that Equities will continue lower below the February 5th lows in the coming weeks and recommend only using a minimal position if you are looking to jump on the short covering rally.
Yesterday morning the Equity markets opened near their lows for the day on a test of the February and yearly lows. While the middle portion of the day saw the stock market crawl slightly higher it was a late day rally and continuation overnight that sealed a strong rejection of these February lows. The rest of the macro market had a strong reversal led by the Equities as many markets are now displaying two days in the last week with spiky lows that could be forming reversal patterns as shorts cover temporarily and dip buyers enter the market on the pullback. This rejection was not based on a specific news item, so I believe that it is just the market showing that it is currently oversold.
I have had a cautious approach at different times over the last week, but have been proven wrong as the rallies have remained minimal and the moves lower in conjunction with the direction that I would like to be positioned. However, this rejection yesterday and into this morning is different than the other ones throughout May. The strong technical and psychological level associated with the February lows looks like it will be able to hold the market flood lower for the time being as two strong rejections are now associated with the level. I do remain bearish the overall market for the next 4 - 5 months as the weekly charts for Equities have now reversed to a bear trend, but I recommend lightening short positions for the rest of the week if you are not a long term trader. Some markets like the Australian Dollar and Nasdaq do have nice bullish double bottom and cup and handle patterns that could be taken advantage of with a little more rally, but I will only attempt a minimal long position on the strongest patterns if they come into play. I am still focused on selling rallies in supportive Commodities as I believe that this will be a short term consolidation rally prior to a lower continuation as the global debt story unravels.
Buys to Watch:
Sells to Watch:
Put on the Radar: *This is a long explanation, but I will refer to this passage going forward for reference with comments on the trade's dynamics only in the future.
Sell Copper with a Long Gold Hedge- I mentioned this idea briefly yesterday, but the trade revolves around the weekly chart for Copper. The Copper market outperformed nearly every market on the recovery since March of '09, including Equities, and this was done on a historically large amount of open interest entering the market. About a month and a half ago when I warned of weakness in the Copper and Crude Oil markets that was based on this large amount of open interest that had entered late and was holding large losing positions and in some cases adding to them despite price drops. While the Copper market has basically cleaned all of these "bad buying" longs on the short term (Crude has not finished yet) I believe that if the weekly chart caves in that there could be a much larger liquidation of the all time highs in long positions. I believe that this wipe out on the weekly Copper chart is likely dependent on Equities falling below their February lows as well, so the trade should stay on the radar for the time being until better entry is available.
The Copper market has recently acted as a strength among the overall market in relation to other Commodities. This is a strong signal if the entire macro picture was strong as well. However, I believe that Copper is incorrectly being grouped with the precious metals of Gold and Silver as a long term store of value. I have commented in the past on why Silver is different than Gold because you have to carry 63 times as much for equal value, but with Gold at $1200/oz and Copper at $3.10/lb you need roughly 6,200 times the amount of Copper to equal Gold. Copper is a resource that has an industrial value, but it is not a strongly correlated market to the precious metals as it tends to fall much harder on larger macro breaks.
Because of this relationship I believe that you can use Gold as a hedge at least on an initial short in the Copper market to have an opportunity at a large long liquidation. To get a better view of what you are looking at use Gold/Copper on a weekly chart. If you notice in late '08 and early '09 a large spike formed in the ratio between the Commodities on the larger macro break as Gold held it's value much better than Copper. As I look around at the Currencies and other "run to safety" relationships and markets like Fixed Income I notice that some of these markets are projecting moves towards similar spikes in the market while this ratio is just beginning to breakout. I believe that there is a lag in this relationship right now with a great buying opportunity on a longer term trade.
For entry on the trade I am recommend using either a 1:1 or 3:2 Gold to Copper execution ratio to equal out the contract size and recent volatility in the market. The 1:1 will provide better opportunity on a large Copper break, but will not provide as much protection. Using the daily chart for Gold/Copper I believe that an initial small position can be entered on a pullback to the 3750 level, which is above all of the trade in the ratio since last July and the long consolidation range. I recommend this as an initial position only though and not as execution for the whole trade. I will be watching the outright Copper market for the next entry level in a spot that is a preferable short in the market. Because the magnitude of this trade is dependent on a larger macro break and a longer term position please take this into consideration when executing and establishing size.
Notes:
Australian Dollar- Yesterday I provided two aggressive short entry levels for the Australian Dollar market. Both low volume entry levels worked temporarily as they stalled the market and reversed prices lower, but the uptrend for the last 24 hours was strong and continued higher through both levels. Now the Aussie has a spiky bullish reversal pattern similar to a double bottom. The breakout for the pattern is .8345 and has a projection range from .8625 to .8641. This is in contradiction to the large weekly bearish cup and handle pattern that I have the market in right now that had a projection at .8547 and a projection to .7784. While I still believe that the Aussie is going lower over the next few months I do not want to fight a strong short term bullish pattern and believe that you may actually be able to make some quick money if some short covering momentum emerges. Note: There is a low volume zone from .8342 to .8380 with larger volume resistance at .8404 that could stall a rally and possibly create a new bearish reversal in the market. I recommend waiting until after this .8404 level if you are looking to join the bullish crowd.
Bonds- Late in the day the Bonds dipped into my low volume zone from 124.29 to 125.00 with larger volume resistance to 124.19. This level held well and actually worked a bit into the early morning, but with the reversal higher in the macro market continuing into the late morning the Bonds broke below this support. Two days ago I gave a large low volume zone for the bonds between 123.01 to 123.31 that should provide some support and possibly a bullish price reversal for the market. I still have the Bonds in a weekly bullish cup and handle pattern with the breakout at 123.25 and a projection range from 133 - 134. This recent reversal has been strong though and I recommend laying off buying for the time being unless the market enters this low volume zone and you have a strong opinion.
Nasdaq Bullish Reversal, but Caution- The Nasdaq has been the strongest Index on both rallies and breaks at times in the market lately, meaning a lot of two sided volatility. However, the bullish reversal pattern is strongest in this Index right now and should have the best rally potential. The breakout level for the pattern is 1840 with a projection range from 1914.5 to 1925. Use caution on execution if you decide to play the bullish side though. The Nasdaq has a low volume area from 1845.5 to 1857.5 that could stall or reject prices. The S&P 500 also has a low volume zone from 1097 to 1105 that could stall overall market prices as well. I believe that Equities will continue lower below the February 5th lows in the coming weeks and recommend only using a minimal position if you are looking to jump on the short covering rally.
Tuesday, May 25, 2010
Tuesday 5/25/10 Commodity Ideas
Opening Note:
While I believed that there could be some bounce in the market following Friday's higher close I was again proved foolish on my caution as the S&P 500 closed 13.5 points lower and traded another 34 lower already overnight. The fundamental concern today is still over more European woes and the side story of North Korean threats. Equities are now beginning to test the February dip lows and their lows from this calendar year. This technical and psychological level could provide some support for the short term, but I believe that we will continue lower shortly. With the weekly charts for the Stock Indices now just confirming a reversal into a bearish mode after their year long bullish run I believe we have at least another 5 months to go on this bearish move.
The concerning thing to me is that although I have heard speculation for nearly a year about the Chinese housing market bubble I have yet to really here much concern about this story in the media thus far. If you also take into account the U.S. debt now built up that was to be offset by growth and tax hikes that is not yet a front page story, you start to get a feel for how bad this so-called "correction" could really be. With the year long market rally led by stimulus on the recovery story I believe that the macro market is still over-valued for the time being and recommend selling rallies in supportive Commodities going forward.
Buys to Watch:
Bonds and other Fixed Income- I suggested a cautious entry level yesterday in the Bonds, but with the late break in the market yesterday followed by this morning I was left in the dust. The Bond market traded back down to the 124.08 price, but did not break below into the low volume zone in the 123's for a shot at a great buy. However, this move did keep the large weekly cup and handle pattern intact that still has a projection range from 133 - 134. Today there is a small low volume range from 124.29 to 125.00 with larger volume support from 124.19 to 124.22 for stop placement. This is a good lower risk entry on a much larger move, but if this level does not hold then I would revert back to the 123.01 to 123.31 low volume zone as the next spot for entry on the large move. I believe that you can also look at using call options for the move with the move likely completed by September.
The Ten Year Note is also now battling with it's weekly cup and handle breakout today above 121.215 that has a projection to 127.145. The Five Year Notes are also nearing their weekly breakout of 118.21 that has a projection to just under 123. When looking at this line of projections I believe that with the earlier breakout and stronger likelihood of completion on the longer yields, that you can also look at buying some of the long vs. short spreads on this longer term move as a hedged bet. I recommend using the Bonds or Ten Years though if you are just purchasing an outright.
Sells to Watch:
Australian Dollar- This morning the Aussie Dollar has the largest break of any of the major Currencies percentage-wise, but unfortunately a rally into the low volume zone I suggested never occurred yesterday. While the market did trade to .8321, the cautious entry level above .8342 was never met. Still the Aussie has a weekly cup and handle chart pattern that projects to .7784 and that is now over halfway complete on this move. For short entry today I have a low volume area from .8116 - .8150 with higher volume resistance from .8176 to .8182 for stop placement. Above this level I also have a strong resistance level from .8250 to .8276 with the area just below this from .8232 to .8250 being a good entry level if this first zone does not hold.
Put on the Radar:
Euro/Yen Cross Rate (Symbol YR on CQG)- As the Euro continues to weaken and test it's lows from late '08 so does this key directional indicator cross rate. The Euro/Yen today is below the lows from Oct. '08 and Jan. '09 of 111.83 on a decisive move this morning. This is a touchy indicator because it does include the volatility of the Euro, but a breakout below this level is extremely troubling for the macro market. As I stated in Friday's letter, I believe that the Equity and Commodity markets tend to run about 5 months behind the Currency markets and if this is a reliable indicator it is saying that we test the lows from '09. In contrast to this, I believe that with stimulus and tighter restrictions in our markets that we are in a different place than two years ago, but do not ignore this cross rates signal.
Copper- Copper has been like the fly on the back of my neck over the last month and a half because every time I think I have gotten rid of it it seems to come right back to me each time I look at the chart. All you need to really do is look at a weekly chart for the market and put up open interest and volume. You can see that more than almost any other market over the last year Copper has had an astronomical rise in open interest and volume compared to any period in it's history. Also factor in that Copper was the "darling" of the inflation, emerging market, and housing recovery trade along with the fact that it was stockpiled by China and many other buyers and I believe that you have a loaded powder keg ready to blow. Copper has held up well in relation to many Commodities recently based on the Metal Sector's strength, but I believe that this is an unfair grouping for Copper to travel in as it is not as strong of a store of value and an industrial metal. With the "supply" of Copper still high with the stockpiling and huge open interest for the market we could see a massive exodus of long positions from the market.
The options market for Copper is pretty much non-existent, but I still would like to be in the market for some downside. If you look at the Gold/Copper chart (the ratio) on a weekly scale you can see that during the last major market break that Gold held up significantly better than Copper and that this chart now looks like it is beginning a rally breakout. I am exploring buying some Gold so that I can sell some Copper with the option of removing the Gold hedge once the market begins to move.
Canadian Dollar- The Canadian Dollar is broken out this morning on a weekly cup and handle chart below the .9274 level. For the chart I have a projection range from .8479 to .8768. This may be fundamentally difficult sale for some as Canada has one of the better standing economies, but this is strictly a risk trade. The Canadian Dollar is entered as a way to play macro growth and Commodity inflation and with the market strength now broken out on weakness there could be massive movement out of the Currency and into the U.S. Dollar as the market is surprised. I have a nearby low volume zone from .9306 to .9338 with resistance to .9352 for entry on a rally. There also is another zone from .9382 to .9408 with resistance to .9432 that provided the high overnight and is a great sale on a rally as well.
Notes:
Stock Indices- I continue to recommend selling rallies in the Equities, but with large volatility from day to day it is difficult for me to accurately produce a good zone for a sale that will be hit. However, take into account that the February low for the S&P 500 on the weekly chart is 1040.75 and for the Dow it is 9791. These levels will be tested today and are one of the last major support levels before we begin to see a pullback to halfway back on the entire year long rally. I also recommend using the NASDAQ Index for Equity shorts as I believe it has the most downside potential of all the groups as it was over-invested on the recovery trade.
While I believed that there could be some bounce in the market following Friday's higher close I was again proved foolish on my caution as the S&P 500 closed 13.5 points lower and traded another 34 lower already overnight. The fundamental concern today is still over more European woes and the side story of North Korean threats. Equities are now beginning to test the February dip lows and their lows from this calendar year. This technical and psychological level could provide some support for the short term, but I believe that we will continue lower shortly. With the weekly charts for the Stock Indices now just confirming a reversal into a bearish mode after their year long bullish run I believe we have at least another 5 months to go on this bearish move.
The concerning thing to me is that although I have heard speculation for nearly a year about the Chinese housing market bubble I have yet to really here much concern about this story in the media thus far. If you also take into account the U.S. debt now built up that was to be offset by growth and tax hikes that is not yet a front page story, you start to get a feel for how bad this so-called "correction" could really be. With the year long market rally led by stimulus on the recovery story I believe that the macro market is still over-valued for the time being and recommend selling rallies in supportive Commodities going forward.
Buys to Watch:
Bonds and other Fixed Income- I suggested a cautious entry level yesterday in the Bonds, but with the late break in the market yesterday followed by this morning I was left in the dust. The Bond market traded back down to the 124.08 price, but did not break below into the low volume zone in the 123's for a shot at a great buy. However, this move did keep the large weekly cup and handle pattern intact that still has a projection range from 133 - 134. Today there is a small low volume range from 124.29 to 125.00 with larger volume support from 124.19 to 124.22 for stop placement. This is a good lower risk entry on a much larger move, but if this level does not hold then I would revert back to the 123.01 to 123.31 low volume zone as the next spot for entry on the large move. I believe that you can also look at using call options for the move with the move likely completed by September.
The Ten Year Note is also now battling with it's weekly cup and handle breakout today above 121.215 that has a projection to 127.145. The Five Year Notes are also nearing their weekly breakout of 118.21 that has a projection to just under 123. When looking at this line of projections I believe that with the earlier breakout and stronger likelihood of completion on the longer yields, that you can also look at buying some of the long vs. short spreads on this longer term move as a hedged bet. I recommend using the Bonds or Ten Years though if you are just purchasing an outright.
Sells to Watch:
Australian Dollar- This morning the Aussie Dollar has the largest break of any of the major Currencies percentage-wise, but unfortunately a rally into the low volume zone I suggested never occurred yesterday. While the market did trade to .8321, the cautious entry level above .8342 was never met. Still the Aussie has a weekly cup and handle chart pattern that projects to .7784 and that is now over halfway complete on this move. For short entry today I have a low volume area from .8116 - .8150 with higher volume resistance from .8176 to .8182 for stop placement. Above this level I also have a strong resistance level from .8250 to .8276 with the area just below this from .8232 to .8250 being a good entry level if this first zone does not hold.
Put on the Radar:
Euro/Yen Cross Rate (Symbol YR on CQG)- As the Euro continues to weaken and test it's lows from late '08 so does this key directional indicator cross rate. The Euro/Yen today is below the lows from Oct. '08 and Jan. '09 of 111.83 on a decisive move this morning. This is a touchy indicator because it does include the volatility of the Euro, but a breakout below this level is extremely troubling for the macro market. As I stated in Friday's letter, I believe that the Equity and Commodity markets tend to run about 5 months behind the Currency markets and if this is a reliable indicator it is saying that we test the lows from '09. In contrast to this, I believe that with stimulus and tighter restrictions in our markets that we are in a different place than two years ago, but do not ignore this cross rates signal.
Copper- Copper has been like the fly on the back of my neck over the last month and a half because every time I think I have gotten rid of it it seems to come right back to me each time I look at the chart. All you need to really do is look at a weekly chart for the market and put up open interest and volume. You can see that more than almost any other market over the last year Copper has had an astronomical rise in open interest and volume compared to any period in it's history. Also factor in that Copper was the "darling" of the inflation, emerging market, and housing recovery trade along with the fact that it was stockpiled by China and many other buyers and I believe that you have a loaded powder keg ready to blow. Copper has held up well in relation to many Commodities recently based on the Metal Sector's strength, but I believe that this is an unfair grouping for Copper to travel in as it is not as strong of a store of value and an industrial metal. With the "supply" of Copper still high with the stockpiling and huge open interest for the market we could see a massive exodus of long positions from the market.
The options market for Copper is pretty much non-existent, but I still would like to be in the market for some downside. If you look at the Gold/Copper chart (the ratio) on a weekly scale you can see that during the last major market break that Gold held up significantly better than Copper and that this chart now looks like it is beginning a rally breakout. I am exploring buying some Gold so that I can sell some Copper with the option of removing the Gold hedge once the market begins to move.
Canadian Dollar- The Canadian Dollar is broken out this morning on a weekly cup and handle chart below the .9274 level. For the chart I have a projection range from .8479 to .8768. This may be fundamentally difficult sale for some as Canada has one of the better standing economies, but this is strictly a risk trade. The Canadian Dollar is entered as a way to play macro growth and Commodity inflation and with the market strength now broken out on weakness there could be massive movement out of the Currency and into the U.S. Dollar as the market is surprised. I have a nearby low volume zone from .9306 to .9338 with resistance to .9352 for entry on a rally. There also is another zone from .9382 to .9408 with resistance to .9432 that provided the high overnight and is a great sale on a rally as well.
Notes:
Stock Indices- I continue to recommend selling rallies in the Equities, but with large volatility from day to day it is difficult for me to accurately produce a good zone for a sale that will be hit. However, take into account that the February low for the S&P 500 on the weekly chart is 1040.75 and for the Dow it is 9791. These levels will be tested today and are one of the last major support levels before we begin to see a pullback to halfway back on the entire year long rally. I also recommend using the NASDAQ Index for Equity shorts as I believe it has the most downside potential of all the groups as it was over-invested on the recovery trade.
Monday, May 24, 2010
Monday 5/24/10 Commodity Ideas
Opening Note:
An opening rally Friday was followed by another late day run that saw the macro market close convincingly higher for the first time since May 12th. Friday morning the S&P 500, along with some of the Fixed Income and Currency markets, touched the base of the "Flash Forward" numbers nearly two weeks after the initial crash. Although some other markets like the Dow, Nasdaq, and Yen have come close they have not officially touched their own flash levels. I am using the S&P 500 as the leading indicator for the time being though and consider these initial projections on a move lower now met as an overall group.
This morning the market is lower led by a weaker Euro and growing concerns surrounding Spain. However, considering the break this morning is only a portion into Friday's gains and with initial "Flash" projections now met I believe it is time to lay off initiation of some shorts on the market for a few days and possibly for the rest of this week. While the market was initially entering the bearish move over the last month I suggested a very aggressive short trading strategy, but with more two-sided volatility and some larger technical support now met I will be pulling back to wait for better spots and a possible short covering rally. With both Dow and S&P 500 weekly RSI indicators now sitting at levels below all of the values over the last year's bull market with the weekly charts for Equity markets now trading in a bearish mode. I continue to believe that rallies in supportive Commodities are to be sold, but at a less aggressive clip for the time being. Be more patient now to wait for stronger initiation levels as after a small rally I believe the market is going lower in line with the weekly bear trend.
Buys to Watch:
Bonds- The longer end of the yield curve has been the strength on the Fixed Income price rally, and with Bonds recently gaining on the also strong Ten Year I believe the Bonds are the best buy going forward. The weekly chart for the Bonds now has a confirmed breakout on the weekly cup and handle pattern with an initial breakout above 123.25 with a projection range from 133 to 134. Higher volume support from 124.02 to 124.09 provided a base for market prices overnight as it did Friday as well. It is possible that this level makes the longer term base, but with my expectations that the macro market will have a short term rally I am waiting for stronger initiation on the Bonds. There is a large low volume section from 123.01 to 123.31 that the market has yet to pullback into that would provide good long entry. A pullback to this level would indicate a temporary negation of the cup and handle pattern, but since this is a weekly pattern a couple days trade into this zone would not be as concerning. The cup and handle pattern often has a test of the initial breakout level and with my longer term opinion that Bond prices will continue to rise I think this is the safest play. Sidenote: I also like some of the longer yield versus short yield spreads to continue higher. Look at both the Bonds vs. Five Year and Ten Year vs. Five Year spreads for another way to play lower rates and a yield curve flattening.
Sells to Watch:
Australian Dollar- The Australian Dollar had a strong price reversal rally on Friday, but with the weekly cup and handle pattern still having the large bearish projection to .7784 I am looking for ways to cautiously short the market. Because the Aussie Dollar moves highly correlated to Equities I am looking for more sizable rallies for short entry. The low volume zone form .8342 to .8380 that I have listed for the last two days has still only been slightly entered on a rally Friday, so I am focused on this level for short initiation with some stronger volume resistance at .8404. Both RSI and Stochastics are still in oversold territory for the Aussie daily chart and may need a small rally to become less oversold. However, the weekly chart for the Aussie is now clearly in a bearish trend with both momentum indicators showing this reversal now. This means selling the market should be the profitable direction to trade going forward with a move to .7784 being roughly halfway back on the bull rally of the last year.
Put on the Radar:
Nasdaq and S&P 500 Sale- Although the Equity Indices are lower this morning I am expecting them to display some strength as the week progresses. With the S&P 500 being the most reliable indicator for the sector, I am looking for a rally into the low volume zone from 1097 to 1105 for new short initiation. When looking at all of the daily charts across the sector you can notice that the Nasdaq came the furthest from meeting it's "Flash Forward" projection thus far, although it's flash move was proportionally much larger than the others. Still, I am a big proponent of shorting the strongest market on the way up as it usually has more downside momentum on the reversal, especially if the market's have become inflated. The Nasdaq has a low volume zone from 1845.5 to 1857.5 that should correlate with a move in the S&P to it's own low volume zone. So, I recommend waiting for a confirmation of the move in the S&P and executing a short position in the Nasdaq at this time.
Euro Caution- Last week I threw out numerous warnings on shorting the Euro and I still feel that the short term downside for the Euro is not worth the risk currently. The market has the largest break this morning of any of the Currencies, but with violent swings on news, rumors, and government intervention I do not want to participate in the market. With weekly chart support around the 123 to 125 level from the lows in late '08 I would need a decisive breakout below this level to think about shorting the Euro. The monthly chart projects to .95 if this break does occur, but I believe that government protection and stimulus packages should float the Euro around this level to slightly higher for the rest of this month and likely throughout June.
Notes:
Sell Pound vs. Buy Euro- This trade worked very well up until Friday morning when it reversed hard and has continued to move the opposite direction today on the weaker Euro. Although the market traded near the .18 level it has already reversed to slightly above .20 this morning making almost any entry level over the last three days a small loser. If you have entered this position I recommend removing it for the time being. While I believed that using the Pound and the Euro would provide protection against the Euro's erratic swings I was wrong as this morning's action has shown. With the market bouncing off the .2040 resistance level I still think that the spread will move lower, but the risk is too high and the trade too cutesy for the market right now. I am removing it from my sell list and radar.
Gold- The swings in Gold have been erratic over the last couple weeks as rallies and breaks appear to pop up at odd times based on large player's entry and exit in the market. The bullish daily bottom trendline from March 25th to April 19th sits at $1184.5 today with a close below this level confirming a rejection of this trendline and a move lower based on Friday's low close breakout. However, if you have recently traded this market you can tell that it is a tough trade for the time being as the bulls and bears lock in a volatile range battle. Over the last two days I have suggested some trade ideas for the market and a level on Friday, but none have been successful so far with the early highs on Friday being taken out mid-day. I do not recommend entering a long term position in Gold for the time being and only trading it on a day trade level. I fundamentally believe that Gold is in consolidation before a move lower, but I am removing the market from my trade list and radar for the time being.
An opening rally Friday was followed by another late day run that saw the macro market close convincingly higher for the first time since May 12th. Friday morning the S&P 500, along with some of the Fixed Income and Currency markets, touched the base of the "Flash Forward" numbers nearly two weeks after the initial crash. Although some other markets like the Dow, Nasdaq, and Yen have come close they have not officially touched their own flash levels. I am using the S&P 500 as the leading indicator for the time being though and consider these initial projections on a move lower now met as an overall group.
This morning the market is lower led by a weaker Euro and growing concerns surrounding Spain. However, considering the break this morning is only a portion into Friday's gains and with initial "Flash" projections now met I believe it is time to lay off initiation of some shorts on the market for a few days and possibly for the rest of this week. While the market was initially entering the bearish move over the last month I suggested a very aggressive short trading strategy, but with more two-sided volatility and some larger technical support now met I will be pulling back to wait for better spots and a possible short covering rally. With both Dow and S&P 500 weekly RSI indicators now sitting at levels below all of the values over the last year's bull market with the weekly charts for Equity markets now trading in a bearish mode. I continue to believe that rallies in supportive Commodities are to be sold, but at a less aggressive clip for the time being. Be more patient now to wait for stronger initiation levels as after a small rally I believe the market is going lower in line with the weekly bear trend.
Buys to Watch:
Bonds- The longer end of the yield curve has been the strength on the Fixed Income price rally, and with Bonds recently gaining on the also strong Ten Year I believe the Bonds are the best buy going forward. The weekly chart for the Bonds now has a confirmed breakout on the weekly cup and handle pattern with an initial breakout above 123.25 with a projection range from 133 to 134. Higher volume support from 124.02 to 124.09 provided a base for market prices overnight as it did Friday as well. It is possible that this level makes the longer term base, but with my expectations that the macro market will have a short term rally I am waiting for stronger initiation on the Bonds. There is a large low volume section from 123.01 to 123.31 that the market has yet to pullback into that would provide good long entry. A pullback to this level would indicate a temporary negation of the cup and handle pattern, but since this is a weekly pattern a couple days trade into this zone would not be as concerning. The cup and handle pattern often has a test of the initial breakout level and with my longer term opinion that Bond prices will continue to rise I think this is the safest play. Sidenote: I also like some of the longer yield versus short yield spreads to continue higher. Look at both the Bonds vs. Five Year and Ten Year vs. Five Year spreads for another way to play lower rates and a yield curve flattening.
Sells to Watch:
Australian Dollar- The Australian Dollar had a strong price reversal rally on Friday, but with the weekly cup and handle pattern still having the large bearish projection to .7784 I am looking for ways to cautiously short the market. Because the Aussie Dollar moves highly correlated to Equities I am looking for more sizable rallies for short entry. The low volume zone form .8342 to .8380 that I have listed for the last two days has still only been slightly entered on a rally Friday, so I am focused on this level for short initiation with some stronger volume resistance at .8404. Both RSI and Stochastics are still in oversold territory for the Aussie daily chart and may need a small rally to become less oversold. However, the weekly chart for the Aussie is now clearly in a bearish trend with both momentum indicators showing this reversal now. This means selling the market should be the profitable direction to trade going forward with a move to .7784 being roughly halfway back on the bull rally of the last year.
Put on the Radar:
Nasdaq and S&P 500 Sale- Although the Equity Indices are lower this morning I am expecting them to display some strength as the week progresses. With the S&P 500 being the most reliable indicator for the sector, I am looking for a rally into the low volume zone from 1097 to 1105 for new short initiation. When looking at all of the daily charts across the sector you can notice that the Nasdaq came the furthest from meeting it's "Flash Forward" projection thus far, although it's flash move was proportionally much larger than the others. Still, I am a big proponent of shorting the strongest market on the way up as it usually has more downside momentum on the reversal, especially if the market's have become inflated. The Nasdaq has a low volume zone from 1845.5 to 1857.5 that should correlate with a move in the S&P to it's own low volume zone. So, I recommend waiting for a confirmation of the move in the S&P and executing a short position in the Nasdaq at this time.
Euro Caution- Last week I threw out numerous warnings on shorting the Euro and I still feel that the short term downside for the Euro is not worth the risk currently. The market has the largest break this morning of any of the Currencies, but with violent swings on news, rumors, and government intervention I do not want to participate in the market. With weekly chart support around the 123 to 125 level from the lows in late '08 I would need a decisive breakout below this level to think about shorting the Euro. The monthly chart projects to .95 if this break does occur, but I believe that government protection and stimulus packages should float the Euro around this level to slightly higher for the rest of this month and likely throughout June.
Notes:
Sell Pound vs. Buy Euro- This trade worked very well up until Friday morning when it reversed hard and has continued to move the opposite direction today on the weaker Euro. Although the market traded near the .18 level it has already reversed to slightly above .20 this morning making almost any entry level over the last three days a small loser. If you have entered this position I recommend removing it for the time being. While I believed that using the Pound and the Euro would provide protection against the Euro's erratic swings I was wrong as this morning's action has shown. With the market bouncing off the .2040 resistance level I still think that the spread will move lower, but the risk is too high and the trade too cutesy for the market right now. I am removing it from my sell list and radar.
Gold- The swings in Gold have been erratic over the last couple weeks as rallies and breaks appear to pop up at odd times based on large player's entry and exit in the market. The bullish daily bottom trendline from March 25th to April 19th sits at $1184.5 today with a close below this level confirming a rejection of this trendline and a move lower based on Friday's low close breakout. However, if you have recently traded this market you can tell that it is a tough trade for the time being as the bulls and bears lock in a volatile range battle. Over the last two days I have suggested some trade ideas for the market and a level on Friday, but none have been successful so far with the early highs on Friday being taken out mid-day. I do not recommend entering a long term position in Gold for the time being and only trading it on a day trade level. I fundamentally believe that Gold is in consolidation before a move lower, but I am removing the market from my trade list and radar for the time being.
Friday, May 21, 2010
Friday 5/21/10 Commodity Ideas
Opening Note:
With bullish news that the first half of German Parliament passed the bailout package this morning we are still seeing Equities and most supportive Commodities weaker this morning. This is another bearish sign as the market has continued to fall despite any of the EU's bailout packages to provide stimulus and support to it's debt problem. There has also been a fairly wide range in many markets overnight with the Australian Dollar trading 280 ticks, the S&P 500 trading 23 points, and Gold trading nearly $20 in range. This increased non-directional volatility means that you may need to lighten your size temporarily to hold the positions. But, I still recommend selling rallies in supportive Commodities for at least another week on this initial move lower.
I also wanted to add a very basic historical analysis on the indicators from the base of the '08 crash and the more recent indicators on the impending debt problems that have caused a more recent top on the market. Looking at the Euro, Bonds, and the S&P 500 over this time frame we can see that they bottomed in Nov '08, Dec'08, and Mch '09 respectively. Take this into the time frame now the Euro peaked in late November, the Bonds in late December(disregarding a minor spike in early April due to rising rates positioning), and the Stocks in late April. I would argue that this is a much different situation than the one in '08 with interest rates held at such a low level, stimulus pumped into the economy, and the overwhelming opinion that Europe is the problem as opposed to the U.S. However, these indicators line up in a very similar manner repeatedly if you look back at other waves. The darkest wrinkle about this situation is that the Euro has only just begun to bottom (if it is at all), and the Bonds look primed to rally another 8 handles higher at least. This does not bode well for Equities as it signals that we could have at least a 5 month drawdown on hand and this is the reason that I do not believe that the Equities must travel with the Currencies each day. Although one could argue that the Euro is an unfair indicator, you can also plug in any volume traded foreign currency other than the Canadian Dollar into this time frame to see the top in November.
***The second half of German Parliament has passed the bill, but very little bounce in the Equity or Commodity markets. This is an incredibly bearish signal for action today and in the future.
Buys to Watch:
Bonds- With yesterday's close above 123.25 and all of the trade overnight and into today above this level I now have a confirmed bullish cup and handle pattern on the weekly chart. The pattern projects from 133 to 134 with a spike on the weekly high from March 16th of '09 being a likely target at 133.195. As Bonds are already much higher I do not have a great level for entry today. There was a large low volume zone from 123.01 to 123.30, but this was not even entered overnight, which shows great bullish momentum in my opinion. Keep this on your radar and either look at call spreads or wait for a pullback for entry as this move will be confirmed with a likely higher close today.
Sells to Watch:
Australian Dollar- The Aussie Dollar is in the midst of it's bearish cup and handle pattern on the weekly chart. As today is Friday, the breakout will finally be confirmed on the chart with the close today. The pattern had a breakout of .8547 and a projection to .7764. Although volatility has increased with much larger pullbacks on the bear move, the Aussie continues to move lower overall. The low volume zone that I gave for entry on a short position yesterday from .8342 to .8380 with resistance for stop placement at .8404 acted as the high for trade overnight as the sizable rally pullback topped at .8345. I do not have another good entry point for today, but recommend still exploring the June Put options and selling rallies.
Sell British Pound vs. Buy Euro- The explanation on the trade is a little lengthy and will become redundant if I continue to throw out the spiel, so please refer to the sell section from yesterday's letter or on my blog for the fundamental story if you need it. Technically this trade has worked nearly seamlessly over the last 24 hours since I wrote about it on the sell list. The low volume sell zone that I provided yesterday from .2000 to .2014 was nearly entered on a rally that sat just lower for most of the middle of the day with a high of .1983. Towards the market close the spread finally broke lower into the European open overnight, leaving a good low volume zone for short entry on a pullback from .1896 to .1926. This zone provided the highs for the trade overnight at .1921 and the cross rate has now trade down to near .18. I still have a projection on the cross rate to .1368 below the 60 minute chart breakout of .1838 and recommend looking for pullbacks to sell.
Put on the Radar:
Sell Gold and Silver- Because Gold did not close below $1180 yesterday I am moving this trade to the radar as I am less confident in the move. However, with a large break in the early evening yesterday and failure on a rally higher Gold is now in violation of it's trendline from the lows of March 25th to the lows of April 19th that sits at $1182.1 today. With deflationary action and a weaker market across the board I believe that both Gold and Silver were over-allocated recently based on their better performance in relation to Equities and other Commodities. Although the Gold acts as a store of value to an extent, this does not mean that the outright price rises on macro breaks. With a lot of top buying and open interest still sitting near the recent all time highs I believe that with a confirmation below this trend that Gold will travel to the $1110 to $1115 range. Because Silver also is over-inflated in my opinion and usually acts worse than Gold on breaks I recommend executing a half short Silver and half short Gold position if you choose to execute. I do not have great entry values for today, but I believe that you can enter your positon by backing in your risk based on a stop in the Gold market just above today's highs at $1186. I believe this should be a liquidation move and should be quick, so if you do not see the desired amount of volatility on the break then I would exit and wait for another trade.
Euro Caution- Over the last week it has been very tough to hold a short Euro position with short covering rallies popping up each day. This is pure speculation, but I believe that there is some protective buying of the Currency through Government intervention to uphold the 1.23 level that could continue for some time. I know that if I was trying to boost my Currency I would do it in a similar fashion, by picking a strong base support level and really pushing the long side to use short covering to my own advantage. I recommend removing short positions for the time being and waiting for a decisive break below 1.23 before entering again. A move below this level projects to .95 on the monthly chart, so giving up that 2 or 3 points trying to stay short for the time being should not be significant. If you are still bearish the market and Europe I recommend looking at the Short Pound vs. Long Euro trade in the Sell section as it simulates a short Europe position in a hedged manner that takes intervention out of the equation.
S&P 500 and other Indices- The S&P 500 has now traded within a point and a half of it's "Flash Forward" level of 1056. I believe that this is an initial projection for the market and with continued bearish signals and indicators I still want to be short the Equities. I now switch my recommendation to shorting the Nasdaq as opposed to the S&P 500 or Dow, but I still like using the S&P as my indicator market for entry and exit in the others as it has acted more reliable. I do not have a great level for entry today, but 1069.50 - 1070.25 in the S&P should act as resistance if it is met on a rally today. I may not repeat it everyday as I do not always have good entry levels, but I continue to hold a short the stock market trading position.
Notes:
Japanese Yen- I have a range projection for the Japanese Yen from 112.18 and 113.14. Over the last couple months I have thrown out different ideas on ways to short the Yen, but I strongly recommend staying away from those thoughts for right now. With Bond prices looking to climb much higher the Yen could also see a larger rally and I would like to see topping action before considering a short position.
Crude Oil- Crude Oil has now met all of my large, but short term projections with the June contract move to $65 yesterday and the July now trading to $70. However, the super large open interest position in the market that is holding signficant losing positions is now only beginning to really unwind their long position. I recommend keeping an eye on the open interest in the market as a barometer on when to exit, but keeping a smaller short position in the Crude while the stock market continues to unravel is a good idea.
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With bullish news that the first half of German Parliament passed the bailout package this morning we are still seeing Equities and most supportive Commodities weaker this morning. This is another bearish sign as the market has continued to fall despite any of the EU's bailout packages to provide stimulus and support to it's debt problem. There has also been a fairly wide range in many markets overnight with the Australian Dollar trading 280 ticks, the S&P 500 trading 23 points, and Gold trading nearly $20 in range. This increased non-directional volatility means that you may need to lighten your size temporarily to hold the positions. But, I still recommend selling rallies in supportive Commodities for at least another week on this initial move lower.
I also wanted to add a very basic historical analysis on the indicators from the base of the '08 crash and the more recent indicators on the impending debt problems that have caused a more recent top on the market. Looking at the Euro, Bonds, and the S&P 500 over this time frame we can see that they bottomed in Nov '08, Dec'08, and Mch '09 respectively. Take this into the time frame now the Euro peaked in late November, the Bonds in late December(disregarding a minor spike in early April due to rising rates positioning), and the Stocks in late April. I would argue that this is a much different situation than the one in '08 with interest rates held at such a low level, stimulus pumped into the economy, and the overwhelming opinion that Europe is the problem as opposed to the U.S. However, these indicators line up in a very similar manner repeatedly if you look back at other waves. The darkest wrinkle about this situation is that the Euro has only just begun to bottom (if it is at all), and the Bonds look primed to rally another 8 handles higher at least. This does not bode well for Equities as it signals that we could have at least a 5 month drawdown on hand and this is the reason that I do not believe that the Equities must travel with the Currencies each day. Although one could argue that the Euro is an unfair indicator, you can also plug in any volume traded foreign currency other than the Canadian Dollar into this time frame to see the top in November.
***The second half of German Parliament has passed the bill, but very little bounce in the Equity or Commodity markets. This is an incredibly bearish signal for action today and in the future.
Buys to Watch:
Bonds- With yesterday's close above 123.25 and all of the trade overnight and into today above this level I now have a confirmed bullish cup and handle pattern on the weekly chart. The pattern projects from 133 to 134 with a spike on the weekly high from March 16th of '09 being a likely target at 133.195. As Bonds are already much higher I do not have a great level for entry today. There was a large low volume zone from 123.01 to 123.30, but this was not even entered overnight, which shows great bullish momentum in my opinion. Keep this on your radar and either look at call spreads or wait for a pullback for entry as this move will be confirmed with a likely higher close today.
Sells to Watch:
Australian Dollar- The Aussie Dollar is in the midst of it's bearish cup and handle pattern on the weekly chart. As today is Friday, the breakout will finally be confirmed on the chart with the close today. The pattern had a breakout of .8547 and a projection to .7764. Although volatility has increased with much larger pullbacks on the bear move, the Aussie continues to move lower overall. The low volume zone that I gave for entry on a short position yesterday from .8342 to .8380 with resistance for stop placement at .8404 acted as the high for trade overnight as the sizable rally pullback topped at .8345. I do not have another good entry point for today, but recommend still exploring the June Put options and selling rallies.
Sell British Pound vs. Buy Euro- The explanation on the trade is a little lengthy and will become redundant if I continue to throw out the spiel, so please refer to the sell section from yesterday's letter or on my blog for the fundamental story if you need it. Technically this trade has worked nearly seamlessly over the last 24 hours since I wrote about it on the sell list. The low volume sell zone that I provided yesterday from .2000 to .2014 was nearly entered on a rally that sat just lower for most of the middle of the day with a high of .1983. Towards the market close the spread finally broke lower into the European open overnight, leaving a good low volume zone for short entry on a pullback from .1896 to .1926. This zone provided the highs for the trade overnight at .1921 and the cross rate has now trade down to near .18. I still have a projection on the cross rate to .1368 below the 60 minute chart breakout of .1838 and recommend looking for pullbacks to sell.
Put on the Radar:
Sell Gold and Silver- Because Gold did not close below $1180 yesterday I am moving this trade to the radar as I am less confident in the move. However, with a large break in the early evening yesterday and failure on a rally higher Gold is now in violation of it's trendline from the lows of March 25th to the lows of April 19th that sits at $1182.1 today. With deflationary action and a weaker market across the board I believe that both Gold and Silver were over-allocated recently based on their better performance in relation to Equities and other Commodities. Although the Gold acts as a store of value to an extent, this does not mean that the outright price rises on macro breaks. With a lot of top buying and open interest still sitting near the recent all time highs I believe that with a confirmation below this trend that Gold will travel to the $1110 to $1115 range. Because Silver also is over-inflated in my opinion and usually acts worse than Gold on breaks I recommend executing a half short Silver and half short Gold position if you choose to execute. I do not have great entry values for today, but I believe that you can enter your positon by backing in your risk based on a stop in the Gold market just above today's highs at $1186. I believe this should be a liquidation move and should be quick, so if you do not see the desired amount of volatility on the break then I would exit and wait for another trade.
Euro Caution- Over the last week it has been very tough to hold a short Euro position with short covering rallies popping up each day. This is pure speculation, but I believe that there is some protective buying of the Currency through Government intervention to uphold the 1.23 level that could continue for some time. I know that if I was trying to boost my Currency I would do it in a similar fashion, by picking a strong base support level and really pushing the long side to use short covering to my own advantage. I recommend removing short positions for the time being and waiting for a decisive break below 1.23 before entering again. A move below this level projects to .95 on the monthly chart, so giving up that 2 or 3 points trying to stay short for the time being should not be significant. If you are still bearish the market and Europe I recommend looking at the Short Pound vs. Long Euro trade in the Sell section as it simulates a short Europe position in a hedged manner that takes intervention out of the equation.
S&P 500 and other Indices- The S&P 500 has now traded within a point and a half of it's "Flash Forward" level of 1056. I believe that this is an initial projection for the market and with continued bearish signals and indicators I still want to be short the Equities. I now switch my recommendation to shorting the Nasdaq as opposed to the S&P 500 or Dow, but I still like using the S&P as my indicator market for entry and exit in the others as it has acted more reliable. I do not have a great level for entry today, but 1069.50 - 1070.25 in the S&P should act as resistance if it is met on a rally today. I may not repeat it everyday as I do not always have good entry levels, but I continue to hold a short the stock market trading position.
Notes:
Japanese Yen- I have a range projection for the Japanese Yen from 112.18 and 113.14. Over the last couple months I have thrown out different ideas on ways to short the Yen, but I strongly recommend staying away from those thoughts for right now. With Bond prices looking to climb much higher the Yen could also see a larger rally and I would like to see topping action before considering a short position.
Crude Oil- Crude Oil has now met all of my large, but short term projections with the June contract move to $65 yesterday and the July now trading to $70. However, the super large open interest position in the market that is holding signficant losing positions is now only beginning to really unwind their long position. I recommend keeping an eye on the open interest in the market as a barometer on when to exit, but keeping a smaller short position in the Crude while the stock market continues to unravel is a good idea.
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Thursday, May 20, 2010
Thursday 5/20/10 Commodity Ideas
Opening Note:
This morning the U.S. is again waking up to large-scale protests in Greece that have sharply sent the market lower since 5:30 am. Nearly every supportive Commodity, other than a couple barely higher outliers in Grains, is significantly lower this morning already despite European and U.S. markets trading unchanged to slightly higher most of the night. Important levels in the S&P 500 will be battled with today as the 10% correction, 200 day moving average, and psychological support all fall between 1095 and 1100. As I am writing at 6:40 am the market has already traded below this range, but looks like it could test this level again today at some point.
I do not believe that this is just a 10% correction as the weekly charts for Equities and supportive Commodities are now just shifting to a bear market trend for this time frame. With a decisive close below 1095 in the S&P 500 I believe that you can be pretty confident that the Equity markets do complete a move to the "Flash Forward" levels from May 6th. With this sizable move coming within the last few hours it is difficult for me to provide reliable levels for entry today, but if you are short already I recommend keeping at least some of your position, especially with a close below 1095 in the S&P. Now on Day 13 of the bear market move I continue to recommend selling supportive Commodity rallies as I believe there is at least another week on the move.
Buys to Watch:
Sells to Watch:
Australian Dollar- Yesterday the weekly double top pattern for the Aussie was set off with a move below .8547 with a projection to .7764. In the newsletter yesterday morning I provided an entry level of .8500 with a stop above resistance from .8526 to .8536. This level was hit almost exactly on the dot as the intraday high was .8506, but I realize this occurred at 8 am while I did not get the newsletter out until about 8:15. So, if you missed out an initial position yesterday there is a good low volume zone from .8342 to .8380 with stronger resistance around the .8404 level as a good spot for short entry if the market forms a rally today or tomorrow. The Aussie has been the weakest Currency percentage-wise over the last two days and should complete it's projection in a swift manner as there is a lot of money that is busting out of this long term inflation and recovery trade. I still also recommend looking at the June Puts for the Currency with 15 days remaining for a less risky way to get short.
Sell British Pound vs. Buy Euro- I briefly mentioned this trade in the Notes section on Tuesday, but I believe that it is now in play. It is pretty much a spread of Garbage vs. Garbage, but the fundamental story is what makes the trade work. After dipping below 1.23 and all of it's support from the low base from November of '08 the Euro found a rally yesterday to push the Currency back above this important support level. Meanwhile the Pound has lagged behind the Euro on this downward push and still has a ways to go towards it's base of 1.34 from the same time frame. Below 1.23 for the Euro I have a continuation to .95 and it is obvious that the EU recognizes this as well. This is their last major support level to keep the Euro above par with the U.S. Dollar in my opinion, so I expect a hell-like fight from them. Meanwhile the new Prime Minister of England sounds just as happy to see the Pound deflate to improve exports for the country. Herein lies the fundamental protection versus non-protective policy that should make the trade work.
Technically a double top pattern was set off on the Pound - Euro cross rate chart that is best viewed using both a daily chart as well as a 60 minute chart. First look at the daily to see the identifiable double top pattern that appears to have a breakout below .2039 level. Now turn this into a 60 minute chart and scrunch it up to see that on the day with the .2039 close the market actually traded to .1838. You will also notice on this chart the build up of support recently around the .2025 level that the market has broken below this morning, which means that it is now in play based on the daily chart. I am using the 60 minute chart projection with a breakout of .1838 and a projection to .1368 for my expectations on the trade, but I believe that with the daily chart crowd now entering that you can enter on a rally as well. I am looking for a pullback to the low volume area from .2000 - .2014 for entry against this now resistance level from .2025 - .2040, but it is likely that using a 15 minute chart you can find a closer entry level in case the pullback fails as this is a longer term trade. This way you have early entry based on a misconception on the trade, but with much larger projection prospects than the naked eye finds. Note: Remember that the Pound is a half contract so 2:1 Pound vs. Euro for equal tick size entry.
Gold and Silver- If for some reason I have not helped you make money over the last couple weeks I hope I at least saved you some as I began warning a week and a half ago that Precious Metals were primed for a break based on deflation and an over-crowded market. While some "analysts" have continued to yell about how great a buy Gold is even until Monday of this week, I believe that it is now almost a great sale based on all the money that followed it over the cliff on the top-buying spree. Open Interest in both Gold and Silver remains near the recent highs on the "run to safety" rally, so there are plenty of longs to clean out providing greater downside momentum.
Looking at a daily Gold chart draw a trendline from the low on March 25th to the low on April 19th to receive a trend value of $1180 today. Also look at a Silver daily chart and note that below $17.08 the market is below all of the trade since the beginning of April. I had good entry levels on a pullback rally, but the $18.30 to $18.40 level in Silver and $1198 to $1202 level in Gold were the highs for the day and are now unlikely to be reached. For entry I now recommend entering a slightly smaller than normal short position with half in Gold and half in Silver, but only if there is a close today below the $1180 level in Gold, with the option of adding more as the market breaks. I believe that Gold will travel to $1110 - $1115 if this trend line fails and Silver should fall more in proportion, and thus the half and half position trade. Unlike some vague analysts I will also say that this move to $1115 happens by the end of the month if $1180 does not hold. Sidenote: I took the Buy Gold vs. Sell Silver trade off of my Buy List a couple days ago when the downside volatility due to awful buying in Silver became too high. But, for those keeping track still the spread is trading just a shade under $300 right now, which was the low end of my projection range. Keep this strategy in your back pocket for similar circumstances in the future as it is a great spread that almost always works even if you have to wait a little longer.
Put on the Radar:
Crude Oil- July Crude Oil has now just reached my projection level of $70 and with the June contract trading down to $67.55, and near the initial projection to $65, I believe that it is time to unwind some of the Crude Oil short positions. I still believe that Crude Oil has a move down to $60 in the next couple months, but with such a large move recently the rest of the way down will be much more difficult in Energies right now. I would not argue with keeping a smaller short position as I like being short almost anything, but I believe that there are easier moves to be had in the Currencies, Precious Metals, and Equities in the near future.
Notes:
Palladium- I listed Palladium on the radar yesterday as a sale, but recommended waiting a day for confirmation before entry. Unfortunately the projected move from $485 to $420 has already fully been met in what is one of the biggest and fastest moves I have ever seen that you will probably never hear about. From yesterdays open of $499.50 to today's low of $406, Palladium has fallen over 18.5% due to the large unwinding of an over-allocated ETF in a thin market. I have had a giant break in Palladium on my radar since the beginning of the year, so it is slightly disappointing to me that I missed out, but there's always a next time.
Equities Do Not Need to Move With Euro- I noted in my comments on the Pound vs. Euro trade that I believe the EU is doing some protective buying in the Euro against a major support level. Because of this I think that the Euro is artificially being inflated and could be for some time. Although both the Equities and Euro have traded very much the same direction on a day to day basis, they do not need to do this. I do not recommend using the Euro as an indicator of Equity direction on a short term basis right now. Pull up a daily chart of the Euro and S&P 500 and compare them to see that the Euro has been in major trouble while the U.S. stock market ignored this piece of evidence for a number of months. If anything the Equities are catching up to this Euro move right now, so they do not need to travel tick by tick.
Copper- Copper has been on my Radar or Sell list for most of the last month, but it is again finding a sticking point for support. It appears that it is setting up another flag or triangle continuation lower, so I recommend removing shorts for the time being and looking to re-initiate a short position below the bottom trendline near $2.9325 today.
This morning the U.S. is again waking up to large-scale protests in Greece that have sharply sent the market lower since 5:30 am. Nearly every supportive Commodity, other than a couple barely higher outliers in Grains, is significantly lower this morning already despite European and U.S. markets trading unchanged to slightly higher most of the night. Important levels in the S&P 500 will be battled with today as the 10% correction, 200 day moving average, and psychological support all fall between 1095 and 1100. As I am writing at 6:40 am the market has already traded below this range, but looks like it could test this level again today at some point.
I do not believe that this is just a 10% correction as the weekly charts for Equities and supportive Commodities are now just shifting to a bear market trend for this time frame. With a decisive close below 1095 in the S&P 500 I believe that you can be pretty confident that the Equity markets do complete a move to the "Flash Forward" levels from May 6th. With this sizable move coming within the last few hours it is difficult for me to provide reliable levels for entry today, but if you are short already I recommend keeping at least some of your position, especially with a close below 1095 in the S&P. Now on Day 13 of the bear market move I continue to recommend selling supportive Commodity rallies as I believe there is at least another week on the move.
Buys to Watch:
Sells to Watch:
Australian Dollar- Yesterday the weekly double top pattern for the Aussie was set off with a move below .8547 with a projection to .7764. In the newsletter yesterday morning I provided an entry level of .8500 with a stop above resistance from .8526 to .8536. This level was hit almost exactly on the dot as the intraday high was .8506, but I realize this occurred at 8 am while I did not get the newsletter out until about 8:15. So, if you missed out an initial position yesterday there is a good low volume zone from .8342 to .8380 with stronger resistance around the .8404 level as a good spot for short entry if the market forms a rally today or tomorrow. The Aussie has been the weakest Currency percentage-wise over the last two days and should complete it's projection in a swift manner as there is a lot of money that is busting out of this long term inflation and recovery trade. I still also recommend looking at the June Puts for the Currency with 15 days remaining for a less risky way to get short.
Sell British Pound vs. Buy Euro- I briefly mentioned this trade in the Notes section on Tuesday, but I believe that it is now in play. It is pretty much a spread of Garbage vs. Garbage, but the fundamental story is what makes the trade work. After dipping below 1.23 and all of it's support from the low base from November of '08 the Euro found a rally yesterday to push the Currency back above this important support level. Meanwhile the Pound has lagged behind the Euro on this downward push and still has a ways to go towards it's base of 1.34 from the same time frame. Below 1.23 for the Euro I have a continuation to .95 and it is obvious that the EU recognizes this as well. This is their last major support level to keep the Euro above par with the U.S. Dollar in my opinion, so I expect a hell-like fight from them. Meanwhile the new Prime Minister of England sounds just as happy to see the Pound deflate to improve exports for the country. Herein lies the fundamental protection versus non-protective policy that should make the trade work.
Technically a double top pattern was set off on the Pound - Euro cross rate chart that is best viewed using both a daily chart as well as a 60 minute chart. First look at the daily to see the identifiable double top pattern that appears to have a breakout below .2039 level. Now turn this into a 60 minute chart and scrunch it up to see that on the day with the .2039 close the market actually traded to .1838. You will also notice on this chart the build up of support recently around the .2025 level that the market has broken below this morning, which means that it is now in play based on the daily chart. I am using the 60 minute chart projection with a breakout of .1838 and a projection to .1368 for my expectations on the trade, but I believe that with the daily chart crowd now entering that you can enter on a rally as well. I am looking for a pullback to the low volume area from .2000 - .2014 for entry against this now resistance level from .2025 - .2040, but it is likely that using a 15 minute chart you can find a closer entry level in case the pullback fails as this is a longer term trade. This way you have early entry based on a misconception on the trade, but with much larger projection prospects than the naked eye finds. Note: Remember that the Pound is a half contract so 2:1 Pound vs. Euro for equal tick size entry.
Gold and Silver- If for some reason I have not helped you make money over the last couple weeks I hope I at least saved you some as I began warning a week and a half ago that Precious Metals were primed for a break based on deflation and an over-crowded market. While some "analysts" have continued to yell about how great a buy Gold is even until Monday of this week, I believe that it is now almost a great sale based on all the money that followed it over the cliff on the top-buying spree. Open Interest in both Gold and Silver remains near the recent highs on the "run to safety" rally, so there are plenty of longs to clean out providing greater downside momentum.
Looking at a daily Gold chart draw a trendline from the low on March 25th to the low on April 19th to receive a trend value of $1180 today. Also look at a Silver daily chart and note that below $17.08 the market is below all of the trade since the beginning of April. I had good entry levels on a pullback rally, but the $18.30 to $18.40 level in Silver and $1198 to $1202 level in Gold were the highs for the day and are now unlikely to be reached. For entry I now recommend entering a slightly smaller than normal short position with half in Gold and half in Silver, but only if there is a close today below the $1180 level in Gold, with the option of adding more as the market breaks. I believe that Gold will travel to $1110 - $1115 if this trend line fails and Silver should fall more in proportion, and thus the half and half position trade. Unlike some vague analysts I will also say that this move to $1115 happens by the end of the month if $1180 does not hold. Sidenote: I took the Buy Gold vs. Sell Silver trade off of my Buy List a couple days ago when the downside volatility due to awful buying in Silver became too high. But, for those keeping track still the spread is trading just a shade under $300 right now, which was the low end of my projection range. Keep this strategy in your back pocket for similar circumstances in the future as it is a great spread that almost always works even if you have to wait a little longer.
Put on the Radar:
Crude Oil- July Crude Oil has now just reached my projection level of $70 and with the June contract trading down to $67.55, and near the initial projection to $65, I believe that it is time to unwind some of the Crude Oil short positions. I still believe that Crude Oil has a move down to $60 in the next couple months, but with such a large move recently the rest of the way down will be much more difficult in Energies right now. I would not argue with keeping a smaller short position as I like being short almost anything, but I believe that there are easier moves to be had in the Currencies, Precious Metals, and Equities in the near future.
Notes:
Palladium- I listed Palladium on the radar yesterday as a sale, but recommended waiting a day for confirmation before entry. Unfortunately the projected move from $485 to $420 has already fully been met in what is one of the biggest and fastest moves I have ever seen that you will probably never hear about. From yesterdays open of $499.50 to today's low of $406, Palladium has fallen over 18.5% due to the large unwinding of an over-allocated ETF in a thin market. I have had a giant break in Palladium on my radar since the beginning of the year, so it is slightly disappointing to me that I missed out, but there's always a next time.
Equities Do Not Need to Move With Euro- I noted in my comments on the Pound vs. Euro trade that I believe the EU is doing some protective buying in the Euro against a major support level. Because of this I think that the Euro is artificially being inflated and could be for some time. Although both the Equities and Euro have traded very much the same direction on a day to day basis, they do not need to do this. I do not recommend using the Euro as an indicator of Equity direction on a short term basis right now. Pull up a daily chart of the Euro and S&P 500 and compare them to see that the Euro has been in major trouble while the U.S. stock market ignored this piece of evidence for a number of months. If anything the Equities are catching up to this Euro move right now, so they do not need to travel tick by tick.
Copper- Copper has been on my Radar or Sell list for most of the last month, but it is again finding a sticking point for support. It appears that it is setting up another flag or triangle continuation lower, so I recommend removing shorts for the time being and looking to re-initiate a short position below the bottom trendline near $2.9325 today.
Wednesday, May 19, 2010
Wednesday 5/19/10 Commodity Ideas
Opening Note:
Yesterday morning the low volume zone from 1140.25 to 1144 in the S&P 500 acted as a top for the second day in a row on the stock market open as Equities reversed lower after a nearly full day rally. While I was moved to believe that the market had a stronger possibility of continuing higher yesterday, this was clearly not the case as supportive markets tumbled after the U.S. open and into this morning after this resistance level held. The fact that this corrective rally on the bear market was less than a full day in length time wise shows weakness for any bullish case. Furthermore, the Commodities I listed as evidence for a short term base like Crude and the Euro again tumbled yesterday with the Euro falling below the major support from the it's lows in '08.
Now on day 12 of the recent bear market I expect that we have at least another week and some change on this volatile drop in prices, with the "Flash Forward" spike lows looking like a target for Equities on the move lower. The weekly chart bullish trend for the stock market is also now testing it's limits as the RSI indicator is testing the lows on the range of this bullish trend that could signal a shift to a weekly bear market soon. I continue to recommend selling rallies in supportive Commodities at least for the next week.
Buys to Watch:
Sells to Watch:
Australian Dollar- Like most of the markets that showed strength on the recovery over the last year it was only a matter of time before the Aussie Dollar gave in to the bearish pressure. Money chased the Currency higher on the inflation and recovery trade, but the weekly chart has finally caved in with a break below the swing lows from February on the weekly chart. In what is very close to a double top pattern on the weekly chart the Aussie broke below the breakout level of .8547 this morning resulting in a projection to .7764. Because this move is on the weekly chart, confirmation of the pattern will not result for a number of days. However, with the macro picture continuing to weaken I believe that you can step into some shorts for the market on rally pullbacks. Right now I have .8500 as a good level to execute an initial short on a pullback towards the breakout level with .8526 - .8536 having some minor resistance to place a stop above. Otherwise, explore the June Puts that have 16 days until expiration for less risky entry.
Crude Oil and Copper Flag Patterns- I am grouping these two markets together today because they have been two of the worst performing Commodities as of late, but I do not have great nearby entry levels on a short position. I was looking for a rally yesterday in Crude into the mid $76 area for the opportunity to sell, but this area was never reached. However, with a flag continuation pattern lower for Crude that projects to $70 for the July contract (that I speculate has the strong possibility on a continuation to $60 within the next 2 months) I still am looking for short entry on Crude. There is a lower volume traded area from $72.94 to $73.36 with some higher volume trade at $73.75 that should act as resistance if Crude is able to form a rally.
For Copper I am still using the flag pattern on the July contract that projects to $2.67. I am focused on the $3.0850 to $3.1010 level with resistance near $3.1250 for entry. Although the market came close to this level on the rally yesterday, it was not entered and no new entry levels were created as of yet. Entry on this trade can be made on a 15 or 60 minute chart reversal though as well. Be aware that Copper has found support just above the $2.90 level on multiple occasions now, so a break through this level could be more difficult.
S&P 500 (or other Stock Indices)- The S&P appears to be the middle man and best indicator of the Stock Indices for right now, so I suggest trading it over the others. With yesterday's break a buildup of trade was left above the 1130 level, which I now am using as the new strong resistance level and a good area to short the market against. Keep in mind the "Flash Forward" level of 1056 as a potential projection for the bearish move. For the Dow I also have a similar level to the S&P at 10,560 that should act as strong resistance with a trade buildup above it. For the Dow this "Flash" level is 9,840. Lastly, the Nasdaq continues to trade all over the board as the strength one day and the weakness the next, so I am waiting for more continuity before using this market as an Equity short. The Nasdaq was the best performer on the corrective rally over the last year and I often like to isolate previous strengths (ie. Copper, Aussie Dollar) as the better shorts on macro moves lower, but the Nasdaq needs to show consistency.
Put on the Radar:
Palladium- Palladium is one of the thinner markets that I follow, so take this into account if you decide to enter the market and adjust your size accordingly. First it is necessary to look at a weekly chart of Palladium and see how large the rally in the market has been since December of '08. Palladium has outperformed nearly every market that experienced a significant break on the recovery and it has done so on all time levels of open interest that can be attributed to the entry of an ETF into the market. Now looking at the daily chart you can see the bearish cup and handle pattern with a breakout level of $485 today that has a projection to $420. I think it is a good idea to wait another day before entry and to use caution as the market trades thin. Another option I was exploring is using Platinum (another strong, but thin market on the recovery) as a hedge against the Palladium as the differential chart between the two has a similar move with Palladium leading the way lower.
July Soybeans- July Soybeans officially have a projection to $8.58, but with Corn fundamentals pulling the market higher and little action in the Grain complex lately it is turning into a molasses trade. July Beans only have significant support levels at $9.30 and $9.20 nearby, so the trade may accelerate below. However, with much of the macro market rolling with directional volatility I believe that Beans should be put on the back burner of markets to trade for the time being.
Notes:
Natural Gas- As I cautioned yesterday, the Natural Gas market can be volatile for the price that it is at and acts spiky with a number of failed reversals. This happened again yesterday as the bullish breakout from the market's sideways range was rejected with a close below $4.424 on another fake out. Always wait at least a day for confirmation on the Natural Gas for the time being as the fundamental picture for the Commodity is still very bearish.
Euro Currency Monthly Breakout- The Euro has temporarily set off a monthly bearish cup and handle pattern with a move below the support and swing lows from November of '08. Below 1.2326 the market projects to .9508, which takes the Euro back to levels near it's inception against the U.S. Dollar. There is plenty of speculation that the Euro will outright fail, but I am not over-excited to jump on this bandwagon just yet. With this being a monthly pattern you need to wait until at least the end of May for the initial breakout and until the end of June for confirmation and there is a lot that could happen in between.
Yesterday morning the low volume zone from 1140.25 to 1144 in the S&P 500 acted as a top for the second day in a row on the stock market open as Equities reversed lower after a nearly full day rally. While I was moved to believe that the market had a stronger possibility of continuing higher yesterday, this was clearly not the case as supportive markets tumbled after the U.S. open and into this morning after this resistance level held. The fact that this corrective rally on the bear market was less than a full day in length time wise shows weakness for any bullish case. Furthermore, the Commodities I listed as evidence for a short term base like Crude and the Euro again tumbled yesterday with the Euro falling below the major support from the it's lows in '08.
Now on day 12 of the recent bear market I expect that we have at least another week and some change on this volatile drop in prices, with the "Flash Forward" spike lows looking like a target for Equities on the move lower. The weekly chart bullish trend for the stock market is also now testing it's limits as the RSI indicator is testing the lows on the range of this bullish trend that could signal a shift to a weekly bear market soon. I continue to recommend selling rallies in supportive Commodities at least for the next week.
Buys to Watch:
Sells to Watch:
Australian Dollar- Like most of the markets that showed strength on the recovery over the last year it was only a matter of time before the Aussie Dollar gave in to the bearish pressure. Money chased the Currency higher on the inflation and recovery trade, but the weekly chart has finally caved in with a break below the swing lows from February on the weekly chart. In what is very close to a double top pattern on the weekly chart the Aussie broke below the breakout level of .8547 this morning resulting in a projection to .7764. Because this move is on the weekly chart, confirmation of the pattern will not result for a number of days. However, with the macro picture continuing to weaken I believe that you can step into some shorts for the market on rally pullbacks. Right now I have .8500 as a good level to execute an initial short on a pullback towards the breakout level with .8526 - .8536 having some minor resistance to place a stop above. Otherwise, explore the June Puts that have 16 days until expiration for less risky entry.
Crude Oil and Copper Flag Patterns- I am grouping these two markets together today because they have been two of the worst performing Commodities as of late, but I do not have great nearby entry levels on a short position. I was looking for a rally yesterday in Crude into the mid $76 area for the opportunity to sell, but this area was never reached. However, with a flag continuation pattern lower for Crude that projects to $70 for the July contract (that I speculate has the strong possibility on a continuation to $60 within the next 2 months) I still am looking for short entry on Crude. There is a lower volume traded area from $72.94 to $73.36 with some higher volume trade at $73.75 that should act as resistance if Crude is able to form a rally.
For Copper I am still using the flag pattern on the July contract that projects to $2.67. I am focused on the $3.0850 to $3.1010 level with resistance near $3.1250 for entry. Although the market came close to this level on the rally yesterday, it was not entered and no new entry levels were created as of yet. Entry on this trade can be made on a 15 or 60 minute chart reversal though as well. Be aware that Copper has found support just above the $2.90 level on multiple occasions now, so a break through this level could be more difficult.
S&P 500 (or other Stock Indices)- The S&P appears to be the middle man and best indicator of the Stock Indices for right now, so I suggest trading it over the others. With yesterday's break a buildup of trade was left above the 1130 level, which I now am using as the new strong resistance level and a good area to short the market against. Keep in mind the "Flash Forward" level of 1056 as a potential projection for the bearish move. For the Dow I also have a similar level to the S&P at 10,560 that should act as strong resistance with a trade buildup above it. For the Dow this "Flash" level is 9,840. Lastly, the Nasdaq continues to trade all over the board as the strength one day and the weakness the next, so I am waiting for more continuity before using this market as an Equity short. The Nasdaq was the best performer on the corrective rally over the last year and I often like to isolate previous strengths (ie. Copper, Aussie Dollar) as the better shorts on macro moves lower, but the Nasdaq needs to show consistency.
Put on the Radar:
Palladium- Palladium is one of the thinner markets that I follow, so take this into account if you decide to enter the market and adjust your size accordingly. First it is necessary to look at a weekly chart of Palladium and see how large the rally in the market has been since December of '08. Palladium has outperformed nearly every market that experienced a significant break on the recovery and it has done so on all time levels of open interest that can be attributed to the entry of an ETF into the market. Now looking at the daily chart you can see the bearish cup and handle pattern with a breakout level of $485 today that has a projection to $420. I think it is a good idea to wait another day before entry and to use caution as the market trades thin. Another option I was exploring is using Platinum (another strong, but thin market on the recovery) as a hedge against the Palladium as the differential chart between the two has a similar move with Palladium leading the way lower.
July Soybeans- July Soybeans officially have a projection to $8.58, but with Corn fundamentals pulling the market higher and little action in the Grain complex lately it is turning into a molasses trade. July Beans only have significant support levels at $9.30 and $9.20 nearby, so the trade may accelerate below. However, with much of the macro market rolling with directional volatility I believe that Beans should be put on the back burner of markets to trade for the time being.
Notes:
Natural Gas- As I cautioned yesterday, the Natural Gas market can be volatile for the price that it is at and acts spiky with a number of failed reversals. This happened again yesterday as the bullish breakout from the market's sideways range was rejected with a close below $4.424 on another fake out. Always wait at least a day for confirmation on the Natural Gas for the time being as the fundamental picture for the Commodity is still very bearish.
Euro Currency Monthly Breakout- The Euro has temporarily set off a monthly bearish cup and handle pattern with a move below the support and swing lows from November of '08. Below 1.2326 the market projects to .9508, which takes the Euro back to levels near it's inception against the U.S. Dollar. There is plenty of speculation that the Euro will outright fail, but I am not over-excited to jump on this bandwagon just yet. With this being a monthly pattern you need to wait until at least the end of May for the initial breakout and until the end of June for confirmation and there is a lot that could happen in between.
Tuesday, May 18, 2010
Tuesday 5/18/10 Commodity Ideas
Opening Note:
Despite trading over 22 points lower on the day before mid-day yesterday the S&P 500 was able to mount a rally to close less than a point lower on the day. Overnight the Index is slightly higher and has built a base on a 60 minute chart that looks like it now has fuel for a rally continuation. A bullish head and shoulders pattern was set off just before the European open at 12:30 am on the 60 minute chart with a breakout of 1135.75 that projects to 1162.75. With the S&P now struggling with the low volume area from 1140.25 to 1144 that provided a high yesterday, it now looks that with just a little more rally the market should be able to move forward with the projection. A number of other supportive Commodities like the Euro, Crude Oil, and Copper that have acted the weakest over the last couple weeks also have formed a similar base from yesterday and into this morning. This leads me to believe that the macro market could see gains over the next 24 to 36 hours as some of the weakest markets need a rally before a continuation lower can resume unless this nearby resistance can hold the market.
With this most recent shift on the daily chart to a bearish mode only heading into it's 11th day for the S&P 500 after the downside breakout on May 4th, I still believe that there is more downside to come on this daily chart move. However, after testing the lower boundary on the bullish mode for the weekly RSI yesterday and failing with the bullish mode remaining intact, now is not the time to push short positions. While I still like selling rallies in these supportive markets I recommend closing out short positions for the time being, if you have not already, and waiting for better resistance levels to re-initiate.
Buys to Watch:
Natural Gas- First off, I want to recommend waiting at least one day before initiating a long position in Nat. Gas for confirmation on the breakout. The market can be extremely volatile based on the price and has a tendency to be spiky lately on strong reversals. However, Natural Gas finally has a bullish breakout above it's sideways range high of $4.424 that has a projection range from $4.881 to $4.993. Both the RSI and Stochastics also now have a breakout above the bear market high trend for the momentum indicators giving a signal on a reversal to a bullish mode. With the market sitting just above the breakout level today on a low volume trade without much support, I recommend waiting for confirmation on this move and looking for pullback entry tomorrow, which I will provide if applicable.
Sells to Watch:
Put on the Radar:
S&P 500- The critical level of 1175 in the S&P 500 acted as resistance Thursday of last week as it reversed the market, so I am again looking to the S&P as the first indicator for market direction right now. As I said in the Opening Note the 60 minute chart bullish head and shoulders pattern had a breakout level of 1135.75 at 12:30 am early this morning and has a projection to 1162.75. While the market still needs to overcome resistance from 1140.25 to 1144 I believe that it is now likely that the market continues higher for the next day. However, do not become too overly bullish on a continuation above the projection just yet. From 1160 to 1165 the S&P 500 has a lower volume trade that bumps up against some high volume trade that should act as resistance from 1165 to 1175. If the market is able to complete the pattern, the projection then becomes a good area to initiate a short position against this resistance and for the market to resume it's daily chart bearish mode. While it is possible to jump on board the rally above 1144 if it occurs, I am only looking to short the market in compliance with the bearish trend on the daily chart and do not want to get stuck in a long position when I am looking for continuation lower if the projection is not reached. I recommend sitting on the sidelines for the time being and waiting for a set up at this projection level or elsewhere to get short again.
Crude Oil (roll your front month from June to July)- With the previous front month of June much weaker than July it is a little different now to look at the front month of Crude as adjustments need to be made to expectations and projections. While the June contract had a projection to $65, the July contract now has a projection to roughly $70 based on it's individual daily chart on the flag continuation pattern. Like the Stock Indices, Crude Oil has found a similar base since yesterday afternoon and has rallied nearly $2.50 since finding a low. With both RSI and Stochastics on the daily chart sitting in extremely oversold territory based on yesterday's close I believe that it is now time to let Crude have a breather on a rally. If you were short yesterday you have hopefully already covered, but I recommend doing so for the time being if you have not already.
I am currently waiting for a rally into the large low volume zone between $76.10 and $76.84 with some higher volume initial resistance from $77.02 to $77.36 before looking to initiate a short position again. This level for the July contract correlates price-wise to the level I listed in the June contract yesterday that was only briefly entered before prices reversed $3 lower yesterday. If the market is able to find even more strength on this current rally then there is also another smaller area from $78.10 to $78.16 with some much stronger volume traded resistance around the $78.50 level. Like the S&P 500 I am only looking to initiate short positions in the Crude Oil market for the time being in compliance with the bearish daily trend and recommend this stance rather than trying to catch a piece of a rally.
Copper- Like all of the markets above, I am still bearish Copper in line with the bearish daily trend and projection to $2.67. But, with the strong reversal rally since yesterday's close I recommend taking profits on short positions and waiting for a larger rally to re-initiate. Similar to Crude Oil, I still have my eye on the level from $3.0850 to $3.1010 that was briefly entered yesterday and acted as a high. With some higher volume initial resistance at $3.1250 this is a good level to execute a short position, but if a stronger rally ensues there are also some smaller low volume entry points from 3.1380 to 3.1520 and 3.1860 to 3.1940.
Notes:
Buy Gold vs. Sell Silver (Gold - Silver/2)- Although the timing on this trade appears to have been correct with the Precious Metals finding a top and breaking over the last few days it is the strong action of the Silver that made this trade only a small winner on the larger expectation. After recommending buying dips below $260 in the middle of last week the spread was able to rally above the $280 level yesterday afternoon, but with a larger Gold break this morning than Silver is sitting back in the $270's. This is also after an odd Metal opening yesterday in which Silver rallied strongly on a failing macro market sending the spread dangerously close to the $263 level and below the $265 level where I recommended stop placement. If you are still long the spread I recommend taking profits and exiting the trade. While I believe that this is still a position that will work over the next couple weeks, it has not performed as well as I have expected with larger negative volatility as well. I think that your margin and time can be better spent on other trades for now.
I do still recommend a bearish stance on the Precious Metals of Gold and Silver as I believe they are still overbought on the run to safety trade. Since I really started barking about my bearishness on Gold Wednesday of last week the market has reversed and has begun trading lower on both positive and negative macro days as a reversal of it's previously always higher trend. Until this new trend convincingly changes I believe the Gold market is over-saturated and should be traded from a short stance as too many longs jumped in near the top and will likely be cleaned out as momentum indicators have given sell signals. I also still feel that the Silver market is highly overvalued based off of the Gold trade and should come under more pressure as Silver is not the "store of value" that Gold is and should correct lower to realign with the deflationary and weaker macro picture.
July Soybeans- July Soybeans confirmed a bearish breakout below the longer bullish trend that provides a projection to $8.58. However, the market was unable to accelerate much yesterday and found support multiple times at the $9.40 level. I believe that there is still a decent opportunity to initiate a short position near $9.52 against the stronger volume resistance from $9.54 - $9.55, but would only recommend a short at this level for the time being. With some more sideways support for Beans to travel below I think that the market may find a brief rally before another attempt lower on the pattern.
Despite trading over 22 points lower on the day before mid-day yesterday the S&P 500 was able to mount a rally to close less than a point lower on the day. Overnight the Index is slightly higher and has built a base on a 60 minute chart that looks like it now has fuel for a rally continuation. A bullish head and shoulders pattern was set off just before the European open at 12:30 am on the 60 minute chart with a breakout of 1135.75 that projects to 1162.75. With the S&P now struggling with the low volume area from 1140.25 to 1144 that provided a high yesterday, it now looks that with just a little more rally the market should be able to move forward with the projection. A number of other supportive Commodities like the Euro, Crude Oil, and Copper that have acted the weakest over the last couple weeks also have formed a similar base from yesterday and into this morning. This leads me to believe that the macro market could see gains over the next 24 to 36 hours as some of the weakest markets need a rally before a continuation lower can resume unless this nearby resistance can hold the market.
With this most recent shift on the daily chart to a bearish mode only heading into it's 11th day for the S&P 500 after the downside breakout on May 4th, I still believe that there is more downside to come on this daily chart move. However, after testing the lower boundary on the bullish mode for the weekly RSI yesterday and failing with the bullish mode remaining intact, now is not the time to push short positions. While I still like selling rallies in these supportive markets I recommend closing out short positions for the time being, if you have not already, and waiting for better resistance levels to re-initiate.
Buys to Watch:
Natural Gas- First off, I want to recommend waiting at least one day before initiating a long position in Nat. Gas for confirmation on the breakout. The market can be extremely volatile based on the price and has a tendency to be spiky lately on strong reversals. However, Natural Gas finally has a bullish breakout above it's sideways range high of $4.424 that has a projection range from $4.881 to $4.993. Both the RSI and Stochastics also now have a breakout above the bear market high trend for the momentum indicators giving a signal on a reversal to a bullish mode. With the market sitting just above the breakout level today on a low volume trade without much support, I recommend waiting for confirmation on this move and looking for pullback entry tomorrow, which I will provide if applicable.
Sells to Watch:
Put on the Radar:
S&P 500- The critical level of 1175 in the S&P 500 acted as resistance Thursday of last week as it reversed the market, so I am again looking to the S&P as the first indicator for market direction right now. As I said in the Opening Note the 60 minute chart bullish head and shoulders pattern had a breakout level of 1135.75 at 12:30 am early this morning and has a projection to 1162.75. While the market still needs to overcome resistance from 1140.25 to 1144 I believe that it is now likely that the market continues higher for the next day. However, do not become too overly bullish on a continuation above the projection just yet. From 1160 to 1165 the S&P 500 has a lower volume trade that bumps up against some high volume trade that should act as resistance from 1165 to 1175. If the market is able to complete the pattern, the projection then becomes a good area to initiate a short position against this resistance and for the market to resume it's daily chart bearish mode. While it is possible to jump on board the rally above 1144 if it occurs, I am only looking to short the market in compliance with the bearish trend on the daily chart and do not want to get stuck in a long position when I am looking for continuation lower if the projection is not reached. I recommend sitting on the sidelines for the time being and waiting for a set up at this projection level or elsewhere to get short again.
Crude Oil (roll your front month from June to July)- With the previous front month of June much weaker than July it is a little different now to look at the front month of Crude as adjustments need to be made to expectations and projections. While the June contract had a projection to $65, the July contract now has a projection to roughly $70 based on it's individual daily chart on the flag continuation pattern. Like the Stock Indices, Crude Oil has found a similar base since yesterday afternoon and has rallied nearly $2.50 since finding a low. With both RSI and Stochastics on the daily chart sitting in extremely oversold territory based on yesterday's close I believe that it is now time to let Crude have a breather on a rally. If you were short yesterday you have hopefully already covered, but I recommend doing so for the time being if you have not already.
I am currently waiting for a rally into the large low volume zone between $76.10 and $76.84 with some higher volume initial resistance from $77.02 to $77.36 before looking to initiate a short position again. This level for the July contract correlates price-wise to the level I listed in the June contract yesterday that was only briefly entered before prices reversed $3 lower yesterday. If the market is able to find even more strength on this current rally then there is also another smaller area from $78.10 to $78.16 with some much stronger volume traded resistance around the $78.50 level. Like the S&P 500 I am only looking to initiate short positions in the Crude Oil market for the time being in compliance with the bearish daily trend and recommend this stance rather than trying to catch a piece of a rally.
Copper- Like all of the markets above, I am still bearish Copper in line with the bearish daily trend and projection to $2.67. But, with the strong reversal rally since yesterday's close I recommend taking profits on short positions and waiting for a larger rally to re-initiate. Similar to Crude Oil, I still have my eye on the level from $3.0850 to $3.1010 that was briefly entered yesterday and acted as a high. With some higher volume initial resistance at $3.1250 this is a good level to execute a short position, but if a stronger rally ensues there are also some smaller low volume entry points from 3.1380 to 3.1520 and 3.1860 to 3.1940.
Notes:
Buy Gold vs. Sell Silver (Gold - Silver/2)- Although the timing on this trade appears to have been correct with the Precious Metals finding a top and breaking over the last few days it is the strong action of the Silver that made this trade only a small winner on the larger expectation. After recommending buying dips below $260 in the middle of last week the spread was able to rally above the $280 level yesterday afternoon, but with a larger Gold break this morning than Silver is sitting back in the $270's. This is also after an odd Metal opening yesterday in which Silver rallied strongly on a failing macro market sending the spread dangerously close to the $263 level and below the $265 level where I recommended stop placement. If you are still long the spread I recommend taking profits and exiting the trade. While I believe that this is still a position that will work over the next couple weeks, it has not performed as well as I have expected with larger negative volatility as well. I think that your margin and time can be better spent on other trades for now.
I do still recommend a bearish stance on the Precious Metals of Gold and Silver as I believe they are still overbought on the run to safety trade. Since I really started barking about my bearishness on Gold Wednesday of last week the market has reversed and has begun trading lower on both positive and negative macro days as a reversal of it's previously always higher trend. Until this new trend convincingly changes I believe the Gold market is over-saturated and should be traded from a short stance as too many longs jumped in near the top and will likely be cleaned out as momentum indicators have given sell signals. I also still feel that the Silver market is highly overvalued based off of the Gold trade and should come under more pressure as Silver is not the "store of value" that Gold is and should correct lower to realign with the deflationary and weaker macro picture.
July Soybeans- July Soybeans confirmed a bearish breakout below the longer bullish trend that provides a projection to $8.58. However, the market was unable to accelerate much yesterday and found support multiple times at the $9.40 level. I believe that there is still a decent opportunity to initiate a short position near $9.52 against the stronger volume resistance from $9.54 - $9.55, but would only recommend a short at this level for the time being. With some more sideways support for Beans to travel below I think that the market may find a brief rally before another attempt lower on the pattern.
Monday, May 17, 2010
Monday 5/17/10 Commodity Ideas
Opening Note:
A sizable day down for the macro market Friday was followed into this morning with some volatile swings on overnight trade Sunday. The market is only slightly weaker this morning after a strong uptrend that his driven prices higher since the European open despite the Dow trading 130 lower, Crude down $1.80, and the Pound trading a nearly 300 tick range already. It is looking more likely that the fast correction from May 6th is turning out to be more of a "Flash Forward" phenomena, where we were able to see the future about 3 weeks forward. When the market got almost literally de-pantsed we found out where the first real sizable bid of strength is in Equities and a trail was blazed in a number of other correlated markets. I am viewing these non-completed spikes in the market as possible indicator on the move lower now.
With a number of low volume areas coming into play at levels just above the current market in the Stock Indices, Crude Oil, and some other supportive markets I believe that the highs for the macro market are nearly in for the day. I continue to recommend selling rallies in supportive Commodities across the market.
Buys to Watch:
Buy Gold vs. Sell Silver (Gold- Silver/2 to chart)- The Gold - Silver spread has continued to rally over the last two days as the Precious Metals have unwound some of their excessive buying. Despite Equities moving lower the last couple days the Gold market has managed to trade lower itself as much of the "run to safety" trade has become over done with the Metals needing a price break before a continuation higher is believable. Silver has fallen harder than the Gold as I have predicted, but I still think that Silver has much more room to travel lower while Gold holds it's strength in comparison. This trade was first put on the Radar Wednesday of last week with the suggestion of buying dips below $260 and specifically near $255 and $251 where the spread bottomed. Over the last two days the spread has rallied to the low to mid $270's and still has the room to continue to the $300 to $320 level. A dip in the spread to the lower volume area from $266.4 to 269 is a good area for long entry now. If you are sitting with a long position already I believe that you can mover your stop up to the $263 level or up to $265 if you prefer.
***Since I wrote this paragraph prior to the Metal opening the two markets have diverged with Gold lower, but Silver climbing higher. The market is trading near the $263 area I listed as a good stop, so I would not give the trade much more room to the downside if you are holding a long. I still feel strongly that Silver is over-priced, but it is possibly not the right time for the trade yet.
Sells to Watch:
Crude Oil- Crude has already had a substantial move to the downside over the last two weeks, but with the bearish flag pattern now providing a projection to $65 I believe that you can still sell rallies. With a bunch of support between $68.50 and $71.50 on the weekly chart it may be a more difficult move than the initial break to the current level. I have a low volume zone from $72.10 to $72.70 that was already entered briefly this morning that provides a good area for short entry on a price reversal. Above this area there is stronger resistance sitting between $72.86 and $73.08 for stop placement. Although the June - July Oil spread has now snapped back to above the $4 level I still do not believe that this is a particularly bullish sign as it is still a poor level for demand. With fundamentals rarely even traded in the Crude market lately I believe that they can be moved to the back burner and that continuing to sell the market with the trend is way to trade it.
Copper- With the breakout on the large flag pattern on Friday, Copper now has a projection to $2.67. Copper continues to be one of the weakest performers on the corrective pullback as it was one of the first markets to show weakness near the top. I have a low volume area from $3.08 to 3.1010 with stronger resistance at 3.1250 that provides a good opportunity for short entry. Be cautious with this initial entry if you decide to execute because above this 3.1250 level there are also some smaller low volume entry points on a larger rally from 3.1380 to 3.1520 and 3.1860 to 3.1940. There is support in the Copper near the swing low from May 5th down to the $3 level, but little else for support below this level until $2.85.
July Soybeans- Soybeans are now on the 15th day of their recent price break, but the daily RSI indicator has now officially confirmed a reversal in the market trend to a bearish mode. To see the downside breakout on the base trend for the Beans draw trendlines from the lows on Feb 4th to Mar. 31st and also from Oct. 6th to Feb 4th to receive base values of $9.55 1/2 and $9.44 1/2 respectively. The more recent trend with the $9.55 1/2 value today already has a lower close from Friday and is looking for confirmation today. With a confirmed move below both levels July Beans have a projection to $8.58 when the move from Jan. 4th to Feb. 4th is extrapolated to the current price break. There is a low volume zone for short entry between $9.48 1/2 and 9.52 1/4 if there is a rally on the open. The topside bearish trendline for the recent break has a value of $9.61 1/2 today, but will likely not come into play with prices already lower.
Put on the Radar:
Stock Indices Resistance- I have low volume zones in the stock indices just above their highs for the day thus far which would be good areas to sell on a rally. They are: S&P 500 1140.25 - 1144.00, Nasdaq 1914.50 - 19.26.00, and Dow 10,646 - 10,672. With some of these levels already traded into it is possible that there is not another rally today, but I believe that these areas should hold prices and create a top if prices do make there was higher again.
Notes:
Pound - Euro Double Top?- The Pound/Euro cross rate appears to have formed a potential double top, but with extremely volatile trade lately I recommend keeping it in mind while holding off on trading it. Although the Euro has taken the center stage as the weakest Currency the Pound has recently kept up with the Euro and actually moved slightly lower over the last few days. The Euro may have an awful story, but for the time being it appears that the EU will try to protect it, while there is speculation that the new British Prime Minister has no problem allowing Sterling to deflate to make exports more competitive globally. This could become a stronger trade soon.
A sizable day down for the macro market Friday was followed into this morning with some volatile swings on overnight trade Sunday. The market is only slightly weaker this morning after a strong uptrend that his driven prices higher since the European open despite the Dow trading 130 lower, Crude down $1.80, and the Pound trading a nearly 300 tick range already. It is looking more likely that the fast correction from May 6th is turning out to be more of a "Flash Forward" phenomena, where we were able to see the future about 3 weeks forward. When the market got almost literally de-pantsed we found out where the first real sizable bid of strength is in Equities and a trail was blazed in a number of other correlated markets. I am viewing these non-completed spikes in the market as possible indicator on the move lower now.
With a number of low volume areas coming into play at levels just above the current market in the Stock Indices, Crude Oil, and some other supportive markets I believe that the highs for the macro market are nearly in for the day. I continue to recommend selling rallies in supportive Commodities across the market.
Buys to Watch:
Buy Gold vs. Sell Silver (Gold- Silver/2 to chart)- The Gold - Silver spread has continued to rally over the last two days as the Precious Metals have unwound some of their excessive buying. Despite Equities moving lower the last couple days the Gold market has managed to trade lower itself as much of the "run to safety" trade has become over done with the Metals needing a price break before a continuation higher is believable. Silver has fallen harder than the Gold as I have predicted, but I still think that Silver has much more room to travel lower while Gold holds it's strength in comparison. This trade was first put on the Radar Wednesday of last week with the suggestion of buying dips below $260 and specifically near $255 and $251 where the spread bottomed. Over the last two days the spread has rallied to the low to mid $270's and still has the room to continue to the $300 to $320 level. A dip in the spread to the lower volume area from $266.4 to 269 is a good area for long entry now. If you are sitting with a long position already I believe that you can mover your stop up to the $263 level or up to $265 if you prefer.
***Since I wrote this paragraph prior to the Metal opening the two markets have diverged with Gold lower, but Silver climbing higher. The market is trading near the $263 area I listed as a good stop, so I would not give the trade much more room to the downside if you are holding a long. I still feel strongly that Silver is over-priced, but it is possibly not the right time for the trade yet.
Sells to Watch:
Crude Oil- Crude has already had a substantial move to the downside over the last two weeks, but with the bearish flag pattern now providing a projection to $65 I believe that you can still sell rallies. With a bunch of support between $68.50 and $71.50 on the weekly chart it may be a more difficult move than the initial break to the current level. I have a low volume zone from $72.10 to $72.70 that was already entered briefly this morning that provides a good area for short entry on a price reversal. Above this area there is stronger resistance sitting between $72.86 and $73.08 for stop placement. Although the June - July Oil spread has now snapped back to above the $4 level I still do not believe that this is a particularly bullish sign as it is still a poor level for demand. With fundamentals rarely even traded in the Crude market lately I believe that they can be moved to the back burner and that continuing to sell the market with the trend is way to trade it.
Copper- With the breakout on the large flag pattern on Friday, Copper now has a projection to $2.67. Copper continues to be one of the weakest performers on the corrective pullback as it was one of the first markets to show weakness near the top. I have a low volume area from $3.08 to 3.1010 with stronger resistance at 3.1250 that provides a good opportunity for short entry. Be cautious with this initial entry if you decide to execute because above this 3.1250 level there are also some smaller low volume entry points on a larger rally from 3.1380 to 3.1520 and 3.1860 to 3.1940. There is support in the Copper near the swing low from May 5th down to the $3 level, but little else for support below this level until $2.85.
July Soybeans- Soybeans are now on the 15th day of their recent price break, but the daily RSI indicator has now officially confirmed a reversal in the market trend to a bearish mode. To see the downside breakout on the base trend for the Beans draw trendlines from the lows on Feb 4th to Mar. 31st and also from Oct. 6th to Feb 4th to receive base values of $9.55 1/2 and $9.44 1/2 respectively. The more recent trend with the $9.55 1/2 value today already has a lower close from Friday and is looking for confirmation today. With a confirmed move below both levels July Beans have a projection to $8.58 when the move from Jan. 4th to Feb. 4th is extrapolated to the current price break. There is a low volume zone for short entry between $9.48 1/2 and 9.52 1/4 if there is a rally on the open. The topside bearish trendline for the recent break has a value of $9.61 1/2 today, but will likely not come into play with prices already lower.
Put on the Radar:
Stock Indices Resistance- I have low volume zones in the stock indices just above their highs for the day thus far which would be good areas to sell on a rally. They are: S&P 500 1140.25 - 1144.00, Nasdaq 1914.50 - 19.26.00, and Dow 10,646 - 10,672. With some of these levels already traded into it is possible that there is not another rally today, but I believe that these areas should hold prices and create a top if prices do make there was higher again.
Notes:
Pound - Euro Double Top?- The Pound/Euro cross rate appears to have formed a potential double top, but with extremely volatile trade lately I recommend keeping it in mind while holding off on trading it. Although the Euro has taken the center stage as the weakest Currency the Pound has recently kept up with the Euro and actually moved slightly lower over the last few days. The Euro may have an awful story, but for the time being it appears that the EU will try to protect it, while there is speculation that the new British Prime Minister has no problem allowing Sterling to deflate to make exports more competitive globally. This could become a stronger trade soon.
Friday, May 14, 2010
Friday 5/14/10 Commodity Ideas
Opening Note:
While the stock market made a great recovery over the first three days of the week it finally ran into trouble yesterday as the 1175 level in the S&P 500 derailed the rally train. Although I had my eye on the high volume profile area just below this level as resistance it was this lower volume level just above the profile that halted the market. If you recall, 1175 was the original level in the S&P that set off the bearish head and shoulders pattern leading to the quickest 10% correction ever, so it is not surprising that there was little bullish fight left in the market when it reached this level yesterday. All of the daily chart RSI indicators for the Stock Indices remain in a bearish mode after yesterday's break, as a test of the upper bear market boundary failed on the indicator. Although the market has already come close today, the next level of support in the S&P 500 ranges from 1141 - 1144 with a break below this level likely resulting in a move to 1130.
While Equities look to be continuing in a bearish mode there are a number of Commodity markets that have already pointed towards this macro continuation lower and are better sales on there own than the Equities. It is no secret that Crude Oil has been the weakest market since the beginning of the month, but I also now have Copper with a downside breakout below its consolidation range and Soybeans testing their slightly upsloping trend/support base. The Dollar Index is also continuing higher with the European Currencies yet to establish a support base and the Dollar also again gaining on the strong Canadian and Aussie Dollars since early yesterday. The weekly chart on the Equity Indices (and macro picture) is now in the process of testing the reversal level from a bullish to bearish mode, and with the short term outlook now negative I believe that the reversal will be completed. I recommend selling rallies on supportive markets for the next few days as correlation has returned to the market and it is negative.
Buys to Watch:
Gold vs. Silver (Gold - Silver/2)- This trade is based on the fundamental idea that as a store of value and as a reserve currency Gold is historically always the better choice among the precious metals. Thinking about it literally, there never was a "Silver Rush" in California and at the current value you would need to hold 63.5 ounces of Silver to equal one ounce of Gold, which is a much more difficult way to lug around your money or to store in a vault. The market is ignoring this fundamental difference between the two metals right now and treating Silver like it has the same function as Gold. While the two are obviously correlated in price to a degree, Silver travels more with the economy and other Commodities as the price falls more than Gold on weakness. With the volatile swing to new highs in Silver that begun last Friday I believe that the market is incorrectly valuing this Silver with the Gold market. With Gold reaching all of it's rally projections and momentum slowing on the rally I believe that the precious metals are heading for a reversal in prices currently or in the near future.
Whether you draw a trendline base on the daily chart from the lows from September 16th of last year or April 5th of this one you will roughly get a support value today of $248 for the spread. While I had this trade on the radar the last two days I noted that dips to the $255 and $251 levels are good areas to buy based on the support base from $235 to $251. Yesterday a dip to the $255 level was followed up by a continuation to 250 and with the trend base now sitting at 248 I believe that these are great buying opportunities if the market dips to these levels again. On the rally I believe that a corrective move back to the $300 to $320 level will follow shortly with a break in the Silver market leading the way on the move in the spread. Note: For execution purposes on the differential the spread is 1:1 Gold/Silver as the contract sizes of each product are lined up at 100:5000 to even out the size and price discrepancy. However, a friend pointed out to me that the actual ratio (Gold/Silver) is this 63.5 ounces. If you are trading larger quantities you can use this to your advantage possibly by executing 4 Gold : 5 Silver, which should add value on a break in the precious metals with more short Silver exposure, but can also hurt you if the spread move comes on a Gold rally.
Sells to Watch:
Copper- If you have been reading regularly for a while you can remember that during my initial concern about the macro market I noted both Crude Oil and Copper as the weakness markets that were indicating a potential fall. After a strong initial break in the Copper led by long selling the market has found a consolidation rally off of the $3.00 low, but with a fairly steep uptrend has now broken out of the bottom. Whether you call the pattern a flag or a continuation triangle the projected bearish move is again very sizable and this time points below the swing low from the February break between $2.81 and $2.85. To form the lower boundary on the pattern draw a trendline from the lows on May 5th to the lows on May 7th to receive a breakout value today of $3.2030 that as a flag or triangle projects to $2.67 on a continuation of the leg down that began on April 26th. As an upper boundary you can also draw a top from the highs on May 10th to May 13th to receive a value of $3.2560 today. While I recommend waiting another day for confirmation without the risk or carrying a position over the weekend, if you prefer to sell rallies and want in now, there is a lower volume zone from 3.1860 to 3.2020 that is a good short entry level with a stop above this upper boundary. Copper has been the weakest Metal of the sector by far and has had very little corrective rally on it's move lower compared to other markets. Although there is not the same fuel on the break, with many shorter term longs already exiting the market, and the projection is rather large and less likely to be completed, I still believe this is a good pattern and market to sell.
Crude Oil- Crude Oil is like the less attractive sister of Copper right now, meaning she's all yours if you want to buy into that. When given the same pattern treatment as the Copper market from it's May 7th base you will see that the market is already broken out to the downside two days ago and continues lower on a projection to roughly $65. The feature that makes the Crude so unattractive right now is the massive build up of losing long positions and open interest that has yet to liquidate, but is just now beginning the process I believe. Crude swings have been volatile despite the drop as the move from 10:45 am to 12:15 pm yesterday afternoon displays on the $2.00 rally. However, while one might attribute the losses in Crude yesterday to losses in the stock market when looking at the overall day it was in fact Crude Oil that led this dip lower in the market on it's own. The real damage in Crude came on the break between 1:00 pm to the 1:30 pm close, but Equities did not begin their second break of the day until 1:30 when you examine a 15 minute chart.
The fundamental story with the contango and supply/demand is less important right now for the Crude market as over-invested money on the recovery story that continued to buy dips is now in deep water and driving the market lower as it runs for the hills. There is base support for the Crude market near the $70 psychological level, but ranging up to $71.50. Taking the market below this level could be a temporary battle, but with the amount of long selling that could unwind I see the move to $65 as attainable with the possibility of an extension to $60 still. I do not have good entry levels currently for the short, but I recommend using a 15 minute chart with momentum indicators for entry and waiting for the market to form a rally spike above the level you are looking to sell as Crude often gets excited and over-shoots the runway.
Put on the Radar:
**I am out of time for today, but I figured it was more important to focus on the potential buys and sells than the radar. On the radar I now have a potential downside breakout in July Soybeans below the trend and a double top that is potentially forming in the Pound vs. Euro cross rate that has a fundamental wrinkle to it.
Notes:
While the stock market made a great recovery over the first three days of the week it finally ran into trouble yesterday as the 1175 level in the S&P 500 derailed the rally train. Although I had my eye on the high volume profile area just below this level as resistance it was this lower volume level just above the profile that halted the market. If you recall, 1175 was the original level in the S&P that set off the bearish head and shoulders pattern leading to the quickest 10% correction ever, so it is not surprising that there was little bullish fight left in the market when it reached this level yesterday. All of the daily chart RSI indicators for the Stock Indices remain in a bearish mode after yesterday's break, as a test of the upper bear market boundary failed on the indicator. Although the market has already come close today, the next level of support in the S&P 500 ranges from 1141 - 1144 with a break below this level likely resulting in a move to 1130.
While Equities look to be continuing in a bearish mode there are a number of Commodity markets that have already pointed towards this macro continuation lower and are better sales on there own than the Equities. It is no secret that Crude Oil has been the weakest market since the beginning of the month, but I also now have Copper with a downside breakout below its consolidation range and Soybeans testing their slightly upsloping trend/support base. The Dollar Index is also continuing higher with the European Currencies yet to establish a support base and the Dollar also again gaining on the strong Canadian and Aussie Dollars since early yesterday. The weekly chart on the Equity Indices (and macro picture) is now in the process of testing the reversal level from a bullish to bearish mode, and with the short term outlook now negative I believe that the reversal will be completed. I recommend selling rallies on supportive markets for the next few days as correlation has returned to the market and it is negative.
Buys to Watch:
Gold vs. Silver (Gold - Silver/2)- This trade is based on the fundamental idea that as a store of value and as a reserve currency Gold is historically always the better choice among the precious metals. Thinking about it literally, there never was a "Silver Rush" in California and at the current value you would need to hold 63.5 ounces of Silver to equal one ounce of Gold, which is a much more difficult way to lug around your money or to store in a vault. The market is ignoring this fundamental difference between the two metals right now and treating Silver like it has the same function as Gold. While the two are obviously correlated in price to a degree, Silver travels more with the economy and other Commodities as the price falls more than Gold on weakness. With the volatile swing to new highs in Silver that begun last Friday I believe that the market is incorrectly valuing this Silver with the Gold market. With Gold reaching all of it's rally projections and momentum slowing on the rally I believe that the precious metals are heading for a reversal in prices currently or in the near future.
Whether you draw a trendline base on the daily chart from the lows from September 16th of last year or April 5th of this one you will roughly get a support value today of $248 for the spread. While I had this trade on the radar the last two days I noted that dips to the $255 and $251 levels are good areas to buy based on the support base from $235 to $251. Yesterday a dip to the $255 level was followed up by a continuation to 250 and with the trend base now sitting at 248 I believe that these are great buying opportunities if the market dips to these levels again. On the rally I believe that a corrective move back to the $300 to $320 level will follow shortly with a break in the Silver market leading the way on the move in the spread. Note: For execution purposes on the differential the spread is 1:1 Gold/Silver as the contract sizes of each product are lined up at 100:5000 to even out the size and price discrepancy. However, a friend pointed out to me that the actual ratio (Gold/Silver) is this 63.5 ounces. If you are trading larger quantities you can use this to your advantage possibly by executing 4 Gold : 5 Silver, which should add value on a break in the precious metals with more short Silver exposure, but can also hurt you if the spread move comes on a Gold rally.
Sells to Watch:
Copper- If you have been reading regularly for a while you can remember that during my initial concern about the macro market I noted both Crude Oil and Copper as the weakness markets that were indicating a potential fall. After a strong initial break in the Copper led by long selling the market has found a consolidation rally off of the $3.00 low, but with a fairly steep uptrend has now broken out of the bottom. Whether you call the pattern a flag or a continuation triangle the projected bearish move is again very sizable and this time points below the swing low from the February break between $2.81 and $2.85. To form the lower boundary on the pattern draw a trendline from the lows on May 5th to the lows on May 7th to receive a breakout value today of $3.2030 that as a flag or triangle projects to $2.67 on a continuation of the leg down that began on April 26th. As an upper boundary you can also draw a top from the highs on May 10th to May 13th to receive a value of $3.2560 today. While I recommend waiting another day for confirmation without the risk or carrying a position over the weekend, if you prefer to sell rallies and want in now, there is a lower volume zone from 3.1860 to 3.2020 that is a good short entry level with a stop above this upper boundary. Copper has been the weakest Metal of the sector by far and has had very little corrective rally on it's move lower compared to other markets. Although there is not the same fuel on the break, with many shorter term longs already exiting the market, and the projection is rather large and less likely to be completed, I still believe this is a good pattern and market to sell.
Crude Oil- Crude Oil is like the less attractive sister of Copper right now, meaning she's all yours if you want to buy into that. When given the same pattern treatment as the Copper market from it's May 7th base you will see that the market is already broken out to the downside two days ago and continues lower on a projection to roughly $65. The feature that makes the Crude so unattractive right now is the massive build up of losing long positions and open interest that has yet to liquidate, but is just now beginning the process I believe. Crude swings have been volatile despite the drop as the move from 10:45 am to 12:15 pm yesterday afternoon displays on the $2.00 rally. However, while one might attribute the losses in Crude yesterday to losses in the stock market when looking at the overall day it was in fact Crude Oil that led this dip lower in the market on it's own. The real damage in Crude came on the break between 1:00 pm to the 1:30 pm close, but Equities did not begin their second break of the day until 1:30 when you examine a 15 minute chart.
The fundamental story with the contango and supply/demand is less important right now for the Crude market as over-invested money on the recovery story that continued to buy dips is now in deep water and driving the market lower as it runs for the hills. There is base support for the Crude market near the $70 psychological level, but ranging up to $71.50. Taking the market below this level could be a temporary battle, but with the amount of long selling that could unwind I see the move to $65 as attainable with the possibility of an extension to $60 still. I do not have good entry levels currently for the short, but I recommend using a 15 minute chart with momentum indicators for entry and waiting for the market to form a rally spike above the level you are looking to sell as Crude often gets excited and over-shoots the runway.
Put on the Radar:
**I am out of time for today, but I figured it was more important to focus on the potential buys and sells than the radar. On the radar I now have a potential downside breakout in July Soybeans below the trend and a double top that is potentially forming in the Pound vs. Euro cross rate that has a fundamental wrinkle to it.
Notes:
Thursday, May 13, 2010
Thursday 5/13/10 Commodity Ideas
Opening Note:
Large volume resistance levels in the Stock Indices acted as a magnet yesterday and again overnight as Equities were pulled higher without much of a break yesterday and into this morning. All of these resistance levels that I listed yesterday have at least been temporarily eclipsed, but in the case of the Dow and S&P 500 are still trading near the top of the resistance range. Equities have pulled higher on a solid recovery this week, but the Euro has continued to weaken after a spiky rally on Monday. The weakness of the Euro is a signal to me that the rest of the World is not taking this European bailout package and it's protective policies on the Euro very seriously. I have heard some analysts say that they believe that this package has isolated the contagion to Europe now and that the U.S. is safe, but with the U.S. contributing 17% of IMF funds and actually footing the bill for a larger portion based on usable currency (ie. some people do not except Venezuelan Pesos) you can be sure that the U.S. is already on the hook for tens of billions of dollars if not more. Let alone the U.S. balance sheet on it's own and the possible repercussions if this Trillion Dollar package is not enough to cover all of the dominoes in Europe.
With Equity direction still uncertain as daily RSI maintains a bearish mode, but with prices moving through resistance with ease I am uncertain of short term macro direction over the next week. Commodities other than precious metals and the Euro continue to point towards a slide in the market, but the relentlessness of Equities on the corrective rally makes it difficult to attempt a short position on supportive markets. I still feel strongly that we are in the process of reversing the bull market of the last year into a bearish one, but this does not mean that you should sell everything today. With a number of contradictory moves across the market I recommend continuing to size back on trading until overall direction becomes clearer.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Gold - Silver Ratio (Gold - Silver/2)- The spread has a bullish base trend dating back from September of '09 that provides a value for today of either 240 or 247 depending on which points you choose to draw the base from. The spread also has a nice base of traded price between the 235 and 251 values also to provide support. On a short term scale the spread has also produced a double base over the last two days around the 255 level. I have already covered the fundamental reasons behind the trade over the last few days, but it is mostly based around the volatile, and I believe out of line, price action in the Silver market lately. The massive correction in the spread back to the base of this range provides the opportunity to buy on a dip against the 255 or 251 level and only risk to around 240 at the most for the opportunity at a move to 300 - 320. It is likely that this trade may form a longer base around this level, so waiting a little longer on entry may actually be prudent to see if the precious metal markets do indeed form a top around this level with a break in the Silver market likely being the fuel on the spread trade.
The Gold - Euro - Equity Paradox- It may seem like I'm ragging on analysts a bit lately, but with an office move at the beginning of the month I am now glued in front of the business news channel all day without a choice. Over the last two days I have heard a number of analysts tout the continuation of Gold to a much higher level while also calling for Equities to continue to strengthen on the larger recovery picture. If you hear an "expert" doing this I recommend plugging your ears temporarily as, unless they are referring to just a day trade, these are completely contradictory statements. Gold is rallying on a "run to safety" trade mostly out of the Euro as it continues to weaken, but also out of Equities. For Gold to continue higher to the $1400 or $1500 level, as I have heard some calls for this, Gold will have to convincingly supplant the Euro as the second reserve currency for the world. The downfall of the Euro is incredibly bearish for the global Equity markets and this definitely includes the U.S. as we do not live in an isolationist country. I understand adding Gold as a hedge for an investor to a portfolio loaded in Equities, but to go out and say buy more Gold and buy more Equities right now is the type of thinking that provides opportunities for astute traders and is not a solid approach for the trader or investor going forward.
Crude Oil Weakness- Crude Oil broke below the $74.50 level this morning prior to it's open, which is the level that the market has had a quick rally bounce off of each of the last four days. As I have continually noted, this move lower in Crude has not been on a liquidation of long positions and on many lower days the open interest has continued to increase. With an incredible amount of roughly 150,000 open longs now out at least $8 on their purchases above $82 I can not imagine that there will not be some long selling going forward. This morning the nearby June - July spread is trading around the -$4.75 level, which is the lowest price value the market has ever seen excluding the debacle from the beginning of '09. While the contango is based on price, which is much higher than the historic charts in the 80's and 90's this is an example of a market where the fundamentals continue to collapse at an inflated price. The swings in Crude have been tricky and I do not have a good level to enter on a short currently. Crude continues to lose on a percentage basis to Equities though, so selling Crude versus buying Equities is a possible option on the trade as the ratio chart between the two broke out last week and has skyrocketed since.
Notes:
Precious Metals- With Energy prices collapsing, the Grain sector having a very unproductive seasonal rally, and Softs mostly range bound or weaker, much of the discretionary investment money has piled into the precious metal trade. Finding a decent rate of return in Commodities has been difficult this year and with Gold and Silver rallying the open interest has largely piled into these markets in a frenzy to try to catch profits, especially over the last week. While there is the run to safety trade mentality I believe that a bit of this recent rise in prices can be attributed to speculation money that is catching the tail end of the three month Gold and Silver move. With these markets seemingly rallying whether the macro market is supportive or weaker I continue to recommend caution on entering an outright long in either market as momentum appears to be waning.
Large volume resistance levels in the Stock Indices acted as a magnet yesterday and again overnight as Equities were pulled higher without much of a break yesterday and into this morning. All of these resistance levels that I listed yesterday have at least been temporarily eclipsed, but in the case of the Dow and S&P 500 are still trading near the top of the resistance range. Equities have pulled higher on a solid recovery this week, but the Euro has continued to weaken after a spiky rally on Monday. The weakness of the Euro is a signal to me that the rest of the World is not taking this European bailout package and it's protective policies on the Euro very seriously. I have heard some analysts say that they believe that this package has isolated the contagion to Europe now and that the U.S. is safe, but with the U.S. contributing 17% of IMF funds and actually footing the bill for a larger portion based on usable currency (ie. some people do not except Venezuelan Pesos) you can be sure that the U.S. is already on the hook for tens of billions of dollars if not more. Let alone the U.S. balance sheet on it's own and the possible repercussions if this Trillion Dollar package is not enough to cover all of the dominoes in Europe.
With Equity direction still uncertain as daily RSI maintains a bearish mode, but with prices moving through resistance with ease I am uncertain of short term macro direction over the next week. Commodities other than precious metals and the Euro continue to point towards a slide in the market, but the relentlessness of Equities on the corrective rally makes it difficult to attempt a short position on supportive markets. I still feel strongly that we are in the process of reversing the bull market of the last year into a bearish one, but this does not mean that you should sell everything today. With a number of contradictory moves across the market I recommend continuing to size back on trading until overall direction becomes clearer.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Gold - Silver Ratio (Gold - Silver/2)- The spread has a bullish base trend dating back from September of '09 that provides a value for today of either 240 or 247 depending on which points you choose to draw the base from. The spread also has a nice base of traded price between the 235 and 251 values also to provide support. On a short term scale the spread has also produced a double base over the last two days around the 255 level. I have already covered the fundamental reasons behind the trade over the last few days, but it is mostly based around the volatile, and I believe out of line, price action in the Silver market lately. The massive correction in the spread back to the base of this range provides the opportunity to buy on a dip against the 255 or 251 level and only risk to around 240 at the most for the opportunity at a move to 300 - 320. It is likely that this trade may form a longer base around this level, so waiting a little longer on entry may actually be prudent to see if the precious metal markets do indeed form a top around this level with a break in the Silver market likely being the fuel on the spread trade.
The Gold - Euro - Equity Paradox- It may seem like I'm ragging on analysts a bit lately, but with an office move at the beginning of the month I am now glued in front of the business news channel all day without a choice. Over the last two days I have heard a number of analysts tout the continuation of Gold to a much higher level while also calling for Equities to continue to strengthen on the larger recovery picture. If you hear an "expert" doing this I recommend plugging your ears temporarily as, unless they are referring to just a day trade, these are completely contradictory statements. Gold is rallying on a "run to safety" trade mostly out of the Euro as it continues to weaken, but also out of Equities. For Gold to continue higher to the $1400 or $1500 level, as I have heard some calls for this, Gold will have to convincingly supplant the Euro as the second reserve currency for the world. The downfall of the Euro is incredibly bearish for the global Equity markets and this definitely includes the U.S. as we do not live in an isolationist country. I understand adding Gold as a hedge for an investor to a portfolio loaded in Equities, but to go out and say buy more Gold and buy more Equities right now is the type of thinking that provides opportunities for astute traders and is not a solid approach for the trader or investor going forward.
Crude Oil Weakness- Crude Oil broke below the $74.50 level this morning prior to it's open, which is the level that the market has had a quick rally bounce off of each of the last four days. As I have continually noted, this move lower in Crude has not been on a liquidation of long positions and on many lower days the open interest has continued to increase. With an incredible amount of roughly 150,000 open longs now out at least $8 on their purchases above $82 I can not imagine that there will not be some long selling going forward. This morning the nearby June - July spread is trading around the -$4.75 level, which is the lowest price value the market has ever seen excluding the debacle from the beginning of '09. While the contango is based on price, which is much higher than the historic charts in the 80's and 90's this is an example of a market where the fundamentals continue to collapse at an inflated price. The swings in Crude have been tricky and I do not have a good level to enter on a short currently. Crude continues to lose on a percentage basis to Equities though, so selling Crude versus buying Equities is a possible option on the trade as the ratio chart between the two broke out last week and has skyrocketed since.
Notes:
Precious Metals- With Energy prices collapsing, the Grain sector having a very unproductive seasonal rally, and Softs mostly range bound or weaker, much of the discretionary investment money has piled into the precious metal trade. Finding a decent rate of return in Commodities has been difficult this year and with Gold and Silver rallying the open interest has largely piled into these markets in a frenzy to try to catch profits, especially over the last week. While there is the run to safety trade mentality I believe that a bit of this recent rise in prices can be attributed to speculation money that is catching the tail end of the three month Gold and Silver move. With these markets seemingly rallying whether the macro market is supportive or weaker I continue to recommend caution on entering an outright long in either market as momentum appears to be waning.
Wednesday, May 12, 2010
Wednesday 5/12/10 Commodity Ideas
Opening Note:
After beginning yesterday lower, Equities were able to mount a rally throughout the morning, but eventually faded in the afternoon to close just above their opening values. The Stock Indices failed after their first encounter with some strong resistance and high volume trade from last Wednesday and Thursday prior to the crash in the late afternoon last Thursday. Yesterday showed a significant drop in the daily range for Equities and was the lowest magnitude move from the previous day to the close that we have seen in May as well. The extreme spike in volatility this month may finally be calming as the European bailout package has temporarily quelled the fear in the market. While Gold has gone parabolic on its rally the last couple days as a run to safety I believe that this may mean a top in the Gold market today, at least temporarily, as the Euro has stabilized and volatility decreased.
I am having a difficult time finding a compelling fundamental argument from a macro-picture professional (not an equity trader on TV) right now that paints a pretty picture on the future as more debt is thrown at existing bad debt as a solution to the global problem. While it is possible that a short term rally could find a way to make new highs in the market again this Summer, I feel it is unlikely as I believe we have already shifted out of the bull rally of the last 14 months. I have correlated major resistance levels in the Equity Indices that were touched yesterday, but should continue to serve as a short term top on the market. As long as these resistance levels hold in the short term I am a seller of Equities and supportive Commodity markets. I am still cautious of volatility and still will be keeping trade suggestions on the radar until I find a more reliable trade.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Stock Indices Resistance- The correlated high volume resistance zones that I have for the Indices are as follows: Dow; 10,834 - 10,892 S&P 500; 1164.50 - 1172 Nasdaq; 1958 - 1968.50. Index prices rallied into the lower half of these zones yesterday, but did not really threaten the tops of the zones. I would not be surprised if there is another attempt over the next two days at these levels though. Overnight Equities have rallied since the European open, but at more of a crawling pace than we are used to lately. I do not believe that they will have the steam to continue higher to threaten these levels today, but I would wait for values to climb into the resistance before entering a short position.
Gold- Gold is now in the parabolic stage of it's rally as investors are jumping over the cliff to chase it higher. I have finally heard tons of chatter about the Gold market on media networks with strong buy recommendations now going out as Gold reaches the 17th day on it's 3rd leg rally move. My original projection range for this third leg rally was from $1208 to $1244, with the top of this range now being met this morning with a complimentary spike above the psychological $1245 level already. With the decrease in volatility and stabilization of the Euro and other weak markets I believe that the fundamental story for a run to safety is drying up and so should the gold rally. Add to this that most moves revolve around the 20 day average and the fact that Gold has reached all of it's technical projections and I recommend liquidating outright Gold positions, but still support owning Gold versus riskier assets or other Commodity shorts. As a final note, the RSI on the daily chart for Gold appears to be creating a double top reversal at the overbought 75 level that signals a potential reversal to a bear move.
Buy Gold/ Sell Silver (Gold - Silver/2)- I believe that this is the best trade out there right now as the Silver market has violently followed the Gold on it's rally since Friday. When looking at the daily chart you can easily notice the outstanding amount of volatility over the last two weeks, which is mostly due to the swings in the Silver market. As the macro market began to fall in the beginning of last week Silver suffered a large break of nearly $1.80 on Tuesday and Wednesday, but miraculously recovered on Friday beginning a $2.50 rally from it's base to today. As I have harped the last couple days, Silver is not usually used as a store of value and suffers a decline in price, like it did early last week, when the macro market weakens along with Metals like Copper. I can understand the run to Silver as those looking for safety see Gold at all time highs and are squeamish to buy new highs, but this is an incorrect assumption about the market that I believe should have a strong correction. The Gold/Silver Ratio has a strong base built up between the 235 and 251 level that was tested yesterday by a 255 close, but has strengthened a bit today off of this support. I am looking to purchase a dip below the 260 level as I believe a correction to 300 if not 320 is not far away as Silver should experience a larger break if Gold forms a top.
Notes:
Crude Oil- Note that the June - July Crude spread is now sitting at -$4.00 and that the July - Aug spread has widened to a low of -$2.25 this morning. The next monthly contango is already widening to an abnormally bearish level for supply and demand showing that the fundamental story for Crude continues to be weak. Crude has a tendency, especially over the last year, to completely ignore this fundamental story though and trade along with the macro story. Crude being the weakest performer across the market over the last week and a half would make me awfully timid if I was holding a large long position in the market. My early open interest numbers were incorrect yesterday as they were later revised to a slight liquidation later, but there are still well over 150,000 contracts holding at least a $6 loser at the time being. If Crude finds a close below the $75 level I still hold out hope that there could be a wave of long liquidation in the market providing a good short opportunity.
Corn- On a rally breakout from it's consolidation range I have a projection range on the July Corn market from $3.85 1/2 to $3.88 with the swing high from March 18th providing resistance at 3.87 1/2. With a strong performance overnight and this morning it may be hard to take advantage of the move on long entry, but this is a good range to take profits if you are long.
Soybeans- July Soybeans have "single prints" on the market profile until the $9.71 3/4 level and a double print profile above that to $9.75. With some stronger initial resistance above this from $9.76 to 9.78 I believe that this stronger resistance is a good level to sell against on the corrective rally with the Soybean complex still in a larger bearish mode.
After beginning yesterday lower, Equities were able to mount a rally throughout the morning, but eventually faded in the afternoon to close just above their opening values. The Stock Indices failed after their first encounter with some strong resistance and high volume trade from last Wednesday and Thursday prior to the crash in the late afternoon last Thursday. Yesterday showed a significant drop in the daily range for Equities and was the lowest magnitude move from the previous day to the close that we have seen in May as well. The extreme spike in volatility this month may finally be calming as the European bailout package has temporarily quelled the fear in the market. While Gold has gone parabolic on its rally the last couple days as a run to safety I believe that this may mean a top in the Gold market today, at least temporarily, as the Euro has stabilized and volatility decreased.
I am having a difficult time finding a compelling fundamental argument from a macro-picture professional (not an equity trader on TV) right now that paints a pretty picture on the future as more debt is thrown at existing bad debt as a solution to the global problem. While it is possible that a short term rally could find a way to make new highs in the market again this Summer, I feel it is unlikely as I believe we have already shifted out of the bull rally of the last 14 months. I have correlated major resistance levels in the Equity Indices that were touched yesterday, but should continue to serve as a short term top on the market. As long as these resistance levels hold in the short term I am a seller of Equities and supportive Commodity markets. I am still cautious of volatility and still will be keeping trade suggestions on the radar until I find a more reliable trade.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Stock Indices Resistance- The correlated high volume resistance zones that I have for the Indices are as follows: Dow; 10,834 - 10,892 S&P 500; 1164.50 - 1172 Nasdaq; 1958 - 1968.50. Index prices rallied into the lower half of these zones yesterday, but did not really threaten the tops of the zones. I would not be surprised if there is another attempt over the next two days at these levels though. Overnight Equities have rallied since the European open, but at more of a crawling pace than we are used to lately. I do not believe that they will have the steam to continue higher to threaten these levels today, but I would wait for values to climb into the resistance before entering a short position.
Gold- Gold is now in the parabolic stage of it's rally as investors are jumping over the cliff to chase it higher. I have finally heard tons of chatter about the Gold market on media networks with strong buy recommendations now going out as Gold reaches the 17th day on it's 3rd leg rally move. My original projection range for this third leg rally was from $1208 to $1244, with the top of this range now being met this morning with a complimentary spike above the psychological $1245 level already. With the decrease in volatility and stabilization of the Euro and other weak markets I believe that the fundamental story for a run to safety is drying up and so should the gold rally. Add to this that most moves revolve around the 20 day average and the fact that Gold has reached all of it's technical projections and I recommend liquidating outright Gold positions, but still support owning Gold versus riskier assets or other Commodity shorts. As a final note, the RSI on the daily chart for Gold appears to be creating a double top reversal at the overbought 75 level that signals a potential reversal to a bear move.
Buy Gold/ Sell Silver (Gold - Silver/2)- I believe that this is the best trade out there right now as the Silver market has violently followed the Gold on it's rally since Friday. When looking at the daily chart you can easily notice the outstanding amount of volatility over the last two weeks, which is mostly due to the swings in the Silver market. As the macro market began to fall in the beginning of last week Silver suffered a large break of nearly $1.80 on Tuesday and Wednesday, but miraculously recovered on Friday beginning a $2.50 rally from it's base to today. As I have harped the last couple days, Silver is not usually used as a store of value and suffers a decline in price, like it did early last week, when the macro market weakens along with Metals like Copper. I can understand the run to Silver as those looking for safety see Gold at all time highs and are squeamish to buy new highs, but this is an incorrect assumption about the market that I believe should have a strong correction. The Gold/Silver Ratio has a strong base built up between the 235 and 251 level that was tested yesterday by a 255 close, but has strengthened a bit today off of this support. I am looking to purchase a dip below the 260 level as I believe a correction to 300 if not 320 is not far away as Silver should experience a larger break if Gold forms a top.
Notes:
Crude Oil- Note that the June - July Crude spread is now sitting at -$4.00 and that the July - Aug spread has widened to a low of -$2.25 this morning. The next monthly contango is already widening to an abnormally bearish level for supply and demand showing that the fundamental story for Crude continues to be weak. Crude has a tendency, especially over the last year, to completely ignore this fundamental story though and trade along with the macro story. Crude being the weakest performer across the market over the last week and a half would make me awfully timid if I was holding a large long position in the market. My early open interest numbers were incorrect yesterday as they were later revised to a slight liquidation later, but there are still well over 150,000 contracts holding at least a $6 loser at the time being. If Crude finds a close below the $75 level I still hold out hope that there could be a wave of long liquidation in the market providing a good short opportunity.
Corn- On a rally breakout from it's consolidation range I have a projection range on the July Corn market from $3.85 1/2 to $3.88 with the swing high from March 18th providing resistance at 3.87 1/2. With a strong performance overnight and this morning it may be hard to take advantage of the move on long entry, but this is a good range to take profits if you are long.
Soybeans- July Soybeans have "single prints" on the market profile until the $9.71 3/4 level and a double print profile above that to $9.75. With some stronger initial resistance above this from $9.76 to 9.78 I believe that this stronger resistance is a good level to sell against on the corrective rally with the Soybean complex still in a larger bearish mode.
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