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.