Monday 5/10/10 Commodity Ideas

Opening Note:
Over the weekend the Eurozone passed a number of aid packages totaling near $1 Trillion to assist with the debt and financial struggle of some of it's embattled countries. The group also created a protective buying program for the Euro among all of this aid to stave off the recent deflation and worst case scenario that the Euro collapses. Going for a big surprise with such large numbers, the Eurozone appears to be effective in their efforts this morning as the Stock Indices and supportive Commodities are all higher this morning on the bailout news. With the ridiculous volatility in the stock market and Commodities lately and the Dow up around 400 points already today, it is a very difficult and risky trading environment for right now. It is difficult to predict how effective this Eurozone bailout will be at the time being, but there are still plenty of detractors already that are still betting that the Euro eventually fails anyway. With many markets already gaining back much of the losses from Thursday and Friday it appears that there is cautious optimism in the market thus far for the bailout. For the time being I will only recommend trades on the radar until volatility settles down. I myself am unclear on the direction that the macro market will take over the next week or month now, so I will only watch today to get a better feel on the reaction and possible continuation higher or failure. With Equities and Commodities already encountering some strong resistance with a larger move already fulfilled I think that it is likely that the highs have already been made in most of the markets.

Buys to Watch:

Sells to Watch:

Put on the Radar:

Buy Bonds vs. Sell Five Year Notes (Bonds*3 - Fives*7)- This trade works on the gut reaction to the run to safety as exhibited on Thursday, but also is based on the increase of rates and the subsequent unwinding of the buy the short and sell the long yield curve play. For Friday I listed a pullback zone for entry between -451.12 and -450 that was traded throughout the day as -450 acted as resistance around noon. Right now the market is heading slightly lower on the day again and is testing some of the support on the larger head and shoulders pattern on the daily chart that had a breakout of -452.19 and a projection to -443.21. Today the neckline has value of -452.20, but there is some stronger support on the chart at the higher volume traded price of -452.27. The failure rejection in this market makes me believe that it is no longer a good buy for the time being, but that it is still something to keep on the radar. I recommend liquidating if you are long and re-examining the idea later as much of the directional story has reversed this morning.

Crude Oil- I have had Crude on the sale list for a few days, but with the $3 reversal in price this morning I am moving it to the radar. The Crude market is odd to me right now because despite the nearby spreads falling to very weak levels and a price break of over $12 from the highs last week there was not liquidation of positions in the market as they actually slightly increased. The Crude market appears to be heavily dominated by very passive money that does not flinch on a large range or price decline and I believe this is something to take note of in the future when analyzing the market. With the macro picture taking the uncertain turn I am no longer convinced that the market will test $70 within the month. The low volume zone from $77.96 to 78.22 acted as resistance overnight, with increasing resistance at $78.52, so I believe that it is likely that a top for the day has already been placed.

Silver- Before the announcement of the bailout package over the weekend, on Friday Silver exploded to the upside and closed nearly $1 higher on the day. Looking at the bailout and market reaction today this overall move in Silver is understandable, but on Friday with a weaker macro market the Silver rally was counter any correlation it has other than with Gold. In what appears to be a deflationary environment with weakening prices last week I thought that it was inaccurate to have Silver travelling with the Gold market as it should have a stronger pull to the macro picture. Silver rallied directly into a low volume zone with resistance just above it on this move and is sitting there again this morning. Between $18.45 and $18.64 is the low volume zone and there is resistance at both $18.70 and $18.80 to place your stop around on a sale. I feel most confident in this trade/reversal setup than any other this morning. as I do not believe that Silver should still be priced this high currently.

Notes:

Copper- Copper continued to sit in the 60 minute chart triangle formation for all of Friday, but this morning has rallied out of the top of the pattern with the stronger macro market. On Friday I suggested a sell zone from $3.17 to $3.20 that worked nicely on the highs for entry, but is obviously a loser today as I was expecting continuation lower out of the bottom. I no longer recommend selling Copper as open interest in the market has also been cleared out to a level where there are no very few contracts still holding a sizable losing position. I encourage a flat position in Copper for the time being.

Stock Indices- With the huge reversal in price over the weekend I no longer am looking to sell Equities for the time being. After encountering some stronger resistance near their highs today it is possible that they have already made their highs for the day as it is likely to be a battle to take any of the markets much higher today. For the strength of the Dow there is a higher volume traded area from 10,830 - 10,890 as well that should stall a rally and could be a good sale as a fade against prices as they approach this area. The Nasdaq continues to be the best sale while the Dow the best buy on Equity moves.