Opening Note:
Following global concerns out of both Europe and China overnight, an extremely weak Consumer Confidence number added insult to injury as U.S. markets tumbled from the open to the close. It is odd to me how easily analysts just this morning are able to shrug off another 250+ point down day for the Dow, but a lot of people are still talking pretty chipper on the TV this morning. A lot more in the media seem to be choking on their words lately though as their cries for a V shaped recovery and then a 10% correction have changed to the canned answer "we are seeing signs of growth and improvement" and "there are value buys out there now because things have become cheap based on our valuations". For right now I recommend plugging your ears if you hear the words "valuation" or "cheap" because what some of these narrow-scoped analysts are missing is that this is a WorldWide de-leveraging, de-risking, and over spending story led by Currencies and Interest Rates that is in the process of completely warping the future earnings and economic data as we speak. Going forward I expect the numbers to continue to disappoint, as they have over the last few months, making the fundamental and technical picture continually bearish.
When I came into the office this morning the market was moderately higher, but after a poor ADP number the market is chasing it's lows from overnight again. Today is Wednesday and the last day of the 2nd Quarter, which means that there are 24 hours until we can celebrate LeBron coming to Chicago and until there is potentially a new batch of allocation in the market. Money has flowed out of the market over the last couple months so I expect more of a realignment of positions than any sort of rash of new money, but still be on the lookout for it, especially in the popular Metal Sector. There also is Unemployment on Friday, which along with the start of the quarter could stall the market until it is released.
Right now the Equity markets are sitting right on top of their last support base prior to setting off a large bearish top that will lead to a wave of declines across the macro market. As I stated yesterday, I only recommend entering short positions in the supportive Commodity markets as correlations will tighten leading all of the Commodity Sectors lower as we go forward. We are not out of the woods on the sideways, choppy trade, so I also still recommend trading with smaller size until a move below 1033 in the S&P 500 is confirmed.
*Roll Copper and Silver to September contracts. Also be aware of the Grain reports released this morning at 7:30 CT
Buys to Watch:
Japanese Yen- The Yen now has a confirmed bullish breakout on it's head and shoulders pattern with the close yesterday above 112.00. The move projects to a range near 119 for the Currency. Yesterday I provided the low volume zone between 112.14 and 112.54 with higher volume support between 111.95 and 112.12, but this zone was not entered despite coming close. These levels still stand today as a good opportunity for long entry, but before entering the market do take notice of the daily chart momentum indicators. Both RSI and Stochastics are sitting in overbought territory for the time being, but without a significant sell signal provided yet. This is not a death signal to the trade (I mean the stock market sat in overbought territory for months on the rally), but be aware if they do in fact show signs of a sell off.
Sells to Watch:
Australian Dollar- Yesterday I only had a brief entry in this sell section that included the Canadian and Euro as well, but after some more research I have come to the conclusion that the Aussie Dollar is the best supportive Currency sale going forward. On top of the Fundamental story of Government tax hikes that should lead to liquidation of the Currency the Aussie Dollar is also highly correlated to Commodities, which should also see a decline in price going forward in this deflationary environment. The Aussie set off a bearish reversal pattern yesterday below .8517 that now has a projection to .8334. For entry today there is a minuscule low volume zone from .8474 - .8476 with some higher volume resistance above from .8480 to .8496. This entry level has already worked and provided the high for the day and with a weak ADP number the Currency is much lower now. If this entry level provides another opportunity though it is a good low risk play.
As a side note I also recommend looking at a chart of the Aussie Dollar and Yen (Aussie/Yen to chart) as this chart looks like it is in the process of another bearish leg down. If you are able to enter both a long position in the Yen and a short position in the Aussie while simultaneously holding them this is a good spread position manufactured from the two individual trades.
Put on the Radar:
S&P 500 and Nasdaq- The S&P 500 found a support bounce yesterday off of my 1033 head and shoulders breakout level to close slightly above it. Overnight this level also provided support and again this morning after the ADP number. A move confirmed move below 1033 projects a move between 856 - 870 on the pattern. Although the S&P 500 has acted the weakest over the last couple months it was the Nasdaq that led the way lower yesterday. The Nasdaq was the best performing index on the 14 month rally and as it has the larger magnitude projection on the break I believe that it is the best sale in the Equity Sector going forward. I have the Nasdaq now working on confirmation on it's breakout on it's own head and shoulders pattern below 1781 yesterday that has a 302 point break projection to 1479. I will wait for confirmation from the S&P 500 indicator, but the Nasdaq will be the focus for short entry over the next month.
Notes:
Bonds- Bonds have now completed their cup and handle pattern projection of 127.17 overnight. I recommend at least taking half of your profits, but I believe that they could still be a good long position going forward as the less reliable triangle projection of 129 is still in play. There is higher volume support for the market at 126.27 for stop placement that has supported the market thus far today.
Wednesday, June 30, 2010
Tuesday, June 29, 2010
Tuesday 6/29/10 Commodity Ideas
Opening Note:
After a less than spectacular rally attempt yesterday (that I thought could have some legs) the S&P 500 failed near the moderate 1180 resistance level to fall back and close lower for the fifth day of the last six. This morning the U.S. market is well lower on weaker markets across the globe and some European banking fears as repayment of loans and concerns about Spain added fear to the markets. As we close up the 2nd Quarter and head into potential 3rd Quarter allocation and Unemployment on Friday it is now technical concerns that may rule the market in spite of Fundamental news regardless of whether it meets or beats expectations.
Think of the break in the market in May as the shrimp cocktail to what will occur in the markets once the S&P 500 sets off its large bearish head and shoulders reversal. I will go into further detail in the Radar, but below 1033 the S&P 500 has a projection range from 856 - 870 on what is likely only the initial wave on subsequent moves lower. With Currency and Fixed Income markets leading the way, Equity and Commodity markets have traded weaker for the last couple months. But, with large open interest still residing in the market on inflation and correction buying, many markets are now primed for large moves lower fueled by liquidation, deflation, and an overall weaker economy. Namely Silver, Copper, and the rest of the Metal Sector are sitting on large sums of open interest on a store of wealth trade (run to safety) and inflation trade that is on the verge of bursting and will likely see the swiftest move lower in the short term. However, as we have seen in the past, once the liquidation ball gets rolling no market is safe as the correlations tighten and fear rules.
Going forward I recommend only positioning yourself for short positions in supportive Commodities, meaning only being long Fixed Income, Dollar Index, Japanese Yen, and Gold vs. Another short position as a spread. It is possible that the market finds a bit of support over the rest of this week and possibly into next as some last ditch buying enters, but it could now be any day that the move lower begins and I do not wish to be caught on the wrong end once it starts. I still recommend using a smaller than normal position size when trading for the time being, but once the S&P 500 confirms a move below 1033 I encourage ramping up bearish market trades.
**Grain Stocks and Planted Acreage Report tomorrow so use caution and reduce Grain positions
Buys to Watch:
Bonds- Bonds still have a projection to 127.17 on the bullish cup and handle pattern that was nearly reached this morning with a high of 127.08. The market also has a bullish continuation triangle projection to the 129 handle, but this one is less reliable because the chart nearly reached the apex of the triangle prior to initiating the pattern. Bonds have weakened over the last couple hours and are heading towards a lower volume zone for initiation of a new long position. This low volume zone sits between 126.15 to 126.24 with higher volume support falling from 126.05 to 126.13. If you are already long I recommend using this higher volume support as your stop area now as well or taking profits for the time being if you are unwilling to risk this much. On a daily chart the momentum indicators are beginning to look a bit overextended as they head into overbought territory, but are not near producing a sell signal making the market a good buy still.
Japanese Yen- The Japanese Yen is now broken out on a large bullish head and shoulders pattern above 112.00 that projects to around the 119 price level. There are a number of different necklines that you can use for this pattern, but with the magnitude of the move today the market is now trading above all of these breakout values. Although the two confirmation closes over the last two days for the Yen were a bit sketchy, settling right near 112.00, I believe that you can now enter a smaller initial position on a pullback in the market. There is a low volume zone stretching between 112.12 and 112.54 with higher volume support between 112.12 and 111.95 for stop placement on the trade. For the time being I will only be entering 1/2 or less of a normal position for myself as the move is larger and longer in duration and wait for another higher entry level to initiate the rest of my full position. As a note of caution, the Japanese Government has a pattern of intervening to deflate it's Currency near the 114 -115 level, which may repeat and cause difficulty for the long position.
Sells to Watch:
Australian Dollar, Canadian Dollar, or Euro- I do not encourage going out full force and shorting all of these Currencies today, but each individual one has an unconfirmed bearish reversal that has set off today. In my opinion the Aussie Dollar is the best short going forward as it has more volatility on average than the Canadian and a weaker fundamental story due to Government tax hikes. The Australian and Canadian Dollars also have a stronger correlation to Commodity markets and with a liquidation and deflationary move on the horizon for Commodities these may have the better short term move. I do not have time today to list all of the entry levels or projections, but I recommend treading lighter in them today and taking another look tomorrow.
Put on the Radar:
S&P 500 (the leading market indicator)- First off, looking at a weekly chart for the S&P 500 draw a trendline on the chart from the low the week of Feb. 1st to the low the week of May 24th. This produces a breakout value on the bearish head and shoulders pattern of 1035.50 today. Now keeping this same neckline turn the chart into a daily and see that this same line has a value today of roughly 1033. This is the main line that I am using for confirmation on my bearish pattern, but there are still a number of different values that you can receive by connecting different levels. The main support band falls between 1033 and 1045, which could provide support over the short term, but with a convergence of bearish indicators, fundamental news, and technicals I believe that it is only a short time until the pattern is initiated. The head and shoulders pattern has a projection of 856 and to complete the range of expectations I am using 870 as a move based on the higher necklines. The S&P 500 is the weakest Equity Index chart and the leader on the downside for the time being among the sector. It is also the main indicator for the macro market.
Gold- With a third failure on a rally attempt above the $1250 high from Mid-May the Gold market again violated it's nearby upsloping trendline yesterday with a value of $1244.8. Today this same line has a trend value of $1247.1, which the market will again likely try to close above to maintain the trend. However, I think that after this third failure that Bulls have to now be concerned with holding long positions. There are a number of topping patterns that one can draw on the market now, but a move below $1230 and $1225 would confirm a reversal in the market and likely lead to sizable liquidation in the market from the current all time highs in open interest. While the Gold market likely will move lower as an outright position I am more interested in shorting the overbought Silver market once a Gold reversal is confirmed. Silver has a trendline of $18.49 that has provided the lows thus far today and still has a bearish head and shoulders pattern neckline at $18.15 that projects a nearly $3 move lower. Wait for confirmation on the Gold reversal before entering any short position in these markets.
Notes:
Crude Oil- The low volume entry zone I provided yesterday between $77.60 and $78.00 held throughout the day yesterday, but failed yesterday evening as global market weakness sank Energy prices. Crude Oil is no longer a good buy and is actually nearing a reversal confirmation below $75.17 that projects to $70.96. I believe that the Energy markets will suffer a significant price decrease over the coming months, so I recommend only looking for entry on short positions going forward.
Copper- Like the Crude Oil, Copper held it's support level throughout the day yesterday, but gave up last evening below the $3.0450 level. Copper is now on my radar as a longer term short position with large open interest providing strong liquidation potential.
After a less than spectacular rally attempt yesterday (that I thought could have some legs) the S&P 500 failed near the moderate 1180 resistance level to fall back and close lower for the fifth day of the last six. This morning the U.S. market is well lower on weaker markets across the globe and some European banking fears as repayment of loans and concerns about Spain added fear to the markets. As we close up the 2nd Quarter and head into potential 3rd Quarter allocation and Unemployment on Friday it is now technical concerns that may rule the market in spite of Fundamental news regardless of whether it meets or beats expectations.
Think of the break in the market in May as the shrimp cocktail to what will occur in the markets once the S&P 500 sets off its large bearish head and shoulders reversal. I will go into further detail in the Radar, but below 1033 the S&P 500 has a projection range from 856 - 870 on what is likely only the initial wave on subsequent moves lower. With Currency and Fixed Income markets leading the way, Equity and Commodity markets have traded weaker for the last couple months. But, with large open interest still residing in the market on inflation and correction buying, many markets are now primed for large moves lower fueled by liquidation, deflation, and an overall weaker economy. Namely Silver, Copper, and the rest of the Metal Sector are sitting on large sums of open interest on a store of wealth trade (run to safety) and inflation trade that is on the verge of bursting and will likely see the swiftest move lower in the short term. However, as we have seen in the past, once the liquidation ball gets rolling no market is safe as the correlations tighten and fear rules.
Going forward I recommend only positioning yourself for short positions in supportive Commodities, meaning only being long Fixed Income, Dollar Index, Japanese Yen, and Gold vs. Another short position as a spread. It is possible that the market finds a bit of support over the rest of this week and possibly into next as some last ditch buying enters, but it could now be any day that the move lower begins and I do not wish to be caught on the wrong end once it starts. I still recommend using a smaller than normal position size when trading for the time being, but once the S&P 500 confirms a move below 1033 I encourage ramping up bearish market trades.
**Grain Stocks and Planted Acreage Report tomorrow so use caution and reduce Grain positions
Buys to Watch:
Bonds- Bonds still have a projection to 127.17 on the bullish cup and handle pattern that was nearly reached this morning with a high of 127.08. The market also has a bullish continuation triangle projection to the 129 handle, but this one is less reliable because the chart nearly reached the apex of the triangle prior to initiating the pattern. Bonds have weakened over the last couple hours and are heading towards a lower volume zone for initiation of a new long position. This low volume zone sits between 126.15 to 126.24 with higher volume support falling from 126.05 to 126.13. If you are already long I recommend using this higher volume support as your stop area now as well or taking profits for the time being if you are unwilling to risk this much. On a daily chart the momentum indicators are beginning to look a bit overextended as they head into overbought territory, but are not near producing a sell signal making the market a good buy still.
Japanese Yen- The Japanese Yen is now broken out on a large bullish head and shoulders pattern above 112.00 that projects to around the 119 price level. There are a number of different necklines that you can use for this pattern, but with the magnitude of the move today the market is now trading above all of these breakout values. Although the two confirmation closes over the last two days for the Yen were a bit sketchy, settling right near 112.00, I believe that you can now enter a smaller initial position on a pullback in the market. There is a low volume zone stretching between 112.12 and 112.54 with higher volume support between 112.12 and 111.95 for stop placement on the trade. For the time being I will only be entering 1/2 or less of a normal position for myself as the move is larger and longer in duration and wait for another higher entry level to initiate the rest of my full position. As a note of caution, the Japanese Government has a pattern of intervening to deflate it's Currency near the 114 -115 level, which may repeat and cause difficulty for the long position.
Sells to Watch:
Australian Dollar, Canadian Dollar, or Euro- I do not encourage going out full force and shorting all of these Currencies today, but each individual one has an unconfirmed bearish reversal that has set off today. In my opinion the Aussie Dollar is the best short going forward as it has more volatility on average than the Canadian and a weaker fundamental story due to Government tax hikes. The Australian and Canadian Dollars also have a stronger correlation to Commodity markets and with a liquidation and deflationary move on the horizon for Commodities these may have the better short term move. I do not have time today to list all of the entry levels or projections, but I recommend treading lighter in them today and taking another look tomorrow.
Put on the Radar:
S&P 500 (the leading market indicator)- First off, looking at a weekly chart for the S&P 500 draw a trendline on the chart from the low the week of Feb. 1st to the low the week of May 24th. This produces a breakout value on the bearish head and shoulders pattern of 1035.50 today. Now keeping this same neckline turn the chart into a daily and see that this same line has a value today of roughly 1033. This is the main line that I am using for confirmation on my bearish pattern, but there are still a number of different values that you can receive by connecting different levels. The main support band falls between 1033 and 1045, which could provide support over the short term, but with a convergence of bearish indicators, fundamental news, and technicals I believe that it is only a short time until the pattern is initiated. The head and shoulders pattern has a projection of 856 and to complete the range of expectations I am using 870 as a move based on the higher necklines. The S&P 500 is the weakest Equity Index chart and the leader on the downside for the time being among the sector. It is also the main indicator for the macro market.
Gold- With a third failure on a rally attempt above the $1250 high from Mid-May the Gold market again violated it's nearby upsloping trendline yesterday with a value of $1244.8. Today this same line has a trend value of $1247.1, which the market will again likely try to close above to maintain the trend. However, I think that after this third failure that Bulls have to now be concerned with holding long positions. There are a number of topping patterns that one can draw on the market now, but a move below $1230 and $1225 would confirm a reversal in the market and likely lead to sizable liquidation in the market from the current all time highs in open interest. While the Gold market likely will move lower as an outright position I am more interested in shorting the overbought Silver market once a Gold reversal is confirmed. Silver has a trendline of $18.49 that has provided the lows thus far today and still has a bearish head and shoulders pattern neckline at $18.15 that projects a nearly $3 move lower. Wait for confirmation on the Gold reversal before entering any short position in these markets.
Notes:
Crude Oil- The low volume entry zone I provided yesterday between $77.60 and $78.00 held throughout the day yesterday, but failed yesterday evening as global market weakness sank Energy prices. Crude Oil is no longer a good buy and is actually nearing a reversal confirmation below $75.17 that projects to $70.96. I believe that the Energy markets will suffer a significant price decrease over the coming months, so I recommend only looking for entry on short positions going forward.
Copper- Like the Crude Oil, Copper held it's support level throughout the day yesterday, but gave up last evening below the $3.0450 level. Copper is now on my radar as a longer term short position with large open interest providing strong liquidation potential.
Monday, June 28, 2010
Monday 6/28/10 Commodity Ideas
Opening Note:
After my first vacation on Friday in over 4 months I am back this week and ready to go, but the markets do not look like they have the same vigor. This morning there is a mixed bag of firmer and weaker markets with low volatility overnight that leaves the macro market pretty much at a wash. On Friday the story was higher Commodity markets, which looks like it should have some carryover into this week. Both the Metal, Energy, and some of the Currency Sector now project continuations on their short term rallies, which could give the rest of the macro market a boost as well in some of the laggard markets.
While Equities lagged last week, Crude Oil, Copper, and the rest of the Metal Sector found strength on what could be front running prior to third quarter allocation. While my patience has been tested in the Gold and Silver markets on the "buy the trendline" trade that happens nearly everyday, it does appear that this rally may be extended in preparation for new money flow into these markets. Even some of the Soft Sector like Cocoa and Sugar have begun their own individual rallies on what could be a similar front-run.
The real story this week is Friday's Unemployment Report and I expect the market to be calmer yet still treacherous in advance over the next four days. Wednesday marks the close of the second quarter and with bookkeeping done over the next three days there could be some odd market action as Funds realign their positions. Thursday also starts allocation for the 3rd Quarter, which will be an interesting indicator to see the magnitude of new money that enters the market with more concern among investors lately. With strong support in the S&P 500 nearby at 1040 it is unlikely that there is a catalyst to set off the large bearish move right now so I believe we will see more sideways action and less predictability for a while longer. However, if Unemployment surprises to the downside and 2nd Quarter earnings disappoint the Bearish move could be only weeks away that will set off a string of macro waves lower and liquidation in the market. I still suggest trading with smaller size for the time being and waiting for the larger bearish breakout before stepping on the gas. The choppiness in the market has been high in this sideways range and there is no reason to depreciate your account value on some of these false moves.
Buys to Watch:
Copper- With a close Friday above $3.0490 the Copper market now has a bullish cup and handle pattern that projects to $3.2535. Copper has acted as one of the market strengths over the last week as some bullish fundamentals abroad have counteracted the bearish home building data in the U.S. Some of this rally may also be tied to front running the potential allocation coming for the 3rd Quarter in the market. For initial entry today I believe that you can purchase against some higher volume support from the breakout level with a stop loss place near the $3.0450 level. The market had an explosive day on Friday that left a large range of low volume trade that extends all the way back to $3.01, so if this $3.045 level does not hold as it has overnight then their will likely be a test of $3. As a note of caution, Stochastics for the daily chart is extending near overbought territory, but is not in danger of producing a sell signal for the time being. The $3.25 projection is also on the high end of some of the technical projections, with a second leg advance for the market providing projections ranging from $3.17 - $3.20 as a level to also look to take profits if the market gives signals that momentum is slowing. Still, Copper is my best buy for the time being and has a good risk/reward on entry today.
Bonds- Bond prices experienced a temporary decline over Thursday, but the market closes have maintained the cup and handle pattern breakout above 125.00 with a projection to 127.17 and a triangle breakout with a less reliable projection to the 129 handle. The market has struggled with some of the higher volume resistance from it's earlier spike high on the rally near the 126 level, but will likely now have the rally momentum to continue higher above these levels. For entry today the higher volume support near 125.09 has provided the lower range on prices, with this being a good level to place a stop below on a purchase on a pullback. Bonds have continued to rally overall despite macro rallies or declines, but has been a little more choppy lately, so I rate this Bond trade as only the second best for the time being.
Crude Oil- This trade is strictly for today on a further price dip because the technical setup is spectacular on the market profile and other technicals. There is a low volume range from Friday's trade ranging from $77.60 to $78.40 with higher volume support from $77.48 to $77.60. If prices dip below $78.00 then I believe that this is a good buy today against this support as the market is unlikely to have enough momentum to trade lower for the time being. The potential hurricane's path has now been projected more towards Texas and is unlikely to affect much of the cleanup in the Gulf, which is why Crude has declined overnight. However, the technicals on the daily chart remain bullish with a move to $82 still on the radar. This is a good lower risk trade though that should be held for about 1 1/2 days as it is likely to rally off of this support.
Sells to Watch:
Put on the Radar:
Japanese Yen- I mentioned this trade on Thursday as well, but on Friday the market finally made a close above the 112.00 breakout level on the large bullish head and shoulders pattern. Using a continuous daily chart with rollover at expiration draw necklines from the close March 3rd and High May 5th to the May 20th high and May 21st open to receive a range of breakout values with the high at 112.00. This pattern projects to the 119 price level, but when dealing with a bullish stance on the Yen you need to take into account that the Japanese Government has repeatedly intervened near the 114 and 115 levels to deflate there currency to keep exports competitive globally. Because the pattern is large I am waiting for a second close above 112 today and looking for entry on the trade tomorrow.
Notes:
Gold and Silver- On Thursday I listed Silver in my Sells to Watch section, but after an early morning attempt at violating it's bullish support line the market found a strong short covering rally that continued Friday. This rally coincided with a rally in Gold that carried the market back above it's own support line. In my opinion the Gold and Silver markets are bordering on a large manipulation game along their support trends, which before you laugh I suggest looking up the February 5th whistle blower on Silver market manipulation by major trading firms. It appears that there may be some front running on 3rd Quarter allocation in these markets and with the Metal Sector performing well this year there could be some more allocation coming up in these markets. However, Gold continues to reject any rally legs higher along with Silver, so I continue to believe that neither is a good outright long position to hold. With open interest in the markets still near all time highs I will be keeping a large liquidation on my radar, but will wait for a confirmation on a bearish breakout prior to attempting a short position going forward.
After my first vacation on Friday in over 4 months I am back this week and ready to go, but the markets do not look like they have the same vigor. This morning there is a mixed bag of firmer and weaker markets with low volatility overnight that leaves the macro market pretty much at a wash. On Friday the story was higher Commodity markets, which looks like it should have some carryover into this week. Both the Metal, Energy, and some of the Currency Sector now project continuations on their short term rallies, which could give the rest of the macro market a boost as well in some of the laggard markets.
While Equities lagged last week, Crude Oil, Copper, and the rest of the Metal Sector found strength on what could be front running prior to third quarter allocation. While my patience has been tested in the Gold and Silver markets on the "buy the trendline" trade that happens nearly everyday, it does appear that this rally may be extended in preparation for new money flow into these markets. Even some of the Soft Sector like Cocoa and Sugar have begun their own individual rallies on what could be a similar front-run.
The real story this week is Friday's Unemployment Report and I expect the market to be calmer yet still treacherous in advance over the next four days. Wednesday marks the close of the second quarter and with bookkeeping done over the next three days there could be some odd market action as Funds realign their positions. Thursday also starts allocation for the 3rd Quarter, which will be an interesting indicator to see the magnitude of new money that enters the market with more concern among investors lately. With strong support in the S&P 500 nearby at 1040 it is unlikely that there is a catalyst to set off the large bearish move right now so I believe we will see more sideways action and less predictability for a while longer. However, if Unemployment surprises to the downside and 2nd Quarter earnings disappoint the Bearish move could be only weeks away that will set off a string of macro waves lower and liquidation in the market. I still suggest trading with smaller size for the time being and waiting for the larger bearish breakout before stepping on the gas. The choppiness in the market has been high in this sideways range and there is no reason to depreciate your account value on some of these false moves.
Buys to Watch:
Copper- With a close Friday above $3.0490 the Copper market now has a bullish cup and handle pattern that projects to $3.2535. Copper has acted as one of the market strengths over the last week as some bullish fundamentals abroad have counteracted the bearish home building data in the U.S. Some of this rally may also be tied to front running the potential allocation coming for the 3rd Quarter in the market. For initial entry today I believe that you can purchase against some higher volume support from the breakout level with a stop loss place near the $3.0450 level. The market had an explosive day on Friday that left a large range of low volume trade that extends all the way back to $3.01, so if this $3.045 level does not hold as it has overnight then their will likely be a test of $3. As a note of caution, Stochastics for the daily chart is extending near overbought territory, but is not in danger of producing a sell signal for the time being. The $3.25 projection is also on the high end of some of the technical projections, with a second leg advance for the market providing projections ranging from $3.17 - $3.20 as a level to also look to take profits if the market gives signals that momentum is slowing. Still, Copper is my best buy for the time being and has a good risk/reward on entry today.
Bonds- Bond prices experienced a temporary decline over Thursday, but the market closes have maintained the cup and handle pattern breakout above 125.00 with a projection to 127.17 and a triangle breakout with a less reliable projection to the 129 handle. The market has struggled with some of the higher volume resistance from it's earlier spike high on the rally near the 126 level, but will likely now have the rally momentum to continue higher above these levels. For entry today the higher volume support near 125.09 has provided the lower range on prices, with this being a good level to place a stop below on a purchase on a pullback. Bonds have continued to rally overall despite macro rallies or declines, but has been a little more choppy lately, so I rate this Bond trade as only the second best for the time being.
Crude Oil- This trade is strictly for today on a further price dip because the technical setup is spectacular on the market profile and other technicals. There is a low volume range from Friday's trade ranging from $77.60 to $78.40 with higher volume support from $77.48 to $77.60. If prices dip below $78.00 then I believe that this is a good buy today against this support as the market is unlikely to have enough momentum to trade lower for the time being. The potential hurricane's path has now been projected more towards Texas and is unlikely to affect much of the cleanup in the Gulf, which is why Crude has declined overnight. However, the technicals on the daily chart remain bullish with a move to $82 still on the radar. This is a good lower risk trade though that should be held for about 1 1/2 days as it is likely to rally off of this support.
Sells to Watch:
Put on the Radar:
Japanese Yen- I mentioned this trade on Thursday as well, but on Friday the market finally made a close above the 112.00 breakout level on the large bullish head and shoulders pattern. Using a continuous daily chart with rollover at expiration draw necklines from the close March 3rd and High May 5th to the May 20th high and May 21st open to receive a range of breakout values with the high at 112.00. This pattern projects to the 119 price level, but when dealing with a bullish stance on the Yen you need to take into account that the Japanese Government has repeatedly intervened near the 114 and 115 levels to deflate there currency to keep exports competitive globally. Because the pattern is large I am waiting for a second close above 112 today and looking for entry on the trade tomorrow.
Notes:
Gold and Silver- On Thursday I listed Silver in my Sells to Watch section, but after an early morning attempt at violating it's bullish support line the market found a strong short covering rally that continued Friday. This rally coincided with a rally in Gold that carried the market back above it's own support line. In my opinion the Gold and Silver markets are bordering on a large manipulation game along their support trends, which before you laugh I suggest looking up the February 5th whistle blower on Silver market manipulation by major trading firms. It appears that there may be some front running on 3rd Quarter allocation in these markets and with the Metal Sector performing well this year there could be some more allocation coming up in these markets. However, Gold continues to reject any rally legs higher along with Silver, so I continue to believe that neither is a good outright long position to hold. With open interest in the markets still near all time highs I will be keeping a large liquidation on my radar, but will wait for a confirmation on a bearish breakout prior to attempting a short position going forward.
Thursday, June 24, 2010
Thursday 6/24/10 Commodity Ideas
Opening Note:
On the heels of the worst new home sales data since records were kept the stock market suffered an early decline, but even after a downgrade on economic conditions from the FOMC Equities were able to find support and close just slightly lower on the day. Although the Equity markets found support from the higher volume price trade from 1077.50 to 1080.50, other correlated Commodity markets showed further signs of weakness. Crude Oil suffered a $2 drop in prices as the overbought market declined and the market leader Gold had a close that violated it's support trend yesterday of $1237.7. It now looks likely that the 1130 trade on Monday in the S&P 500 near it's 50% retracement level is the top on the right shoulder of the market's massive bearish head and shoulders pattern. With the Metal Sector set to suffer liquidation with another close below Gold's support today, Foreign Currency markets and other supportive Commodity markets providing overbought sell signals, and the Fixed Income markets advancing in price all indicators are pointing towards the market falling below the major support level. Below 1040 in the S&P 500 projects a move between 865 - 900 in what should be a swift decline and likely only the second in what could be multiple waves lower.
This morning the macro market is weaker mostly across the board with Equities, Australian Dollar, and Silver leading the decline. Furthermore, risk aversion assets in the Fixed Income markets and the Japanese Yen are all higher and advancing on what appear to be large advances projected from their weekly charts. The day to day moves within the market, and especially Equities, continues to be less predictable with the leader/laggard in each sector shifting nearly indiscriminately. Still, there are now a number of directional trades that are in play in some of the individual markets. I believe it is now time to begin stepping into some of these trades with more confidence and once the larger decline emerges you can dive in full force. For right now remain picky with smaller than normal size until the S&P 500 confirms a move below 1040.
Buys to Watch:
Bonds- Bonds have outperformed in their inverse relationship with the stock market as they continue to rally in price despite Equity rallies. Again yesterday the Bonds rallied throughout the day even though the stock market closed just below it's lows on the day. With a close above 125.00 the Bond market now has a bullish cup and handle pattern as well as a confirmed breakout above it's triangle consolidation. The cup and handle projection is 127.17 while the triangle pattern produces an objective near the 129 handle. For entry today there is a lower volume zone between 125.16 and 125.20 with higher volume support below from 125.15 to 125.09. This level has been tested twice this morning, most recently after the Jobless Claims report and has held thus far. However, if this support does not hold then there is also a lower volume zone between 124.30 and 125.00 as another spot for long entry.
Japanese Yen- The Yen is a risk aversion Currency that performs well as a run to safety asset in the face of a weaker macro market. To view the large bullish head and shoulders pattern on the daily chart you must use a chart that uses a rollover of the contract at expiration (a continuous chart). Using the Close March 3rd or the High May 5th and connecting the neckline to either the May 20th high or May 21st Open you receive a range of breakout values from 111.59 - 112.00 today. Using these variable breakouts you therefore have a projection range from 118.5 to 119.4. This morning the market has rallied above the lower neckline, but has struggled near the 112.00 level. Because this is such a large pattern with plenty of opportunity for entry I recommend waiting for at least one if not two consecutive closes above the 112.00 level. As a note of caution, the Stochastics indicator for the daily chart is near overbought territory and close to producing a sell signal that could stall the market temporarily on an advance.
Sells to Watch:
Silver (with Gold Indicator)- Using the trendlines detailed in yesterday's letter the Silver market has a "buy the trend" value today of $18.40 and a bearish head and shoulders neckline breakout at $18.07 As I have noted in the past, the Silver market looks primed for a strong liquidation move from an over-saturated long position that will are near being net losers on their position. On the move below $18.07 the market has a projection to $15.47, which I speculate may not necessarily be the end of the break in the market, but rather the first leg. This morning on the open the market had a flow of liquidation, but on the heels of some supportive reports at 7:30 and buying in the Gold market Silver found a way to rally 25 cents back. Silver is a tough and frustrating short to hold right now as the Gold market artificially leads Silver higher at times and there appears to be protective buying and further allocation in the Metals right now. A small initial attempt at a short near the $18.40 level with a tighter stop would be okay for today, but it may be prudent to wait for a move below $18.07 and a confirmation lower close in Gold that violates it's own trendline. You may also buy 1 Gold for each Silver short as a hedge if the market looks like it could rally off of a Gold move, as this spread trade on it's own is likely to work as well going forward.
Put on the Radar:
S&P 500- Yesterday afternoon and again this morning the S&P 500 has found support at the high volume support level from 1077.50 to 1080.50. If the market continues to hang near this level I believe it is unlikely to hold for much longer with a move and test to the next support level at 1063.50 as the next stop for the market today.
Gold- Gold managed to close below the "buy the trend" support line at $1237.7 yesterday. Today this same line has a level of $1240.0, with a close below this level signaling to me that the uptrend for the Gold market is now over. Gold has the largest Open Interest in it's history at the time being, with a number of governments and huge market players severely long the Commodity. Watching the trade ladder over the last month I have repeatedly witnessed what appears to be a protective buying program for the market on this trendline and each time that it dips below. This morning there was again a significant inflow near the open using "scare buying" tactics to run the market higher, so I expect there to be a battle today over the close. If Gold is unable to recover this trendline I expect the Metal Sector to experience a wave of long liquidation and lower prices over the coming month.
Notes:
On the heels of the worst new home sales data since records were kept the stock market suffered an early decline, but even after a downgrade on economic conditions from the FOMC Equities were able to find support and close just slightly lower on the day. Although the Equity markets found support from the higher volume price trade from 1077.50 to 1080.50, other correlated Commodity markets showed further signs of weakness. Crude Oil suffered a $2 drop in prices as the overbought market declined and the market leader Gold had a close that violated it's support trend yesterday of $1237.7. It now looks likely that the 1130 trade on Monday in the S&P 500 near it's 50% retracement level is the top on the right shoulder of the market's massive bearish head and shoulders pattern. With the Metal Sector set to suffer liquidation with another close below Gold's support today, Foreign Currency markets and other supportive Commodity markets providing overbought sell signals, and the Fixed Income markets advancing in price all indicators are pointing towards the market falling below the major support level. Below 1040 in the S&P 500 projects a move between 865 - 900 in what should be a swift decline and likely only the second in what could be multiple waves lower.
This morning the macro market is weaker mostly across the board with Equities, Australian Dollar, and Silver leading the decline. Furthermore, risk aversion assets in the Fixed Income markets and the Japanese Yen are all higher and advancing on what appear to be large advances projected from their weekly charts. The day to day moves within the market, and especially Equities, continues to be less predictable with the leader/laggard in each sector shifting nearly indiscriminately. Still, there are now a number of directional trades that are in play in some of the individual markets. I believe it is now time to begin stepping into some of these trades with more confidence and once the larger decline emerges you can dive in full force. For right now remain picky with smaller than normal size until the S&P 500 confirms a move below 1040.
Buys to Watch:
Bonds- Bonds have outperformed in their inverse relationship with the stock market as they continue to rally in price despite Equity rallies. Again yesterday the Bonds rallied throughout the day even though the stock market closed just below it's lows on the day. With a close above 125.00 the Bond market now has a bullish cup and handle pattern as well as a confirmed breakout above it's triangle consolidation. The cup and handle projection is 127.17 while the triangle pattern produces an objective near the 129 handle. For entry today there is a lower volume zone between 125.16 and 125.20 with higher volume support below from 125.15 to 125.09. This level has been tested twice this morning, most recently after the Jobless Claims report and has held thus far. However, if this support does not hold then there is also a lower volume zone between 124.30 and 125.00 as another spot for long entry.
Japanese Yen- The Yen is a risk aversion Currency that performs well as a run to safety asset in the face of a weaker macro market. To view the large bullish head and shoulders pattern on the daily chart you must use a chart that uses a rollover of the contract at expiration (a continuous chart). Using the Close March 3rd or the High May 5th and connecting the neckline to either the May 20th high or May 21st Open you receive a range of breakout values from 111.59 - 112.00 today. Using these variable breakouts you therefore have a projection range from 118.5 to 119.4. This morning the market has rallied above the lower neckline, but has struggled near the 112.00 level. Because this is such a large pattern with plenty of opportunity for entry I recommend waiting for at least one if not two consecutive closes above the 112.00 level. As a note of caution, the Stochastics indicator for the daily chart is near overbought territory and close to producing a sell signal that could stall the market temporarily on an advance.
Sells to Watch:
Silver (with Gold Indicator)- Using the trendlines detailed in yesterday's letter the Silver market has a "buy the trend" value today of $18.40 and a bearish head and shoulders neckline breakout at $18.07 As I have noted in the past, the Silver market looks primed for a strong liquidation move from an over-saturated long position that will are near being net losers on their position. On the move below $18.07 the market has a projection to $15.47, which I speculate may not necessarily be the end of the break in the market, but rather the first leg. This morning on the open the market had a flow of liquidation, but on the heels of some supportive reports at 7:30 and buying in the Gold market Silver found a way to rally 25 cents back. Silver is a tough and frustrating short to hold right now as the Gold market artificially leads Silver higher at times and there appears to be protective buying and further allocation in the Metals right now. A small initial attempt at a short near the $18.40 level with a tighter stop would be okay for today, but it may be prudent to wait for a move below $18.07 and a confirmation lower close in Gold that violates it's own trendline. You may also buy 1 Gold for each Silver short as a hedge if the market looks like it could rally off of a Gold move, as this spread trade on it's own is likely to work as well going forward.
Put on the Radar:
S&P 500- Yesterday afternoon and again this morning the S&P 500 has found support at the high volume support level from 1077.50 to 1080.50. If the market continues to hang near this level I believe it is unlikely to hold for much longer with a move and test to the next support level at 1063.50 as the next stop for the market today.
Gold- Gold managed to close below the "buy the trend" support line at $1237.7 yesterday. Today this same line has a level of $1240.0, with a close below this level signaling to me that the uptrend for the Gold market is now over. Gold has the largest Open Interest in it's history at the time being, with a number of governments and huge market players severely long the Commodity. Watching the trade ladder over the last month I have repeatedly witnessed what appears to be a protective buying program for the market on this trendline and each time that it dips below. This morning there was again a significant inflow near the open using "scare buying" tactics to run the market higher, so I expect there to be a battle today over the close. If Gold is unable to recover this trendline I expect the Metal Sector to experience a wave of long liquidation and lower prices over the coming month.
Notes:
Wednesday, June 23, 2010
Wednesday 6/23/10 Commodity Ideas
Opening Note:
After buying on Commodity and Equity opens yesterday and a resilient effort at a rally continuation, despite a poor Existing Home Sales number, the market collapsed in the early afternoon to close on it's lows for the day. Equity markets have bought weak economic numbers for the last few weeks, but yesterday marked what could be a shift in market sentiment as the U.S. fundamental data has failed to meet expectations for the last two months. Many analysts that have held an overwhelmingly bullish opinion over this calendar year are now beginning to second guess some of their previous statements as much of the Bullish case was linked to signs of recovery in the U.S. What we are seeing now is that with stimulus running dry, a scary economic picture overseas, and only a pipe dream of a recovery in Unemployment and the Housing Market that the Fundamental story is beginning to fit the Bearish technical picture that has emerged throughout 2010. It is now possible that we have put in the top on the right shoulder of the large bearish head and shoulders pattern that should create a top on the macro market and lead to some severe legs down over the rest of the year.
Looking forward to today there is the important New Home Sales number at 9 am (CT) and the less important FOMC announcement around 1:15 pm (CT). With the home purchase tax credit now ended we will begin to see what the "real" housing picture looks like without the veil of stimulus. Although the numbers have been poor this month, I believe that we are seeing more of the tip of the iceberg in what could be another dip in the all important housing market. The market should be relatively quiet today ahead of the FOMC announcement this afternoon, but nearly 100% of market participants are expecting The Fed to keep rates locked near zero "for an extended period of time". Many will focus on the language surrounding the economic recovery, which could see a downgrade and have an effect on the market. However, The Fed tends to be behind the 8 ball when it comes to their market analysis on economic recovery, whereas I would rather form my own opinion than take Bernacke's word for it.
The macro market is still in a larger sideways range trade that is rather difficult to predict on a day to day basis. Until Gold rejects it's upsloping trendline or the S&P 500 is able to rally out either side of the 1040 to 1130 range I recommend reducing market exposure and limiting expectations on any directional move. I think we could continue to trade in this range until the end of the 2nd quarter, but volatility and directional moves are not far away once the 3rd Quarter begins.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Bonds- On the heels of the break in the Equtiy markets yesterday afternoon the Bond market had a rally breakout from it's consolidation triangle. Bonds and the other Fixed Income markets have held gains extraordinarily well in the face of the Equtiy rally over the last few weeks as they should have experience a much larger price break on the relationship. For the top end of my consolidation triangle I am using a trendline from the high on May 21st to the high on June 8th that had 4 points of contact prior to yesterday's breakout. The triangle formation has a projection to around the 129 handle, but keeping with the theme of limiting expectations I am looking for a move to 127.17 on the cup and handle pattern with a move above 125.00. I was able to enter with a full position yesterday afternoon and after taking off half to lock in profits I am now waiting for a move above 125.00 to re-initiate a the other half of my long position. Today this top-end consolidation trendline has a value of 124.11, which the market has tested already this morning and found support. For stop placement I am not giving much more room below this level. For initiation I believe that you could enter a half position on another test of this 124.11 level, but I recommend waiting for a breakout above 125.00 for a confirmed better move. This is the best buy and trade that I currently have, but it will be withheld from the Buys column until a move above 125.00.
S&P 500- In past newsletters I have focused on the 61.8% Fibonacci Retracement level for the S&P 500 as a potential top, but it is now possible that the market does not even reach this level on this rally leg prior to setting off it's large bearish head and shoulders pattern. Two days ago the market failed on a brief trade to 1130, which coincides with the 50% retracement level at 1125.50 for the market when measured from the high to low close on the bearish move. With the swift manner of the rejection and many other Commodity and Currency markets giving overbought sell signals I believe that we may now be heading towards the large macro leg down. Below 1040 the S&P 500 has a projection range of 865 - 900 on the topping pattern, but this appears to be only the second leg down on a potentially larger move. The Equity trade has been unpredictable for me on a day to day basis, so I am just using the market as an indicator for other trades and will hold off on any initiation until there is a move outside of the 1040 to 1130 range.
Japanese Yen- It may be difficult to see on your daily chart of just the September contract, so make sure you use a chart that rolls over at expiration. Drawing lines from the Close March 3rd or High March 5th to the High May 20th or Open May 21st you receive the neckline on a large bullish head and shoulders pattern that ranges from 111.61 to 112.00. This pattern has about a 7 point projection that ranges near the 119 handle. In the past I have noted that the Japanese Government has intervened near the 114 and 115 levels to deflate their Currency and keep exports competitive globally, so proceed with caution if the market reaches these levels.
Metal Sector Radar and Comments:
Gold- In my technical analysis I have the Gold market completing a 3 leg advance and a bullish head and shoulders pattern on May 12th when it first tested the $1250 level. Since that time the market has slowly traded higher on the upsloping trendline from the lows on March 25th to April 22nd as Open Interest has continued to flood the market. With about 20 bounces off of this trendline now and no meaningful continuation rallies that have held gains I believe that the market is very much on borrowed time for it's bullish continuation. Open Interest recently climbed to new all time highs again, but many of these new entrants have entered at well above $1200 and appear to be really late to the party. The trade in the market has been to buy any test of this trendline and with major players holding substantial positions it appears that the market has been almost "protecting" this level on each test. When a trade works this many times in a row it is usually destined to blow up in the participants faces and in major way.
With a number of clear stop levels ranging around $1230, $1213, and below $1200 it looks like the Open Interest liquidation dominoes are now in place for what could be a one day $60 + move lower as the trade fails. Today the trendline is sitting at $1237.7 after holding yesterday's $1235.3 value and the lower (weaker) trendline sits at $1213.7 as another liquidation/support level. I am sitting on the sidelines in the market waiting for the opportunity to pounce on the short once this potential liquidation commences.
Silver- The Silver market is highly correlated to Gold in it's recent similar uptrend, but this again looks like a bullish trade that is destined to fail as the industrial metal should have a precipitous fall to rebalance with economic demand. I have outlined some of the fundamental differences between Silver and Gold, but one of the more basic things anyone can see is just through the TV commercials. There are a number of companies that are willing to buy your cash for Gold as well as some that are willing to sell you Gold, but the majority want to buy. However, there is now an influx of commercials looking to sell you Silver as a precious metal store of value, with one in particular that has a seemingly nice man with a British accent that looks like he knows how to invest. Do Not Listen To The British Guy! There's a reason nobody is looking to buy your Silver, and that is because it's price does not hold up as a precious metal under economic strain.
21,000 new longs have entered the market since June 8th (out of 143,000 total) and only very few have an entry level any lower than $18.10. This has HUGE puking liquidation written all over it once a break in the uptrend emerges. For the Silver daily chart I have a trendline drawn from the low March 25th to the Close May 25th, which illustrates the flat slope on the "buy the trend trade", as well as a trend from the low May 5th to the low May 21st to show the bearish head and shoulders neckline. The market had a sharp short covering rally the day after the first attempt at the head and shoulders pattern initiation, but with bearish momentum coiling it will not likely fail a second time. The large Silver break will likely coincide with the negation of Gold's trend, but the move in Silver will be much sharper and an overall better short. Keep this trade on your radar because it could be one of the trades of the year.
Copper- Copper continues to under-perform the overall macro market and like the other Metals is setting up a momentous fall as longs liquidate in the market. For today I have trendlines on the large topping pattern ranging from $2.9160 to $2.9625 as the area that will again set off this bearish pattern. Like Silver and Gold, Open Interest has piled back into Copper over the last few weeks, but the market has not even seen the gain in price that the other Metals have. I believe that there is a lot of confusion from investors within this Metal sector and with Copper near all-time highs in open interest still there is plenty of liquidation fuel. A move below $2.9160 projects a move between $2.12 and $2.32.
Gold Relationship Trades- You may be wondering, "Why is he telling me to buy Gold when he thinks it is ready for a strong liquidation move?". Well, Gold is a store of value and in macro moves lower it tends to hold it's price much better in relation to many of the other Commodity markets. Crude, Silver, and Copper are on my radar as the worst performing Commodities in the near future so I am keeping these trades still on the radar until the time is right for entry.
Gold + Dow (Short)
Gold/Silver (Long)
Gold/Copper (Long)
Gold/Crude (Long)
Notes:
After buying on Commodity and Equity opens yesterday and a resilient effort at a rally continuation, despite a poor Existing Home Sales number, the market collapsed in the early afternoon to close on it's lows for the day. Equity markets have bought weak economic numbers for the last few weeks, but yesterday marked what could be a shift in market sentiment as the U.S. fundamental data has failed to meet expectations for the last two months. Many analysts that have held an overwhelmingly bullish opinion over this calendar year are now beginning to second guess some of their previous statements as much of the Bullish case was linked to signs of recovery in the U.S. What we are seeing now is that with stimulus running dry, a scary economic picture overseas, and only a pipe dream of a recovery in Unemployment and the Housing Market that the Fundamental story is beginning to fit the Bearish technical picture that has emerged throughout 2010. It is now possible that we have put in the top on the right shoulder of the large bearish head and shoulders pattern that should create a top on the macro market and lead to some severe legs down over the rest of the year.
Looking forward to today there is the important New Home Sales number at 9 am (CT) and the less important FOMC announcement around 1:15 pm (CT). With the home purchase tax credit now ended we will begin to see what the "real" housing picture looks like without the veil of stimulus. Although the numbers have been poor this month, I believe that we are seeing more of the tip of the iceberg in what could be another dip in the all important housing market. The market should be relatively quiet today ahead of the FOMC announcement this afternoon, but nearly 100% of market participants are expecting The Fed to keep rates locked near zero "for an extended period of time". Many will focus on the language surrounding the economic recovery, which could see a downgrade and have an effect on the market. However, The Fed tends to be behind the 8 ball when it comes to their market analysis on economic recovery, whereas I would rather form my own opinion than take Bernacke's word for it.
The macro market is still in a larger sideways range trade that is rather difficult to predict on a day to day basis. Until Gold rejects it's upsloping trendline or the S&P 500 is able to rally out either side of the 1040 to 1130 range I recommend reducing market exposure and limiting expectations on any directional move. I think we could continue to trade in this range until the end of the 2nd quarter, but volatility and directional moves are not far away once the 3rd Quarter begins.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Bonds- On the heels of the break in the Equtiy markets yesterday afternoon the Bond market had a rally breakout from it's consolidation triangle. Bonds and the other Fixed Income markets have held gains extraordinarily well in the face of the Equtiy rally over the last few weeks as they should have experience a much larger price break on the relationship. For the top end of my consolidation triangle I am using a trendline from the high on May 21st to the high on June 8th that had 4 points of contact prior to yesterday's breakout. The triangle formation has a projection to around the 129 handle, but keeping with the theme of limiting expectations I am looking for a move to 127.17 on the cup and handle pattern with a move above 125.00. I was able to enter with a full position yesterday afternoon and after taking off half to lock in profits I am now waiting for a move above 125.00 to re-initiate a the other half of my long position. Today this top-end consolidation trendline has a value of 124.11, which the market has tested already this morning and found support. For stop placement I am not giving much more room below this level. For initiation I believe that you could enter a half position on another test of this 124.11 level, but I recommend waiting for a breakout above 125.00 for a confirmed better move. This is the best buy and trade that I currently have, but it will be withheld from the Buys column until a move above 125.00.
S&P 500- In past newsletters I have focused on the 61.8% Fibonacci Retracement level for the S&P 500 as a potential top, but it is now possible that the market does not even reach this level on this rally leg prior to setting off it's large bearish head and shoulders pattern. Two days ago the market failed on a brief trade to 1130, which coincides with the 50% retracement level at 1125.50 for the market when measured from the high to low close on the bearish move. With the swift manner of the rejection and many other Commodity and Currency markets giving overbought sell signals I believe that we may now be heading towards the large macro leg down. Below 1040 the S&P 500 has a projection range of 865 - 900 on the topping pattern, but this appears to be only the second leg down on a potentially larger move. The Equity trade has been unpredictable for me on a day to day basis, so I am just using the market as an indicator for other trades and will hold off on any initiation until there is a move outside of the 1040 to 1130 range.
Japanese Yen- It may be difficult to see on your daily chart of just the September contract, so make sure you use a chart that rolls over at expiration. Drawing lines from the Close March 3rd or High March 5th to the High May 20th or Open May 21st you receive the neckline on a large bullish head and shoulders pattern that ranges from 111.61 to 112.00. This pattern has about a 7 point projection that ranges near the 119 handle. In the past I have noted that the Japanese Government has intervened near the 114 and 115 levels to deflate their Currency and keep exports competitive globally, so proceed with caution if the market reaches these levels.
Metal Sector Radar and Comments:
Gold- In my technical analysis I have the Gold market completing a 3 leg advance and a bullish head and shoulders pattern on May 12th when it first tested the $1250 level. Since that time the market has slowly traded higher on the upsloping trendline from the lows on March 25th to April 22nd as Open Interest has continued to flood the market. With about 20 bounces off of this trendline now and no meaningful continuation rallies that have held gains I believe that the market is very much on borrowed time for it's bullish continuation. Open Interest recently climbed to new all time highs again, but many of these new entrants have entered at well above $1200 and appear to be really late to the party. The trade in the market has been to buy any test of this trendline and with major players holding substantial positions it appears that the market has been almost "protecting" this level on each test. When a trade works this many times in a row it is usually destined to blow up in the participants faces and in major way.
With a number of clear stop levels ranging around $1230, $1213, and below $1200 it looks like the Open Interest liquidation dominoes are now in place for what could be a one day $60 + move lower as the trade fails. Today the trendline is sitting at $1237.7 after holding yesterday's $1235.3 value and the lower (weaker) trendline sits at $1213.7 as another liquidation/support level. I am sitting on the sidelines in the market waiting for the opportunity to pounce on the short once this potential liquidation commences.
Silver- The Silver market is highly correlated to Gold in it's recent similar uptrend, but this again looks like a bullish trade that is destined to fail as the industrial metal should have a precipitous fall to rebalance with economic demand. I have outlined some of the fundamental differences between Silver and Gold, but one of the more basic things anyone can see is just through the TV commercials. There are a number of companies that are willing to buy your cash for Gold as well as some that are willing to sell you Gold, but the majority want to buy. However, there is now an influx of commercials looking to sell you Silver as a precious metal store of value, with one in particular that has a seemingly nice man with a British accent that looks like he knows how to invest. Do Not Listen To The British Guy! There's a reason nobody is looking to buy your Silver, and that is because it's price does not hold up as a precious metal under economic strain.
21,000 new longs have entered the market since June 8th (out of 143,000 total) and only very few have an entry level any lower than $18.10. This has HUGE puking liquidation written all over it once a break in the uptrend emerges. For the Silver daily chart I have a trendline drawn from the low March 25th to the Close May 25th, which illustrates the flat slope on the "buy the trend trade", as well as a trend from the low May 5th to the low May 21st to show the bearish head and shoulders neckline. The market had a sharp short covering rally the day after the first attempt at the head and shoulders pattern initiation, but with bearish momentum coiling it will not likely fail a second time. The large Silver break will likely coincide with the negation of Gold's trend, but the move in Silver will be much sharper and an overall better short. Keep this trade on your radar because it could be one of the trades of the year.
Copper- Copper continues to under-perform the overall macro market and like the other Metals is setting up a momentous fall as longs liquidate in the market. For today I have trendlines on the large topping pattern ranging from $2.9160 to $2.9625 as the area that will again set off this bearish pattern. Like Silver and Gold, Open Interest has piled back into Copper over the last few weeks, but the market has not even seen the gain in price that the other Metals have. I believe that there is a lot of confusion from investors within this Metal sector and with Copper near all-time highs in open interest still there is plenty of liquidation fuel. A move below $2.9160 projects a move between $2.12 and $2.32.
Gold Relationship Trades- You may be wondering, "Why is he telling me to buy Gold when he thinks it is ready for a strong liquidation move?". Well, Gold is a store of value and in macro moves lower it tends to hold it's price much better in relation to many of the other Commodity markets. Crude, Silver, and Copper are on my radar as the worst performing Commodities in the near future so I am keeping these trades still on the radar until the time is right for entry.
Gold + Dow (Short)
Gold/Silver (Long)
Gold/Copper (Long)
Gold/Crude (Long)
Notes:
Tuesday, June 22, 2010
Tuesday 6/22/10 Commodity Ideas
Opening Note:
The market started off yesterday morning on a positive note on the back of news that China will use a more "flexible" policy with it's peg of the Yuan, but this exuberance was short lived as the macro market took a down-trending dive throughout the rest of the day. The Equity Indices broke in a clean line while Crude Oil, Gold, and Silver had violent stop-running breaks just before noon (CT). This morning the Chinese Yuan has appreciated another .23% at last check and the market is beginning to look at this "flexible" policy as somewhat of a joke. It is apparent from the last two days that China has no intention of a free-float for the Currency and will control it's movement, on what appears to be more of a concession prior to the G-20 than any sort of market moving change of policy.
This morning the macro market is lower in almost every supportive market, but only to a moderate degree thus far with the Energies and Metals the biggest losers. With the FOMC meeting taking place over the next two days and some housing data over the same time frame the market looks like it will take a wait and see approach. I do not think anyone is actually expecting much change from The Fed, but their individual word choices will be poured over with little consequence to follow in my opinion. The housing data this week and jobs numbers, with Unemployment next week, are now what I am focusing on as "the fundamental recovery" touted by the Bulls is beginning to look like a dying piece of evidence in their market defense.
Right now I find myself being caught up in the chop and randomness of the large sideways market, so I will not be placing any trade ideas in the Buys or Sells category until there is a real trade that I can get on with conviction. Looking at most of the daily charts across the market I am finding either strictly sideways markets or directional moves that are now way over-extended and inadequate to jump on. Furthermore, after analyzing a large sample size of relationship trades I have found only a few to really keep on the radar and none that I can make a strong case for at the time being. I personally struggle with sideways market action as I trade directional moves with volatility best, but give back the profits from my good trades on the false patterns and breakouts. I still believe that the macro market is in the midst of a sizable bearish move that should at least extend over the next four months and would now like to focus more on trades that take advantage of a deflationary move and decline in prices. I suggest dialing down size, making less trades, and focusing on taking profits earlier as directional moves have been rare and short in duration lately.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Equity Indices- All of the Indices gave back early gains on a 15 minute chart down-trend that lasted throughout the day and saw the Nasdaq perform the weakest. Over the last couple days I have noted that the S&P 500 has a bullish consolidation breakout that projects to 1169, but after yesterday's poor action the market is again testing the 1103 high from the same range it looked like it departed from. I still am looking for the S&P 500 to at least have a rally test of the 61.8% correction retracement level falling between 1145 - 1150, but a test of this level is now looking more skeptical. All of the Indices on their daily chart are now very close to producing sell signals on their Stochastics indicators near overbought territory, while all still maintain a range on their RSI within a bearish trend range as well. A close below 1103 for the S&P 500 would likely indicate another move lower through the sideways range and a possible test of the large base as the market is likely overbought at the time being. Remember that for the last couple weeks the market has also been buying with conviction despite some very discouraging Economic numbers and reports. For right now I have no intention of trading the Equity markets, but the S&P 500 is still the leading indicator for the market and should always be on your radar.
Metal Sector- Gold, Silver, Copper, and Palladium to a lesser degree have all had a moderate to substantial increase in Open Interest over the last few weeks. This increase in open interest has come while Gold, Silver, and Palladium have increased in price on a slight uptrend, but Copper has really acted more as a laggard. Yesterday both the Gold and Silver markets had a large stop-running price break as liquidation took over after another failed Gold attempt at a leg higher. Gold is now testing it's long term up-trend from the low March 25th to the low April 22nd that sits at $1235.3 today after about 15 tests of this line. I would take two closes below this line as a signal to exit any Gold longs and also as a sign of weakness for the entire sector on what could be a violent swing lower. This open interest that has entered the Metals appears to be a longer term position allocation, but when the market begins to liquidate and the small winners turn into double digit percent losers you often find a very large move lower. I have had a substantial liquidation in the Metals on my radar for the last 3 months and I believe that the Gold market's rejection of it's up-trend may be the start of this move. I recommend looking for bear strategies in the Metal market going forward and holding off on long entry into these markets.
Crude Oil- Crude Oil was acting as one of the stronger markets on the recent macro rally, but after a weak test of $80 has fallen hard over the last 24 hours. Today the daily chart Stochastics is producing a sell signal near overbought territory, which could signal the end of the rally unless it can make a valiant recovery by the close today. A move and close below $76.86 for the August contract would confirm a reversal for Crude Oil. After having one of the largest price breaks since late April I believe that going forward Crude is one of the better sales on the possible bear move with deflationary pressures, so I will focus on it as a weakness once the Bullish correction is confirmed to be over.
Currency Markets- With the exception of the Japanese Yen (which is a different animal) all of the Foreign Currency markets have or are on the verge of producing sell signals on their daily Stochastics indicators. The British Pound and Canadian dollar already have produced their own, with the rest of the markets now looking like they are only a day or two away as well. When you add up that the Metal markets look like they may undergo liquidation, the Energy and Equity Sectors are nearing sell signals, and Currencies are now in the process of developing sells as well, you can see a correlated weakening macro story. After examining all of the Currency markets as well as the cross-rates I can not find a trade or market that I am excited about for the time being, but keep an eye on the daily chart Stochastics for these markets as a macro indicator.
Bonds- The Bond market is still in a triangle consolidation pattern after briefly testing and rejecting it's bearish breakout yesterday. Today the lower consolidation line sits at 123.08 with the neckline on the bearish head and shoulders pattern at 122.31 with a projection to 117.02. Meanwhile the upper range line is at 124.12 with a move above 125.00 yielding a projection to 127.17. The market is nearing the apex of the triangle consolidation that hits on June 29th, so any breakout should now be discounted with a move to the projection less likely as the coiled momentum in the market is now being lost. It is possible that this could be just a sideways market that extends beyond the triangle range, but a breakout within the next two days could still prove to be decent move. With the macro market looking like it could continue to fall over the next few days with so many sell signals provided I am leaning towards a move higher in Bond Prices.
Gold Relationship Trades- I actually did do the homework I discussed earlier by examining a breadth of inter-commodity relationship charts. After looking over everything these are the charts and markets that I came up with that have the best future potential. As I am looking for a bearish market move with deflation, buying Gold against weakness is a great spread that should provide the best risk reward going forward. Most of these ideas show up better on the weekly charts as longer term moves, but some have better daily chart stories. I only suggest looking at these charts for the time being and waiting for execution at a later date:
Gold/Copper- Best seen on the weekly chart this ratio chart could be forming a significant spike that rivals the spike formed in late '08. This has been a longer term trade idea that I have provided in the past and the time for re-entry is now nearing again.
Gold/Crude- This has been a favorite of some guy whose name begins with a "G" that also writes a daily letter and I have to agree with him that it is soon time to put this ratio spread back on. Earlier I noted that Crude will likely be a future market weakness and this spread takes advantage of this opinion with a hedge.
Gold/Silver- The daily chart is in a larger triangle consolidation, but I believe that the breakout of this chart will likely be to the upside fueled by liquidation in the Silver market. I have long felt that the Silver market is abnormally extended for the time being and that the industrial metal story for the Commodity will take over at some point causing liquidation among the community that is buying it as a precious metal.
Gold+Dow- This is a contrary-relationship trade, in that Gold is usually a store of value away from Equities, that could be forming a head and shoulders pattern. The fundamental move that would be derived from the initiation of this bearish pattern on the weekly chart would be exactly a large bearish move in Equities with a deflationary move in the Gold market as a hedge. As money out of the stock market would likely flow into Gold it is actually a short in Gold that would act as a hedge for this relationship as Buying Gold and Selling Equities would be a "double exposed" position.
Notes:
Yesterday's Trades- Both the long Gold and long Nasdaq trade suggestions failed yesterday as the market declined throughout the day. Gold no longer has a bullish pattern projection and with the market now failing at a higher rally for the third time I do not like the idea of staying long Gold. The Nasdaq long entry level between 1915 and 1921.50 with support to 1908 held strong for a number of hours until the early afternoon yesterday. After failure at this level I also no longer like holding a long Nasdaq position and will be staying out of this market for the foreseeable future as it remains a choppy trade.
The market started off yesterday morning on a positive note on the back of news that China will use a more "flexible" policy with it's peg of the Yuan, but this exuberance was short lived as the macro market took a down-trending dive throughout the rest of the day. The Equity Indices broke in a clean line while Crude Oil, Gold, and Silver had violent stop-running breaks just before noon (CT). This morning the Chinese Yuan has appreciated another .23% at last check and the market is beginning to look at this "flexible" policy as somewhat of a joke. It is apparent from the last two days that China has no intention of a free-float for the Currency and will control it's movement, on what appears to be more of a concession prior to the G-20 than any sort of market moving change of policy.
This morning the macro market is lower in almost every supportive market, but only to a moderate degree thus far with the Energies and Metals the biggest losers. With the FOMC meeting taking place over the next two days and some housing data over the same time frame the market looks like it will take a wait and see approach. I do not think anyone is actually expecting much change from The Fed, but their individual word choices will be poured over with little consequence to follow in my opinion. The housing data this week and jobs numbers, with Unemployment next week, are now what I am focusing on as "the fundamental recovery" touted by the Bulls is beginning to look like a dying piece of evidence in their market defense.
Right now I find myself being caught up in the chop and randomness of the large sideways market, so I will not be placing any trade ideas in the Buys or Sells category until there is a real trade that I can get on with conviction. Looking at most of the daily charts across the market I am finding either strictly sideways markets or directional moves that are now way over-extended and inadequate to jump on. Furthermore, after analyzing a large sample size of relationship trades I have found only a few to really keep on the radar and none that I can make a strong case for at the time being. I personally struggle with sideways market action as I trade directional moves with volatility best, but give back the profits from my good trades on the false patterns and breakouts. I still believe that the macro market is in the midst of a sizable bearish move that should at least extend over the next four months and would now like to focus more on trades that take advantage of a deflationary move and decline in prices. I suggest dialing down size, making less trades, and focusing on taking profits earlier as directional moves have been rare and short in duration lately.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Equity Indices- All of the Indices gave back early gains on a 15 minute chart down-trend that lasted throughout the day and saw the Nasdaq perform the weakest. Over the last couple days I have noted that the S&P 500 has a bullish consolidation breakout that projects to 1169, but after yesterday's poor action the market is again testing the 1103 high from the same range it looked like it departed from. I still am looking for the S&P 500 to at least have a rally test of the 61.8% correction retracement level falling between 1145 - 1150, but a test of this level is now looking more skeptical. All of the Indices on their daily chart are now very close to producing sell signals on their Stochastics indicators near overbought territory, while all still maintain a range on their RSI within a bearish trend range as well. A close below 1103 for the S&P 500 would likely indicate another move lower through the sideways range and a possible test of the large base as the market is likely overbought at the time being. Remember that for the last couple weeks the market has also been buying with conviction despite some very discouraging Economic numbers and reports. For right now I have no intention of trading the Equity markets, but the S&P 500 is still the leading indicator for the market and should always be on your radar.
Metal Sector- Gold, Silver, Copper, and Palladium to a lesser degree have all had a moderate to substantial increase in Open Interest over the last few weeks. This increase in open interest has come while Gold, Silver, and Palladium have increased in price on a slight uptrend, but Copper has really acted more as a laggard. Yesterday both the Gold and Silver markets had a large stop-running price break as liquidation took over after another failed Gold attempt at a leg higher. Gold is now testing it's long term up-trend from the low March 25th to the low April 22nd that sits at $1235.3 today after about 15 tests of this line. I would take two closes below this line as a signal to exit any Gold longs and also as a sign of weakness for the entire sector on what could be a violent swing lower. This open interest that has entered the Metals appears to be a longer term position allocation, but when the market begins to liquidate and the small winners turn into double digit percent losers you often find a very large move lower. I have had a substantial liquidation in the Metals on my radar for the last 3 months and I believe that the Gold market's rejection of it's up-trend may be the start of this move. I recommend looking for bear strategies in the Metal market going forward and holding off on long entry into these markets.
Crude Oil- Crude Oil was acting as one of the stronger markets on the recent macro rally, but after a weak test of $80 has fallen hard over the last 24 hours. Today the daily chart Stochastics is producing a sell signal near overbought territory, which could signal the end of the rally unless it can make a valiant recovery by the close today. A move and close below $76.86 for the August contract would confirm a reversal for Crude Oil. After having one of the largest price breaks since late April I believe that going forward Crude is one of the better sales on the possible bear move with deflationary pressures, so I will focus on it as a weakness once the Bullish correction is confirmed to be over.
Currency Markets- With the exception of the Japanese Yen (which is a different animal) all of the Foreign Currency markets have or are on the verge of producing sell signals on their daily Stochastics indicators. The British Pound and Canadian dollar already have produced their own, with the rest of the markets now looking like they are only a day or two away as well. When you add up that the Metal markets look like they may undergo liquidation, the Energy and Equity Sectors are nearing sell signals, and Currencies are now in the process of developing sells as well, you can see a correlated weakening macro story. After examining all of the Currency markets as well as the cross-rates I can not find a trade or market that I am excited about for the time being, but keep an eye on the daily chart Stochastics for these markets as a macro indicator.
Bonds- The Bond market is still in a triangle consolidation pattern after briefly testing and rejecting it's bearish breakout yesterday. Today the lower consolidation line sits at 123.08 with the neckline on the bearish head and shoulders pattern at 122.31 with a projection to 117.02. Meanwhile the upper range line is at 124.12 with a move above 125.00 yielding a projection to 127.17. The market is nearing the apex of the triangle consolidation that hits on June 29th, so any breakout should now be discounted with a move to the projection less likely as the coiled momentum in the market is now being lost. It is possible that this could be just a sideways market that extends beyond the triangle range, but a breakout within the next two days could still prove to be decent move. With the macro market looking like it could continue to fall over the next few days with so many sell signals provided I am leaning towards a move higher in Bond Prices.
Gold Relationship Trades- I actually did do the homework I discussed earlier by examining a breadth of inter-commodity relationship charts. After looking over everything these are the charts and markets that I came up with that have the best future potential. As I am looking for a bearish market move with deflation, buying Gold against weakness is a great spread that should provide the best risk reward going forward. Most of these ideas show up better on the weekly charts as longer term moves, but some have better daily chart stories. I only suggest looking at these charts for the time being and waiting for execution at a later date:
Gold/Copper- Best seen on the weekly chart this ratio chart could be forming a significant spike that rivals the spike formed in late '08. This has been a longer term trade idea that I have provided in the past and the time for re-entry is now nearing again.
Gold/Crude- This has been a favorite of some guy whose name begins with a "G" that also writes a daily letter and I have to agree with him that it is soon time to put this ratio spread back on. Earlier I noted that Crude will likely be a future market weakness and this spread takes advantage of this opinion with a hedge.
Gold/Silver- The daily chart is in a larger triangle consolidation, but I believe that the breakout of this chart will likely be to the upside fueled by liquidation in the Silver market. I have long felt that the Silver market is abnormally extended for the time being and that the industrial metal story for the Commodity will take over at some point causing liquidation among the community that is buying it as a precious metal.
Gold+Dow- This is a contrary-relationship trade, in that Gold is usually a store of value away from Equities, that could be forming a head and shoulders pattern. The fundamental move that would be derived from the initiation of this bearish pattern on the weekly chart would be exactly a large bearish move in Equities with a deflationary move in the Gold market as a hedge. As money out of the stock market would likely flow into Gold it is actually a short in Gold that would act as a hedge for this relationship as Buying Gold and Selling Equities would be a "double exposed" position.
Notes:
Yesterday's Trades- Both the long Gold and long Nasdaq trade suggestions failed yesterday as the market declined throughout the day. Gold no longer has a bullish pattern projection and with the market now failing at a higher rally for the third time I do not like the idea of staying long Gold. The Nasdaq long entry level between 1915 and 1921.50 with support to 1908 held strong for a number of hours until the early afternoon yesterday. After failure at this level I also no longer like holding a long Nasdaq position and will be staying out of this market for the foreseeable future as it remains a choppy trade.
Monday, June 21, 2010
Monday 6/21/10 Commodity Ideas
Opening Note:
Friday proved to be a day of odd market action as some early morning allocation led the way higher, but options expiration pressure stalled out the market to see it close nearly even on the day for Equities, but stronger for Commodities. At 8:30 on Friday there was a sizable inflow of new money across the broad market that started the ball rolling as the Metal and Energy Sectors saw the biggest jump in prices. Heading into this morning the big story is that China has eased their Currency policy allowing the Yuan to appreciate slightly against the Dollar. The Macro market is significantly higher this morning based on this news, but I still believe that the jury is out on whether this is a real news item to buy off of long term. With global pressure on China to adjust it's artificially low Currency peg, the country has made this concession heading into the G-20 meeting where they were likely to receive a great deal of further pressure. While some take this Currency move as a vote of confidence from China on the global recovery, it can also be viewed strictly as a move to relieve some of the trade tension. I think China's economists have been the most accurate in policy decisions over the last few years, so I would take a vote of confidence from them as a reliable indicator, but we shall see if this is merely just a concession.
This week there are a number of important economic numbers and the FOMC meeting announcement on Wednesday. I believe there is about a 0.3% chance that the Fed raises rates, so the meeting is likely to be uneventful, but the existing and new home sales numbers Tuesday and Wednesday should be interesting as the housing starts number last Wednesday was way below expectations.
Right now the momentum of the market is up and entry right now should be on the long side for the macro market. The S&P 500 is likely to at least advance to test the 1145 - 1150 range on the 61.8% retracement on the move earlier in the quarter from the top. The daily chart for the S&P also has a projection to 1169 as well on it's bullish cup and handle pattern and supportive Commodity markets like Crude Oil, Australian Dollar, and Silver are maintaining a move higher. I will be using a smaller than normal size for entry right now as the market remains less predictable on a day to day basis right now and I am more interested in setting up for another leg down in the market. Once the S&P 500 meets this 1145 - 1170 range is the time to begin shifting the focus back to the larger bear trend, but for right now I do not recommend fighting the allocation and momentum.
Buys to Watch:
Gold- The fundamental story for Gold right now is very tangled, but technically the market now has a bullish breakout with a new high close and a projection to $1292. The close Friday above the old high trade of $1254.5 produced this bullish cup and handle pattern. The Gold market appears to rally right now just because it can no matter what happens with the rest of the market. While the initial move higher in Gold was on an exodus from the Euro Currency and a run to safety from Equities and other Commodities, the Gold market has maintained it's strength in the face of a rally in these markets that it was used as a hedge against. Current CPI data and other macro indicators are also pointing towards a deflationary move that should have a negative effect on the outright price of Gold. While I believe that the market is over-saturated on a trade where most investors do not know what they are getting themselves into Gold still is one of the better buys out there. For entry I recommend purchasing around the higher volume support near $1257 with a stop below this level. Below $1257 there is a large low volume zone that ranges all the way down to the support near $1245, which may be a good level to purchase near the trendline, but would negate the projection higher. So, I believe you have to step in at this higher level with a tighter stop if you are going to buy for right now.
Nasdaq with S&P 500 indicator- The Nasdaq now has a confirmed bullish breakout above it's consolidation range like the S&P 500 and I believe is now the best buy of the Equity Indices. The Nasdaq has acted as the the strength on the macro rallies over the last 16 months, so I will stick with this trend for long entry. The Nasdaq is already much higher on the day, so you need to be patient, but there is a decent lower volume zone just below today's range thus far for long entry. Between 1915 and 1921.50 there is a low volume gap left over the weekend with higher volume support ranging from 1914.5 to 1908 for stop placement. The Nasdaq has an enormous projection on it's daily chart to 2036, but it is important to keep an eye on the S&P 500 as the leading indicator of the sector for guidance on a Nasdaq position. Once the S&P 500 hits the 1145 - 1170 range it will likely lose momentum and reverse, so this is a good zone to look for taking profits on a Nasdaq long.
Sells to Watch:
Put on the Radar:
Bonds- Bonds have been on the radar for both bullish and bearish moves over the last week, but today it is on the verge of setting off a bearish breakout on it's recent triangle consolidation. The lower consolidation line from the low May 13th to the low June 3rd has a value today of 122.26 with a projection to 116.29. This morning the market has already twice toyed with this breakout level, but has been unable to significantly move below it, so I suggest waiting for today's close on a confirmation of the move prior to entry tomorrow. It is still possible that the market will trade back into it's consolidation triangle today. Also, with the market now trading towards the apex of the triangle and the bottom support trend having a steeper upslope it is less likely that the market actually reaches the pattern's projection.
Crude Oil and Australian Dollar (move Crude front month to August)- I am grouping these two markets again as a market indicator package to keep on your radar. They are also still decent buys, but after a sizable rally are likely near overbought territory and due for a bearish move in the near future. Crude Oil for the August contract has a projection to $82.67 and this morning is struggling with the psychological $80 level. For Crude measuring from the high close to the low close I receive a 50 % retracement value of $80.43 and a 61.8% value of $82.87. Meanwhile the Australian Dollar has a daily chart pattern projection to .8896, but a 61.8% retracement level of .8765, which provided resistance on the highs today. Both markets have been highly correlated to the stock market, so they could provide some insight as to whether the 61.8% level for the S&P 500 will provide topping resistance or if the market will trade along it's pattern projection to 1169.
Notes:
RBOB vs. Heating Oil- On Friday I had this trade in the buys column, but the low volume entry zone I provided was traded through on Friday. Today the market is again trading slightly lower, so I believe it is no longer a good buy and recommend liquidation of long positions.
Copper- The band of resistance I provided for the Copper market from $2.9150 to 2.9350 was obviously violated overnight in a big way on the China news. Any time you mention China and Bull in the same sentence the market jumps on Copper, so this was poor timing for a short in regard to fundamental news. However, it was the action on Friday that initially made me concerned with the short position on the trade. If you look back at a 15 minute chart from Friday you can see that between 8:30 and 9:30 there was an increase in volume as allocation entered the market. This was not a notable size of volume in comparison to some other time frames, but it was if you take into consideration the price movement over this same time frame you can reason that this was large traded size for such a small price range. I was watching the actual trading ladder over this period as a number of 100+ lot offers sat above the market and 1 lot icebergs sat below scooping up and buying any sales from nervous short term traders with such offer size sitting above the market. I estimate that a large player scooped up somewhere around 2,000 - 3,000 contracts in a very tight range while psychologically scaring the market into hitting it's bid. This is clearly a winner for today, and with the Chinese news out I do not believe that you can step into a short in the Copper market as it should be less predictable. I recommend sitting flat in the market for the time being and do not recommend stepping into a long position at these levels.
Friday proved to be a day of odd market action as some early morning allocation led the way higher, but options expiration pressure stalled out the market to see it close nearly even on the day for Equities, but stronger for Commodities. At 8:30 on Friday there was a sizable inflow of new money across the broad market that started the ball rolling as the Metal and Energy Sectors saw the biggest jump in prices. Heading into this morning the big story is that China has eased their Currency policy allowing the Yuan to appreciate slightly against the Dollar. The Macro market is significantly higher this morning based on this news, but I still believe that the jury is out on whether this is a real news item to buy off of long term. With global pressure on China to adjust it's artificially low Currency peg, the country has made this concession heading into the G-20 meeting where they were likely to receive a great deal of further pressure. While some take this Currency move as a vote of confidence from China on the global recovery, it can also be viewed strictly as a move to relieve some of the trade tension. I think China's economists have been the most accurate in policy decisions over the last few years, so I would take a vote of confidence from them as a reliable indicator, but we shall see if this is merely just a concession.
This week there are a number of important economic numbers and the FOMC meeting announcement on Wednesday. I believe there is about a 0.3% chance that the Fed raises rates, so the meeting is likely to be uneventful, but the existing and new home sales numbers Tuesday and Wednesday should be interesting as the housing starts number last Wednesday was way below expectations.
Right now the momentum of the market is up and entry right now should be on the long side for the macro market. The S&P 500 is likely to at least advance to test the 1145 - 1150 range on the 61.8% retracement on the move earlier in the quarter from the top. The daily chart for the S&P also has a projection to 1169 as well on it's bullish cup and handle pattern and supportive Commodity markets like Crude Oil, Australian Dollar, and Silver are maintaining a move higher. I will be using a smaller than normal size for entry right now as the market remains less predictable on a day to day basis right now and I am more interested in setting up for another leg down in the market. Once the S&P 500 meets this 1145 - 1170 range is the time to begin shifting the focus back to the larger bear trend, but for right now I do not recommend fighting the allocation and momentum.
Buys to Watch:
Gold- The fundamental story for Gold right now is very tangled, but technically the market now has a bullish breakout with a new high close and a projection to $1292. The close Friday above the old high trade of $1254.5 produced this bullish cup and handle pattern. The Gold market appears to rally right now just because it can no matter what happens with the rest of the market. While the initial move higher in Gold was on an exodus from the Euro Currency and a run to safety from Equities and other Commodities, the Gold market has maintained it's strength in the face of a rally in these markets that it was used as a hedge against. Current CPI data and other macro indicators are also pointing towards a deflationary move that should have a negative effect on the outright price of Gold. While I believe that the market is over-saturated on a trade where most investors do not know what they are getting themselves into Gold still is one of the better buys out there. For entry I recommend purchasing around the higher volume support near $1257 with a stop below this level. Below $1257 there is a large low volume zone that ranges all the way down to the support near $1245, which may be a good level to purchase near the trendline, but would negate the projection higher. So, I believe you have to step in at this higher level with a tighter stop if you are going to buy for right now.
Nasdaq with S&P 500 indicator- The Nasdaq now has a confirmed bullish breakout above it's consolidation range like the S&P 500 and I believe is now the best buy of the Equity Indices. The Nasdaq has acted as the the strength on the macro rallies over the last 16 months, so I will stick with this trend for long entry. The Nasdaq is already much higher on the day, so you need to be patient, but there is a decent lower volume zone just below today's range thus far for long entry. Between 1915 and 1921.50 there is a low volume gap left over the weekend with higher volume support ranging from 1914.5 to 1908 for stop placement. The Nasdaq has an enormous projection on it's daily chart to 2036, but it is important to keep an eye on the S&P 500 as the leading indicator of the sector for guidance on a Nasdaq position. Once the S&P 500 hits the 1145 - 1170 range it will likely lose momentum and reverse, so this is a good zone to look for taking profits on a Nasdaq long.
Sells to Watch:
Put on the Radar:
Bonds- Bonds have been on the radar for both bullish and bearish moves over the last week, but today it is on the verge of setting off a bearish breakout on it's recent triangle consolidation. The lower consolidation line from the low May 13th to the low June 3rd has a value today of 122.26 with a projection to 116.29. This morning the market has already twice toyed with this breakout level, but has been unable to significantly move below it, so I suggest waiting for today's close on a confirmation of the move prior to entry tomorrow. It is still possible that the market will trade back into it's consolidation triangle today. Also, with the market now trading towards the apex of the triangle and the bottom support trend having a steeper upslope it is less likely that the market actually reaches the pattern's projection.
Crude Oil and Australian Dollar (move Crude front month to August)- I am grouping these two markets again as a market indicator package to keep on your radar. They are also still decent buys, but after a sizable rally are likely near overbought territory and due for a bearish move in the near future. Crude Oil for the August contract has a projection to $82.67 and this morning is struggling with the psychological $80 level. For Crude measuring from the high close to the low close I receive a 50 % retracement value of $80.43 and a 61.8% value of $82.87. Meanwhile the Australian Dollar has a daily chart pattern projection to .8896, but a 61.8% retracement level of .8765, which provided resistance on the highs today. Both markets have been highly correlated to the stock market, so they could provide some insight as to whether the 61.8% level for the S&P 500 will provide topping resistance or if the market will trade along it's pattern projection to 1169.
Notes:
RBOB vs. Heating Oil- On Friday I had this trade in the buys column, but the low volume entry zone I provided was traded through on Friday. Today the market is again trading slightly lower, so I believe it is no longer a good buy and recommend liquidation of long positions.
Copper- The band of resistance I provided for the Copper market from $2.9150 to 2.9350 was obviously violated overnight in a big way on the China news. Any time you mention China and Bull in the same sentence the market jumps on Copper, so this was poor timing for a short in regard to fundamental news. However, it was the action on Friday that initially made me concerned with the short position on the trade. If you look back at a 15 minute chart from Friday you can see that between 8:30 and 9:30 there was an increase in volume as allocation entered the market. This was not a notable size of volume in comparison to some other time frames, but it was if you take into consideration the price movement over this same time frame you can reason that this was large traded size for such a small price range. I was watching the actual trading ladder over this period as a number of 100+ lot offers sat above the market and 1 lot icebergs sat below scooping up and buying any sales from nervous short term traders with such offer size sitting above the market. I estimate that a large player scooped up somewhere around 2,000 - 3,000 contracts in a very tight range while psychologically scaring the market into hitting it's bid. This is clearly a winner for today, and with the Chinese news out I do not believe that you can step into a short in the Copper market as it should be less predictable. I recommend sitting flat in the market for the time being and do not recommend stepping into a long position at these levels.
Friday, June 18, 2010
Friday 6/18/10 Commodity Ideas
Opening Note:
Despite the bearish CPI and Jobless Claims numbers yesterday that led to an early tumble, the Equity markets were able to recover with some late afternoon allocation. This morning the markets are fairly quiet with Crude Oil and Copper sticking their heads out as the losers and no real winners on my board yet today (actually, Gold just ran stops...so it's the winner). Today is options expiration for Equities, so we can expect the likelihood of less volatility and also the possible pull of the S&P 500 towards the high volume 1100 level.
In one of my comment sections in yesterday's letter I discussed how I was seeing money flow into both risk and risk aversion assets at the same time this week. After discussions with a number of people yesterday I have come to the conclusion that the story right now is just money chasing a yield wherever it can. As Bond yields decrease money is flowing into the Equity and Commodity markets, which is likely helping to boost some of these markets for the time being. The question will be what happens if the yield curve continues to flatten and we come under deflationary and contraction pressures in the macro market. Some Fixed Income groups are beginning to purchase Equities in the hopes that they will provide a better return, but this could be a conundrum. While the Equity and Commodity markets are performing better for the time being after finding technical support and new allocation the interest rate markets are beginning to look like yields could continue lower over an extended period of time, which signals another recessionary move. For the time being I recommend keeping the Bonds, Gold, and S&P 500 chart up on your screens to compare them on a daily basis to watch where the money is going, as the relationship between these markets has moved contrary to earlier trade this year.
I am slightly conflicted this morning about where the market is heading next week. While there are some stronger projections in the Equity Indices the supportive correlated markets like the Australian Dollar, Crude Oil, and the Euro appear to be tiring. Equities have also floundered over the last two days, but still manage to maintain a close above their critical support levels if there is to be any continuation. However, many of these markets are sitting in overbought territory on their daily chart Stochastics and also maintain a bear trend range in their RSI. I am not willing to make a large bet either way, but I still believe that the market has a little more rally next week as the Equities are hanging tough. I still maintain that the market is in a large bear move that will last over the next four months at least and the time is soon coming to again position yourself for another leg down in the macro market.
Buys to Watch:
RBOB vs. Crude Oil- To start, I would like to note that the moves between these energy markets, like the Grains and other sectors, are driven by fundamentals among the actual production of the Commodities (think like the Soybean Crush). So, with very little knowledge of the actual story I recommend doing some research prior to entry as I will do myself. The RBOB vs. Crude Oil spread (easily viewed on CQG symbol RBECLE) has a bullish cup and handle breakout above the 1344 level with a projection to 1605. There is a good low volume area from 1336 to 1384 for entry on a pullback today, but with the market still much higher there should be plenty of time to place some calls to your Energy trading friends. The Heating Oil vs. Crude Oil spread also rallied much higher yesterday on a similar pattern and actually had more strength yesterday. However, the Heat has already reached it's projection so the RBOB Crack Spread is the one to focus on now. The Crack Spreads are a market that I am adding to my repertoire and learning more about, but I recommend using smaller size when trading them as I will be doing myself due to my unfamiliarity with the market.
Sells to Watch:
Copper- Copper has been the biggest dog of any market over the last three days after the bearish housing data on Wednesday and CPI number on Thursday. This morning it is again the laggard on my entire board and has now re-initiated the large topping pattern that is best described as a bearish head and shoulders. To form the neckline draw a trendline from the lows Feb. 5th to both the lows on May 17th and May 20th. What you have is a small range neckline with a band of resistance now today at the breakout level between $2.9150 and 2.9350 with a pattern projection range from $2.12 to $2.32. When looking at the daily chart you should also make sure to take note of the Open Interest for the market. On this recent macro bounce there has been new inflows into the Copper market on what I have heard TV analysts coin as "the Copper market is cheap" and "this is a good way to play the emerging market trade". However, CPI is saying deflation and home building looks like it may stall as the housing market may not have yet found a bottom. The majority of the money that has purchased Copper over the last few weeks is now holding a losing position in the worst looking market out there. I do not think that this is a "fake-out breakout" this time, so I personally am short already and planning on adding at proper levels.
Today there is a low volume zone from 2.8770 to 2.8905 for short entry with some higher volume resistance from 2.90 up to the neckline band. For today I am keeping my stop above this band, but with confirmation of a lower close today I will begin to move it lower. I do not believe that the Equity markets will be able to have a strong rally today with expiration, but Copper tends to move along with the Equities, even erroneously sometimes when it should not. Keep in mind that if the Equities really look like they are going to take off you can always use either Equities or either Gold or Crude Oil as a temporary hedge against the short Copper position.
Put on the Radar:
S&P 500 and Nasdaq- I do not recommend entering a long position in the Equity markets for today, so they will stay on the radar, but will move to the buys next week as long as today's close is acceptable. The S&P 500 has maintained a close above it's 1103 breakout level, with a projection to 1169, and has held tough in the face of some bearish numbers and poor action from outside markets. The Nasdaq now has also closed above it's own 1902.50 breakout level on the larger projection to 2036. The Nasdaq has outperformed the other Indices throughout the 14 month rally, so I believe it will again outperform to the upside and is the best buy. Today there is a higher volume support level at 1900 in the Nasdaq and a lower volume zone from 1895 - 1890 for good buy levels. For today I would like to just watch these though and wait for entry on Monday if they are able to support the market. Note of Caution: RSI for all of the Indices on their daily chart remains in a bearish range and the fast line on the daily Stochastics has now entered overbought territory, but is not on the verge of a sell signal. Also keep in mind that for the S&P 500 the 61.8% retracement level on the recent break is between 1145 - 1150 depending on how you measure it. This is an important level as the Bears will begin initiating shorts around this level, which may limit the upside potential of the market.
Bonds- Bonds are stuck in no-man's land right now. The bearish head and shoulders pattern that I have had on the radar for the last week still has not been initiated despite a macro market rally that "should" have set it off under the previous relationship scenario. However, the Bond market has remained very strong under the current market conditions and now has the possibility of setting off a bullish pattern instead. The bearish head and shoulders neckline from the low May 13th to the low June 3rd has a breakout level today of 122.22 that will likely not come into play today. However, the bullish cup and handle pattern for the market has a breakout level of 125.00 and a projection to 127.17. Although I know a number of fundamental fixed income traders that are skeptical of a move higher in Bonds, my weekly chart now has a confirmed breakout on RSI into a bullish mode and some patterns are now in play that project a rally to the 133 price level. With the recent strength I am more focused on the upside for right now as I believe it is a more likely move, but there should be a trade in the market in the near future.
Crude Oil- The Crude Oil market looked like a strength for the early part of the week, but after the poor CPI number yesterday the market reversed hard (although I'm not sure this is the reason). The upsloping recent daily chart trendline for the market at $76.75 was violated yesterday indicating further weakness. However, there is a final low volume zone from $75.30 - $75.52 with higher volume support at 75.15 for a last ditch effort on a purchase. This zone was nearly entered this morning and has supported the market thus far. If Crude is able to find further strength today then I would continue to look at the market as a buy for the time being despite it's poor action yesterday. Below $75.15 I would definitely give up on being a Crude Bull as the daily RSI is still in a bearish mode and Stochastics is a few ticks away from producing a sell signal near it's overbought territory.
Notes:
Gold- I have repeatedly ranted about my dislike for the purchase of outright Gold, but this morning the market has finally rallied above the $1250 level with some conviction. If the market is able to rally and hold above $1260 then I have a projection to $1292. I still believe that it is an over-saturated market without a real fundamental story other than deflation and a gut reaction run to safety. I still have a large move in the market back to the $1000 to $1050 range on my horizon, but to $1292 first it looks like.
Foreign Currencies- The British Pound, Canadian Dollar, and Australian Dollar all have nice bullish projections and are the best buys on the Equity and macro rally if it continues. The leader/laggard continues to shift daily, so picking one is difficult. If you would like to get long the Currencies it may not be a bad idea to do a blend of these.
Despite the bearish CPI and Jobless Claims numbers yesterday that led to an early tumble, the Equity markets were able to recover with some late afternoon allocation. This morning the markets are fairly quiet with Crude Oil and Copper sticking their heads out as the losers and no real winners on my board yet today (actually, Gold just ran stops...so it's the winner). Today is options expiration for Equities, so we can expect the likelihood of less volatility and also the possible pull of the S&P 500 towards the high volume 1100 level.
In one of my comment sections in yesterday's letter I discussed how I was seeing money flow into both risk and risk aversion assets at the same time this week. After discussions with a number of people yesterday I have come to the conclusion that the story right now is just money chasing a yield wherever it can. As Bond yields decrease money is flowing into the Equity and Commodity markets, which is likely helping to boost some of these markets for the time being. The question will be what happens if the yield curve continues to flatten and we come under deflationary and contraction pressures in the macro market. Some Fixed Income groups are beginning to purchase Equities in the hopes that they will provide a better return, but this could be a conundrum. While the Equity and Commodity markets are performing better for the time being after finding technical support and new allocation the interest rate markets are beginning to look like yields could continue lower over an extended period of time, which signals another recessionary move. For the time being I recommend keeping the Bonds, Gold, and S&P 500 chart up on your screens to compare them on a daily basis to watch where the money is going, as the relationship between these markets has moved contrary to earlier trade this year.
I am slightly conflicted this morning about where the market is heading next week. While there are some stronger projections in the Equity Indices the supportive correlated markets like the Australian Dollar, Crude Oil, and the Euro appear to be tiring. Equities have also floundered over the last two days, but still manage to maintain a close above their critical support levels if there is to be any continuation. However, many of these markets are sitting in overbought territory on their daily chart Stochastics and also maintain a bear trend range in their RSI. I am not willing to make a large bet either way, but I still believe that the market has a little more rally next week as the Equities are hanging tough. I still maintain that the market is in a large bear move that will last over the next four months at least and the time is soon coming to again position yourself for another leg down in the macro market.
Buys to Watch:
RBOB vs. Crude Oil- To start, I would like to note that the moves between these energy markets, like the Grains and other sectors, are driven by fundamentals among the actual production of the Commodities (think like the Soybean Crush). So, with very little knowledge of the actual story I recommend doing some research prior to entry as I will do myself. The RBOB vs. Crude Oil spread (easily viewed on CQG symbol RBECLE) has a bullish cup and handle breakout above the 1344 level with a projection to 1605. There is a good low volume area from 1336 to 1384 for entry on a pullback today, but with the market still much higher there should be plenty of time to place some calls to your Energy trading friends. The Heating Oil vs. Crude Oil spread also rallied much higher yesterday on a similar pattern and actually had more strength yesterday. However, the Heat has already reached it's projection so the RBOB Crack Spread is the one to focus on now. The Crack Spreads are a market that I am adding to my repertoire and learning more about, but I recommend using smaller size when trading them as I will be doing myself due to my unfamiliarity with the market.
Sells to Watch:
Copper- Copper has been the biggest dog of any market over the last three days after the bearish housing data on Wednesday and CPI number on Thursday. This morning it is again the laggard on my entire board and has now re-initiated the large topping pattern that is best described as a bearish head and shoulders. To form the neckline draw a trendline from the lows Feb. 5th to both the lows on May 17th and May 20th. What you have is a small range neckline with a band of resistance now today at the breakout level between $2.9150 and 2.9350 with a pattern projection range from $2.12 to $2.32. When looking at the daily chart you should also make sure to take note of the Open Interest for the market. On this recent macro bounce there has been new inflows into the Copper market on what I have heard TV analysts coin as "the Copper market is cheap" and "this is a good way to play the emerging market trade". However, CPI is saying deflation and home building looks like it may stall as the housing market may not have yet found a bottom. The majority of the money that has purchased Copper over the last few weeks is now holding a losing position in the worst looking market out there. I do not think that this is a "fake-out breakout" this time, so I personally am short already and planning on adding at proper levels.
Today there is a low volume zone from 2.8770 to 2.8905 for short entry with some higher volume resistance from 2.90 up to the neckline band. For today I am keeping my stop above this band, but with confirmation of a lower close today I will begin to move it lower. I do not believe that the Equity markets will be able to have a strong rally today with expiration, but Copper tends to move along with the Equities, even erroneously sometimes when it should not. Keep in mind that if the Equities really look like they are going to take off you can always use either Equities or either Gold or Crude Oil as a temporary hedge against the short Copper position.
Put on the Radar:
S&P 500 and Nasdaq- I do not recommend entering a long position in the Equity markets for today, so they will stay on the radar, but will move to the buys next week as long as today's close is acceptable. The S&P 500 has maintained a close above it's 1103 breakout level, with a projection to 1169, and has held tough in the face of some bearish numbers and poor action from outside markets. The Nasdaq now has also closed above it's own 1902.50 breakout level on the larger projection to 2036. The Nasdaq has outperformed the other Indices throughout the 14 month rally, so I believe it will again outperform to the upside and is the best buy. Today there is a higher volume support level at 1900 in the Nasdaq and a lower volume zone from 1895 - 1890 for good buy levels. For today I would like to just watch these though and wait for entry on Monday if they are able to support the market. Note of Caution: RSI for all of the Indices on their daily chart remains in a bearish range and the fast line on the daily Stochastics has now entered overbought territory, but is not on the verge of a sell signal. Also keep in mind that for the S&P 500 the 61.8% retracement level on the recent break is between 1145 - 1150 depending on how you measure it. This is an important level as the Bears will begin initiating shorts around this level, which may limit the upside potential of the market.
Bonds- Bonds are stuck in no-man's land right now. The bearish head and shoulders pattern that I have had on the radar for the last week still has not been initiated despite a macro market rally that "should" have set it off under the previous relationship scenario. However, the Bond market has remained very strong under the current market conditions and now has the possibility of setting off a bullish pattern instead. The bearish head and shoulders neckline from the low May 13th to the low June 3rd has a breakout level today of 122.22 that will likely not come into play today. However, the bullish cup and handle pattern for the market has a breakout level of 125.00 and a projection to 127.17. Although I know a number of fundamental fixed income traders that are skeptical of a move higher in Bonds, my weekly chart now has a confirmed breakout on RSI into a bullish mode and some patterns are now in play that project a rally to the 133 price level. With the recent strength I am more focused on the upside for right now as I believe it is a more likely move, but there should be a trade in the market in the near future.
Crude Oil- The Crude Oil market looked like a strength for the early part of the week, but after the poor CPI number yesterday the market reversed hard (although I'm not sure this is the reason). The upsloping recent daily chart trendline for the market at $76.75 was violated yesterday indicating further weakness. However, there is a final low volume zone from $75.30 - $75.52 with higher volume support at 75.15 for a last ditch effort on a purchase. This zone was nearly entered this morning and has supported the market thus far. If Crude is able to find further strength today then I would continue to look at the market as a buy for the time being despite it's poor action yesterday. Below $75.15 I would definitely give up on being a Crude Bull as the daily RSI is still in a bearish mode and Stochastics is a few ticks away from producing a sell signal near it's overbought territory.
Notes:
Gold- I have repeatedly ranted about my dislike for the purchase of outright Gold, but this morning the market has finally rallied above the $1250 level with some conviction. If the market is able to rally and hold above $1260 then I have a projection to $1292. I still believe that it is an over-saturated market without a real fundamental story other than deflation and a gut reaction run to safety. I still have a large move in the market back to the $1000 to $1050 range on my horizon, but to $1292 first it looks like.
Foreign Currencies- The British Pound, Canadian Dollar, and Australian Dollar all have nice bullish projections and are the best buys on the Equity and macro rally if it continues. The leader/laggard continues to shift daily, so picking one is difficult. If you would like to get long the Currencies it may not be a bad idea to do a blend of these.
Thursday, June 17, 2010
Thursday 6/17/10 Commodity Ideas
Opening Note:
**I had too many comments and notes this morning and very few trade ideas so the newsletter took on a different format. Just for today and back to the norm tomorrow.
Intro
Like I expected yesterday, the Equity markets were able to recover after an early morning falter with the S&P 500 posting another close above the 1103 consolidation high confirming a bullish reversal and move higher for the market. The S&P 500 now has a projection to 1069 with the Energies, Foreign Currencies and these Equity markets now leading the way with the highest potential reward for a long position. The macro market found strength overnight on the European open with most of the supportive markets now trading higher on the day. Although I still believe that buying this rally is a good short term trade, I am acutely aware that the market is throwing up some HUGE red flags that are saying that this is a short lived rally in a large bear move.
Computer Programs and the Market
While the Equity markets have performed extremely well lately this rally has short covering and a bullish fakeout written all over it. If you have been active in the markets lately you surely have noticed that the amount of computer program activity is astounding. Many of these programs are set up to take advantage of human psychology and literally take away YOUR money by using fake size, fast moves, and illogical behavior to induce the fear mechanism within the trader. Many of these programs are also set to run the market as far as it can in the direction of least resistance. Just pull up a 15 minute chart of the S&P 500 from this current rally and throw some trendlines on the market. As long as there is not overwhelming resistance put up by the market these programs are able to defend these uptrends when they hit the designated support level and "force" the market higher through even the stronger resistance. By repeatedly protecting these levels the programs help form a chart and pattern that causes shorter term traders and the rest of the market to look at it favorably to buy the market themselves. This way the traders are "fooled" into doing most of the heavy lifting for the programs as well, making the programs positions work even better and push the market directionally.
Odd Volume Characteristics
The amount of volume larger lately in comparison to the start of they year, but the interesting thing is that on the up days and the down days the up vs. down volume has been well over 90% in the direction of the move that day in many instances. Until recently this was not a common phenomenon, which has the directional market pushing programs M.O. written all over it as they run over the individual trader. Nothing about this move says that this is fueled by the investor. I believe that the market just found support from the correction dip buyers and at some technical levels and the game has now reversed as it is easier to go higher.
Market Buying Risk and Risk Aversion
The inter-Commodity relationships right now are also saying that something is very wrong with this bullish move. While Equities and some individual Commodities have been able to rally in a convincing fashion, so have the risk aversion assets. Put up a daily chart of the S&P 500, Bonds, and Gold next to each other and notice that while the Equities have exploded that both Gold and Bonds have sat relatively sideways to only slightly down. This means that money is flowing into both risk aversion and risky assets over the last week on a contradictory move.
Metals on the Verge of Trouble
In addition, the Metal Sector has very odd action that contradicts it's own historical properties as well as the Equity market in what could be setting up a significant price break fueled by liquidation in the Metals. Pull up weekly charts for Gold, Silver, Copper, and Palladium and notice that all are at significant historical levels of open interest with most hitting new all time highs over the last few months. Now looking at a daily chart, notice the rise in open interest across these markets over the last 1 - 3 weeks without a significant move higher in prices and in Copper's case a break in prices. While Gold is the historical "safe haven" for money all of these other metals are incorrectly being bought as a store of wealth when they are in fact industrial Metals that correlate much higher to the actual economy and demand (including Silver). Add to this that the market appears headed for a potentially large deflationary move (indicated further by the CPI data this morning) and you have a disaster waiting in the wings as the World liquidates out of these Commodities once the ball gets rolling. The Metals are usually one of the first indicators of a large move for the macro market, and right now Copper is leading the way lower on what could be the beginning of a much larger bear move. If the open interest that is holding losing positions and the ones holding winning positions become losers then watch out for the liquidation dominoes because they could be bigger than we have seen.
Currencies
Finally, if you want to buy the market on a longer term move then I believe you also have to step up and say that you would also like to buy and hold the Euro as well. The flight out of the Euro and other foreign Currencies and into the Dollar has been sharp, but this is the move along with interest rates that caused the move lower in Equities since late April. Whether the fundamental stock investor or economist believes that the European debt situation, Chinese bubble situation, or U.S. debt situation is contained at a certain level it is the sharp flight from risk that also causes the Equity markets to fall. We live in a global market now, where the money is invested on a global basis and is completely intertwined. The large investment houses and Funds look at this web in the same way, which is why when we have a big story you see the Soybean and Wheat market trading off of Crude Oil, which naturally is not a normal fundamental correlation. Another leg lower in the Euro and other foreign Currencies signals at least another leg down for the macro market. Looking at the daily and weekly chart of the Euro right now I have no confidence that this is the definite bottom and it actually looks like it is just a relief rally on a bearish continuation.
Notes:
What To Do Today and For the Next Week
This morning bearish CPI and Jobless Claims numbers were released, but after only a brief break in the market buying came back in to both Equities and Commodities. Again, another very bullish signal when there is buying regardless of poor news. The Nasdaq, Foreign Currencies, and the Energy Sector have the best charts and projections so they are the best buys on this shorter term bull trade. Right now I myself am flat because I honestly do not have any good levels today to enter a position, or else I would provide them. I am spooked right now by the contradictory action across the market as well, leaving me hesitant to jump into anything at least for today.
The path of least resistance is up for right now, but I recommend reducing trading and position size for the time being. The market is saying too many things to make a real clear distinction right now and I believe that it is a chopping ground for the individual trader. I also recommend liquidating Sugar longs and not buying Copper under any circumstances for right now even if it is "cheap" or "a great way to play the emerging market trade".
**I had too many comments and notes this morning and very few trade ideas so the newsletter took on a different format. Just for today and back to the norm tomorrow.
Intro
Like I expected yesterday, the Equity markets were able to recover after an early morning falter with the S&P 500 posting another close above the 1103 consolidation high confirming a bullish reversal and move higher for the market. The S&P 500 now has a projection to 1069 with the Energies, Foreign Currencies and these Equity markets now leading the way with the highest potential reward for a long position. The macro market found strength overnight on the European open with most of the supportive markets now trading higher on the day. Although I still believe that buying this rally is a good short term trade, I am acutely aware that the market is throwing up some HUGE red flags that are saying that this is a short lived rally in a large bear move.
Computer Programs and the Market
While the Equity markets have performed extremely well lately this rally has short covering and a bullish fakeout written all over it. If you have been active in the markets lately you surely have noticed that the amount of computer program activity is astounding. Many of these programs are set up to take advantage of human psychology and literally take away YOUR money by using fake size, fast moves, and illogical behavior to induce the fear mechanism within the trader. Many of these programs are also set to run the market as far as it can in the direction of least resistance. Just pull up a 15 minute chart of the S&P 500 from this current rally and throw some trendlines on the market. As long as there is not overwhelming resistance put up by the market these programs are able to defend these uptrends when they hit the designated support level and "force" the market higher through even the stronger resistance. By repeatedly protecting these levels the programs help form a chart and pattern that causes shorter term traders and the rest of the market to look at it favorably to buy the market themselves. This way the traders are "fooled" into doing most of the heavy lifting for the programs as well, making the programs positions work even better and push the market directionally.
Odd Volume Characteristics
The amount of volume larger lately in comparison to the start of they year, but the interesting thing is that on the up days and the down days the up vs. down volume has been well over 90% in the direction of the move that day in many instances. Until recently this was not a common phenomenon, which has the directional market pushing programs M.O. written all over it as they run over the individual trader. Nothing about this move says that this is fueled by the investor. I believe that the market just found support from the correction dip buyers and at some technical levels and the game has now reversed as it is easier to go higher.
Market Buying Risk and Risk Aversion
The inter-Commodity relationships right now are also saying that something is very wrong with this bullish move. While Equities and some individual Commodities have been able to rally in a convincing fashion, so have the risk aversion assets. Put up a daily chart of the S&P 500, Bonds, and Gold next to each other and notice that while the Equities have exploded that both Gold and Bonds have sat relatively sideways to only slightly down. This means that money is flowing into both risk aversion and risky assets over the last week on a contradictory move.
Metals on the Verge of Trouble
In addition, the Metal Sector has very odd action that contradicts it's own historical properties as well as the Equity market in what could be setting up a significant price break fueled by liquidation in the Metals. Pull up weekly charts for Gold, Silver, Copper, and Palladium and notice that all are at significant historical levels of open interest with most hitting new all time highs over the last few months. Now looking at a daily chart, notice the rise in open interest across these markets over the last 1 - 3 weeks without a significant move higher in prices and in Copper's case a break in prices. While Gold is the historical "safe haven" for money all of these other metals are incorrectly being bought as a store of wealth when they are in fact industrial Metals that correlate much higher to the actual economy and demand (including Silver). Add to this that the market appears headed for a potentially large deflationary move (indicated further by the CPI data this morning) and you have a disaster waiting in the wings as the World liquidates out of these Commodities once the ball gets rolling. The Metals are usually one of the first indicators of a large move for the macro market, and right now Copper is leading the way lower on what could be the beginning of a much larger bear move. If the open interest that is holding losing positions and the ones holding winning positions become losers then watch out for the liquidation dominoes because they could be bigger than we have seen.
Currencies
Finally, if you want to buy the market on a longer term move then I believe you also have to step up and say that you would also like to buy and hold the Euro as well. The flight out of the Euro and other foreign Currencies and into the Dollar has been sharp, but this is the move along with interest rates that caused the move lower in Equities since late April. Whether the fundamental stock investor or economist believes that the European debt situation, Chinese bubble situation, or U.S. debt situation is contained at a certain level it is the sharp flight from risk that also causes the Equity markets to fall. We live in a global market now, where the money is invested on a global basis and is completely intertwined. The large investment houses and Funds look at this web in the same way, which is why when we have a big story you see the Soybean and Wheat market trading off of Crude Oil, which naturally is not a normal fundamental correlation. Another leg lower in the Euro and other foreign Currencies signals at least another leg down for the macro market. Looking at the daily and weekly chart of the Euro right now I have no confidence that this is the definite bottom and it actually looks like it is just a relief rally on a bearish continuation.
Notes:
What To Do Today and For the Next Week
This morning bearish CPI and Jobless Claims numbers were released, but after only a brief break in the market buying came back in to both Equities and Commodities. Again, another very bullish signal when there is buying regardless of poor news. The Nasdaq, Foreign Currencies, and the Energy Sector have the best charts and projections so they are the best buys on this shorter term bull trade. Right now I myself am flat because I honestly do not have any good levels today to enter a position, or else I would provide them. I am spooked right now by the contradictory action across the market as well, leaving me hesitant to jump into anything at least for today.
The path of least resistance is up for right now, but I recommend reducing trading and position size for the time being. The market is saying too many things to make a real clear distinction right now and I believe that it is a chopping ground for the individual trader. I also recommend liquidating Sugar longs and not buying Copper under any circumstances for right now even if it is "cheap" or "a great way to play the emerging market trade".
Wednesday, June 16, 2010
Wednesday 6/16/10 Commodity Ideas
Opening Note:
Yesterday afternoon the S&P 500 was able to post a close above it's consolidation range of the last 3 1/2 weeks marking the initial breakout on a bullish reversal. The market was able to set up the all too familiar 15 minute chart uptrend that held throughout the day as it slowly dismantled any resistance levels on it's climb higher. With another close today above this 1103 level the S&P 500 will have an objective of 1169 leading the way on a correlated macro market rally. Even more impressive is that the Equity market has fought off or ignored a number of bearish news headlines and reports that have fallen short of expectations on it's recent climb. This is a temporary bullish signal as well, but also something to keep in the back of your head down the road after the rally subsides.
Although the market action was very impressive yesterday I would like to also note that many of the inter-commodity relationships moved in an odd way compared to recent action. While Treasuries and Gold have been the run to safety havens against the risk trade, there were a number of hours from the early morning to mid-day yesterday where these "safety" markets were trading higher despite the sizable move higher in the riskier assets. This says to me that the Bulls may not be yet in the clear as there was obviously still some money flow away from risk yesterday despite Commodity and Equity strength.
For today I am now focused on playing the bullish side of the macro market with the expectation that the Equity markets will continue higher and post a confirmation close on their bullish reversal. However, I will avoid buying the Equity Indices for today and instead play my initial positions in the already confirmed bullish breakout in the Australian Dollar and the Commodity market strength of Crude Oil. I recommend exiting short positions on the macro market for the time being and beginning to initiate a long macro position after confirmation in the S&P 500 on the potential rally is made.
**Post Housing and PPI Note: The Housing number was completely awful and the PPI was not great, but again the market has shrugged off any poor news lately. This is a bullish signal on what is beginning to feel like a destiny trade with investors craving more risk. I have confidence much more confidence now that the S&P 500 will recover today and post a close above 1103 confirming the macro market rally now.
Buys to Watch:
Sugar- Sugar is still broken out on it's bullish cup and handle pattern that had a breakout value of 15.75 and has a projection of 17.68. Yesterday my higher volume support level of 15.88 to 15.90 provided the lows of the day for the market and also a good long entry zone. This morning there was a large stop run on long positions with a move below 16.00, but again this 15.90 level has held and is a good area for stop placement and entry against on another pullback. This rally in Sugar appears to be fueled by allocation by Commodity Funds, with some weakness usually coming early near the open of the market, but strength as the buying enters near the close. For new long entry I recommend looking for entry prior to the market close at 12:30 CT.
Crude Oil- Crude Oil closed above it's $75.72 breakout level yesterday on the bullish cup and handle reversal pattern. The market now has an objective of $81.93. For entry today there is a small low volume zone from $76.21 to $76.25 with some higher volume support below to $75.75 for stop placement. This level has held thus far after a test this morning and would be a good opportunity for long entry on another pullback today. Crude Oil is trading very correlated to the S&P 500 right now, but is one of the stronger Commodity markets right now and probably the best buy for the time being. Keep an eye on the S&P 500 levels listed below as well as an indicator for Crude market action. Be cautious because the Crude Oil stocks number is released today around 9:30 CT so I suggest waiting until after this report for entry if you do not already have a profit in your position. The Stocks number has had very little impact on the Crude market lately, but it still can have some volatility around it.
Australian Dollar- The Australian Dollar is the weakness among the Currency markets this morning, but it is the primary Currency right now for the risk on/off trade. The market also has a confirmed bullish cup and handle reversal pattern above the breakout value of .8448 with an objective now of .8896. There is not an absolute zone for entry this morning, but there is low volume trade down to the .8508 level with higher volume support below this level to .8470 with the strongest volume near the .8490 level. The Aussie has the most risk among the Currencies right now, but also the most potential reward. Personally I am trying to enter with a picky entry point and a fairly tight stop on an initial position with the hope that I can get a leg in on the reward with a limited risk. The Canadian Dollar is another market option for a similar trade with less risk as well if you are averse to the Aussie for the time being.
Sells to Watch:
Put on the Radar:
Bonds- The Bonds still have the bearish head and shoulders pattern on the radar with a breakout value today of 122.135 and a projection on the move of 116.165. This bearish move in the Bonds is dependent on the S&P 500 direction with the move in Bonds likely to happen if the S&P 500 holds a confirmation close above the 1103 level.
S&P 500 and Nasdaq- Like I stated in the Opening Note, I am holding off on entry in the Equity Indices for today awaiting a confirmation close on the move higher. However, for the S&P 500 there is a low volume zone from 1101.50 to 1103.25 with higher volume support to the 1094.50 level. The market found support at this level this morning on a test after the Housing Starts and PPI number, so I do have more confidence in the market this morning, but still prefer to watch for today and look for entry tomorrow.
Although the Nasdaq has been the strength over the last week among the Equity Indices, it surprisingly to some is still below it's bullish breakout level. Like the 1103 level for the S&P 500 the Nasdaq has a bullish cup and handle pattern with two closes above 1902.25 that projects a move to 2036. I believe that the tech stocks in the Nasdaq will likely be the best performers on the ensuing rally, so I am more interested in owning the Nasdaq with a confirmation indicated in the S&P 500. Again though, I am waiting until tomorrow for entry.
Notes:
Yesterday afternoon the S&P 500 was able to post a close above it's consolidation range of the last 3 1/2 weeks marking the initial breakout on a bullish reversal. The market was able to set up the all too familiar 15 minute chart uptrend that held throughout the day as it slowly dismantled any resistance levels on it's climb higher. With another close today above this 1103 level the S&P 500 will have an objective of 1169 leading the way on a correlated macro market rally. Even more impressive is that the Equity market has fought off or ignored a number of bearish news headlines and reports that have fallen short of expectations on it's recent climb. This is a temporary bullish signal as well, but also something to keep in the back of your head down the road after the rally subsides.
Although the market action was very impressive yesterday I would like to also note that many of the inter-commodity relationships moved in an odd way compared to recent action. While Treasuries and Gold have been the run to safety havens against the risk trade, there were a number of hours from the early morning to mid-day yesterday where these "safety" markets were trading higher despite the sizable move higher in the riskier assets. This says to me that the Bulls may not be yet in the clear as there was obviously still some money flow away from risk yesterday despite Commodity and Equity strength.
For today I am now focused on playing the bullish side of the macro market with the expectation that the Equity markets will continue higher and post a confirmation close on their bullish reversal. However, I will avoid buying the Equity Indices for today and instead play my initial positions in the already confirmed bullish breakout in the Australian Dollar and the Commodity market strength of Crude Oil. I recommend exiting short positions on the macro market for the time being and beginning to initiate a long macro position after confirmation in the S&P 500 on the potential rally is made.
**Post Housing and PPI Note: The Housing number was completely awful and the PPI was not great, but again the market has shrugged off any poor news lately. This is a bullish signal on what is beginning to feel like a destiny trade with investors craving more risk. I have confidence much more confidence now that the S&P 500 will recover today and post a close above 1103 confirming the macro market rally now.
Buys to Watch:
Sugar- Sugar is still broken out on it's bullish cup and handle pattern that had a breakout value of 15.75 and has a projection of 17.68. Yesterday my higher volume support level of 15.88 to 15.90 provided the lows of the day for the market and also a good long entry zone. This morning there was a large stop run on long positions with a move below 16.00, but again this 15.90 level has held and is a good area for stop placement and entry against on another pullback. This rally in Sugar appears to be fueled by allocation by Commodity Funds, with some weakness usually coming early near the open of the market, but strength as the buying enters near the close. For new long entry I recommend looking for entry prior to the market close at 12:30 CT.
Crude Oil- Crude Oil closed above it's $75.72 breakout level yesterday on the bullish cup and handle reversal pattern. The market now has an objective of $81.93. For entry today there is a small low volume zone from $76.21 to $76.25 with some higher volume support below to $75.75 for stop placement. This level has held thus far after a test this morning and would be a good opportunity for long entry on another pullback today. Crude Oil is trading very correlated to the S&P 500 right now, but is one of the stronger Commodity markets right now and probably the best buy for the time being. Keep an eye on the S&P 500 levels listed below as well as an indicator for Crude market action. Be cautious because the Crude Oil stocks number is released today around 9:30 CT so I suggest waiting until after this report for entry if you do not already have a profit in your position. The Stocks number has had very little impact on the Crude market lately, but it still can have some volatility around it.
Australian Dollar- The Australian Dollar is the weakness among the Currency markets this morning, but it is the primary Currency right now for the risk on/off trade. The market also has a confirmed bullish cup and handle reversal pattern above the breakout value of .8448 with an objective now of .8896. There is not an absolute zone for entry this morning, but there is low volume trade down to the .8508 level with higher volume support below this level to .8470 with the strongest volume near the .8490 level. The Aussie has the most risk among the Currencies right now, but also the most potential reward. Personally I am trying to enter with a picky entry point and a fairly tight stop on an initial position with the hope that I can get a leg in on the reward with a limited risk. The Canadian Dollar is another market option for a similar trade with less risk as well if you are averse to the Aussie for the time being.
Sells to Watch:
Put on the Radar:
Bonds- The Bonds still have the bearish head and shoulders pattern on the radar with a breakout value today of 122.135 and a projection on the move of 116.165. This bearish move in the Bonds is dependent on the S&P 500 direction with the move in Bonds likely to happen if the S&P 500 holds a confirmation close above the 1103 level.
S&P 500 and Nasdaq- Like I stated in the Opening Note, I am holding off on entry in the Equity Indices for today awaiting a confirmation close on the move higher. However, for the S&P 500 there is a low volume zone from 1101.50 to 1103.25 with higher volume support to the 1094.50 level. The market found support at this level this morning on a test after the Housing Starts and PPI number, so I do have more confidence in the market this morning, but still prefer to watch for today and look for entry tomorrow.
Although the Nasdaq has been the strength over the last week among the Equity Indices, it surprisingly to some is still below it's bullish breakout level. Like the 1103 level for the S&P 500 the Nasdaq has a bullish cup and handle pattern with two closes above 1902.25 that projects a move to 2036. I believe that the tech stocks in the Nasdaq will likely be the best performers on the ensuing rally, so I am more interested in owning the Nasdaq with a confirmation indicated in the S&P 500. Again though, I am waiting until tomorrow for entry.
Notes:
Tuesday, June 15, 2010
Tuesday 6/15/10 Commodity Ideas
Opening Note:
With strong gains by mid-morning the S&P 500 put up a respectable test of the 1103 breakout level yesterday, but collapsed by the early afternoon amid another downgrade of Greece debt in an overbought market. Although the S&P 500 fell back to close on the lows of the session it is again higher this morning with a slightly firmer macro picture. The two other best risk trade barometer markets right now of Crude Oil and the Australian Dollar are also testing their consolidation range breakout levels for the fourth straight day, but the push higher is beginning to feel like it is losing steam.
While the macro market has made a valiant effort and taken the poor headlines of Europe, BP, poor retail sales, and disappointing jobless claims in stride, the number of failed attempts at a larger rally looks like it may finally be wearing on the Bulls. There now has to be new strong entry into the market to really push it higher on what has mostly looked like a short covering rally led by high frequency trading. I am not saying that this is not possible still, but the likelihood of a new rally leg succeeding definitely has to be downgraded like the bad debt for the time being.
I still recommend sitting on the sidelines for the most part as the marketplace is very correlated and volatile. However, making some lower risk short position trades in some of these supportive markets against the highs of their consolidation ranges now looks like it is worthwhile. The Commodity market resistance and support levels have only intermittently held the market for the last three weeks, but the S&P 500 has consistently acted as the more reliable market to trade. I suggest using a smaller sized strategy at entering short positions in the market with a now nearby stop loss. If the S&P 500 is able to close above the 1103 level for two consecutive days then we know it is time to hop on the long side of the market, but until this happens the market is likely to retrace back to the 1040 level on a test of the much larger head and shoulders topping pattern.
Buys to Watch:
Sugar- With two consecutive closes above the 15.75 breakout level the Sugar market now has a confirmed bullish cup and handle pattern with an objective of 17.68 cents. The RSI for the daily chart now clearly confirms that the market has advanced out of the bear trend range and into a bull market, although the faster daily Stochastics line is now in overbought territory. Still, the Sugar market should have a continued advance as new index and investment money enters the market after the mass exodus from the bear market in the beginning of the year. The market has had a strong uptrend over the last week with very little pullback so further entry in the market is difficult for the time being. There is a good low volume area from 15.68 to 15.72 on a larger pullback, but this seems less likely now with the strong uptrend so entering near the higher volume support near 15.90 is another idea. The market will likely be most active around the open and close as well with investment money leading it higher, so focusing around these time frames should also be beneficial.
Sells to Watch:
Put on the Radar:
S&P 500- Above 1103 the S&P 500 has a projection to 1169. However, like I stated in the Opening Note, I believe that the market has lost momentum and is now the best venue to begin entering a smaller short position in the market. It now seems unlikely that the market will be able to trade above it's consolidation range with the high volume resistance from 1095 to 1097.50 now acting as stronger resistance despite the brief violation yesterday. I recommend at least watching the open today prior to any entry, but feel fairly confident that we have likely put in a range top with a retracement back to the 1040 lows on the precipice. Below 1040 a large head and shoulders pattern sets off that has a projection range from 865 - 900, so risking 10 points or so for 50 and early entry on a possible larger top provides good risk/reward.
Risk Barometer Markets (Crude and Aussie)- The Crude Oil is now working on it's fourth straight failure day at an attempted breakout above the $75.72 level that would provide an objective of $81.93 for the market. I can not believe that there is much bullish momentum left in the market now as the Bulls have become more cautious and Long positions will likely begin to take profits. Meanwhile, the Australian Dollar is still hanging above it's breakout level of .8448 this morning with an objective of .8896. The market has remained on a bullish breakout of this double bottom pattern, but it is lower on the day and also traded back into the consolidation range below .8448 overnight. The lack of momentum in these risk trade indicators leaves me concerned that they themselves will not continue higher along with the macro market. The support and resistance levels for these markets have acted awful lately, so I suggest staying out of these markets for the time being, but keeping them on your screen as confirmation on macro risk for entry in other markets.
Bonds Head and Shoulders- The Bond market has a bearish head and shoulders pattern with a neckline from the low May 13th to the low June 3rd. The breakout value today is 122.09 with an objective of 116.12 if the pattern is initiated. This bearish Bond move will likely be dependent upon the S&P 500 market, with a move above 1103 likely setting off this bear move in the interest rate market. However, I am less convinced now that this move in Bonds will occur. RSI for the Bonds daily chart is still within a bull market trend range, but Stochastics is on the verge of producing a sell signal in the market on this same daily chart today. This is a trade to keep on your radar and execute if the risk trade is able to run above it's consolidation range
Notes:
Coffee- Over the last two days Coffee has made an astounding Bull move that has now met my larger objective for the market. The large bullish consolidation breakout had a projection to 152.65 on a test of the medium term highs on the market range, which was nearly met yesterday with a high trade of 152.45. What I could gather of the fundamental story was that some previously unexpected delivery rumors for the July contract started a large short covering rally in the tightly range bound market that set off a domino pattern. If you were able to obtain a long position in the fast market then I now recommend taking profits and exiting the market.
Natural Gas- The consolidation range breakout for Natural Gas had an objective of $5.138, that has now been met this morning. If you are still holding a long position then I suggest taking profits and reducing positions.
With strong gains by mid-morning the S&P 500 put up a respectable test of the 1103 breakout level yesterday, but collapsed by the early afternoon amid another downgrade of Greece debt in an overbought market. Although the S&P 500 fell back to close on the lows of the session it is again higher this morning with a slightly firmer macro picture. The two other best risk trade barometer markets right now of Crude Oil and the Australian Dollar are also testing their consolidation range breakout levels for the fourth straight day, but the push higher is beginning to feel like it is losing steam.
While the macro market has made a valiant effort and taken the poor headlines of Europe, BP, poor retail sales, and disappointing jobless claims in stride, the number of failed attempts at a larger rally looks like it may finally be wearing on the Bulls. There now has to be new strong entry into the market to really push it higher on what has mostly looked like a short covering rally led by high frequency trading. I am not saying that this is not possible still, but the likelihood of a new rally leg succeeding definitely has to be downgraded like the bad debt for the time being.
I still recommend sitting on the sidelines for the most part as the marketplace is very correlated and volatile. However, making some lower risk short position trades in some of these supportive markets against the highs of their consolidation ranges now looks like it is worthwhile. The Commodity market resistance and support levels have only intermittently held the market for the last three weeks, but the S&P 500 has consistently acted as the more reliable market to trade. I suggest using a smaller sized strategy at entering short positions in the market with a now nearby stop loss. If the S&P 500 is able to close above the 1103 level for two consecutive days then we know it is time to hop on the long side of the market, but until this happens the market is likely to retrace back to the 1040 level on a test of the much larger head and shoulders topping pattern.
Buys to Watch:
Sugar- With two consecutive closes above the 15.75 breakout level the Sugar market now has a confirmed bullish cup and handle pattern with an objective of 17.68 cents. The RSI for the daily chart now clearly confirms that the market has advanced out of the bear trend range and into a bull market, although the faster daily Stochastics line is now in overbought territory. Still, the Sugar market should have a continued advance as new index and investment money enters the market after the mass exodus from the bear market in the beginning of the year. The market has had a strong uptrend over the last week with very little pullback so further entry in the market is difficult for the time being. There is a good low volume area from 15.68 to 15.72 on a larger pullback, but this seems less likely now with the strong uptrend so entering near the higher volume support near 15.90 is another idea. The market will likely be most active around the open and close as well with investment money leading it higher, so focusing around these time frames should also be beneficial.
Sells to Watch:
Put on the Radar:
S&P 500- Above 1103 the S&P 500 has a projection to 1169. However, like I stated in the Opening Note, I believe that the market has lost momentum and is now the best venue to begin entering a smaller short position in the market. It now seems unlikely that the market will be able to trade above it's consolidation range with the high volume resistance from 1095 to 1097.50 now acting as stronger resistance despite the brief violation yesterday. I recommend at least watching the open today prior to any entry, but feel fairly confident that we have likely put in a range top with a retracement back to the 1040 lows on the precipice. Below 1040 a large head and shoulders pattern sets off that has a projection range from 865 - 900, so risking 10 points or so for 50 and early entry on a possible larger top provides good risk/reward.
Risk Barometer Markets (Crude and Aussie)- The Crude Oil is now working on it's fourth straight failure day at an attempted breakout above the $75.72 level that would provide an objective of $81.93 for the market. I can not believe that there is much bullish momentum left in the market now as the Bulls have become more cautious and Long positions will likely begin to take profits. Meanwhile, the Australian Dollar is still hanging above it's breakout level of .8448 this morning with an objective of .8896. The market has remained on a bullish breakout of this double bottom pattern, but it is lower on the day and also traded back into the consolidation range below .8448 overnight. The lack of momentum in these risk trade indicators leaves me concerned that they themselves will not continue higher along with the macro market. The support and resistance levels for these markets have acted awful lately, so I suggest staying out of these markets for the time being, but keeping them on your screen as confirmation on macro risk for entry in other markets.
Bonds Head and Shoulders- The Bond market has a bearish head and shoulders pattern with a neckline from the low May 13th to the low June 3rd. The breakout value today is 122.09 with an objective of 116.12 if the pattern is initiated. This bearish Bond move will likely be dependent upon the S&P 500 market, with a move above 1103 likely setting off this bear move in the interest rate market. However, I am less convinced now that this move in Bonds will occur. RSI for the Bonds daily chart is still within a bull market trend range, but Stochastics is on the verge of producing a sell signal in the market on this same daily chart today. This is a trade to keep on your radar and execute if the risk trade is able to run above it's consolidation range
Notes:
Coffee- Over the last two days Coffee has made an astounding Bull move that has now met my larger objective for the market. The large bullish consolidation breakout had a projection to 152.65 on a test of the medium term highs on the market range, which was nearly met yesterday with a high trade of 152.45. What I could gather of the fundamental story was that some previously unexpected delivery rumors for the July contract started a large short covering rally in the tightly range bound market that set off a domino pattern. If you were able to obtain a long position in the fast market then I now recommend taking profits and exiting the market.
Natural Gas- The consolidation range breakout for Natural Gas had an objective of $5.138, that has now been met this morning. If you are still holding a long position then I suggest taking profits and reducing positions.
Monday, June 14, 2010
Monday 6/14/10 Commodity Ideas
Opening Note:
This morning the risk trade is again stronger after a higher weekly close last week and a good performance for the stock market on Friday. In Friday's newsletter I warned that the market climate, with sideways volatility that is nearly unpredictable on a daily basis, is a dangerous place for the time being and to move to the sidelines. I still stick by this statement as long as the S&P 500 remains range bound by the 1040 and 1103 levels. However, some of the risk barometer markets like the Australian Dollar and Crude Oil are now testing or have rallied above their own breakout levels. With the S&P 500 also nearing it's own range top it is possible that the short term moratorium on trading the correlated markets may be lifted by tomorrow. Until this time though I still recommend holding off on entry into the market even if there is a pattern breakout like the Australian Dollar. Above 1103 I have a projection for the S&P 500 to 1169, which will provide ample time for later entry on the move even if you have to wait an extra day. The S&P is the overall market indicator for the time being, so I need a confirmation in this market before I am willing to buy.
While I have been bearish to very bearish lately on a fundamental basis I have no problem jumping on the long side of a market rally if that is the direction the technicals say we are going. As the S&P nears the top of it's range I suggest looking for buy side trades on the correlated market for execution on a confirmed macro breakout.
Buys to Watch:
Sugar- The Sugar market remains relatively uncorrelated to the macro market so I have more confidence in entering a position in the market for the time being. On Friday Sugar closed above it's month long consolidation range setting off a bullish cup and handle pattern. The close Friday of 15.83 was just above the breakout level of 15.75 cents providing a projection to 17.68 cents. Right now Sugar does not appear to have an overwhelming amount of bullish momentum (dare I say moving like molasses) as it is only slightly up on the day thus far, but daily Stochastics for the market maintains a positive mode and the daily RSI also appears to now be broken out above the bearish trend range and on the brink of confirming a bullish reversal. Because the market does not have as much bullish momentum as I normally like to see I personally only have 1/4 of my regular position on for the time being and recommend starting off with a reduced entry size and scaling in. Thus far this morning the higher volume support level from 15.82 to 15.85 has provided the lows for the day, but below this level there is a low volume zone from 15.68 to 15.72, which would be a better level for entry on a pullback. Stop placement for the trade should probably be centered around the 15.45 level on the low end of the range of higher volume support below the consolidation breakout.
Sells to Watch:
Put on the Radar:
S&P 500- As I stated in the Opening Note, the S&P 500 has a bullish cup and handle pattern breakout above 1103 that projects a move to 1169. Today there is a high volume resistance zone from 1095 to 1097.50 that has provided the high of the range so far. With some of these risk barometer markets like the Aussie Dollar and Crude Oil already likely holding a move above their consolidation ranges it seems more likely that the S&P will trade above it's own range now. But, I still recommend waiting at least one day for confirmed close above it's own range prior to entry. I do not recommend holding a short position for the time being or trying to fade the market either.
Crude Oil- With a close above $75.72 the Crude Oil market has a projection to $81.93. The market already tested this level two days ago on a failed breakout, but has recovered for another test this morning. Although RSI for the daily chart does maintain a bearish trend range it is now nearing a test of this upper boundary and does have a postivie mode for Stochastics on the same chart. I suggest waiting until a confirmed close higher in the S&P 500 as well as in the Crude market before looking for long entry.
Australian Dollar and Canadian Dollar- Both of these Currency markets tend to move in a correlated manner recently, so I am grouping them together for the time being. The Australian Dollar is a good barometer for the risk trade along with Crude Oil, but the Canadian Dollar may be the better buy of the two with a less volatility. The Australian Dollar is now broken out of it's consolidation range on a bullish cup and handle pattern with a projection to .8896 above the .8448 breakout level. However, although it is much higher today the Canadian actually has a stronger rally pattern chart that already has a confirmed breakout. Above .9669 the Canadian has a projection to .9981 on it's own cup and handle pattern. Like Crude Oil I will be waiting for the Equity markets to show this macro move higher, but these two Currency markets should have the strongest upside, with the Aussie having more potential, but the Canadian being a less risky trade.
Bonds- By connecting the low from May 14th to the low from June 3rd on the daily chart you can see the bearish head and shoulders neckline breakout for the market. Below a value of 122.04 today the market has a projection to 116.07. The market is already substantially lower this morning, but if the Equity Indices do break out of their consolidation range with a rally the Bond market will likely set off this topping pattern.
Notes:
Coffee- I still do not have confirmation on what exactly caused the nearly 10% move in Coffee on Friday, so it will just sit in the notes section today. However, with a close above 141.45 last week the market now has a projection to 152.65, which would test the highs from December. The market did not pullback into the range yet today, but between 142.50 to 144.10 there is a large low volume zone that provides a good opportunity for long entry with some higher volume support below to the breakout close level. I will still do research to find out more about the fundamental story today.
This morning the risk trade is again stronger after a higher weekly close last week and a good performance for the stock market on Friday. In Friday's newsletter I warned that the market climate, with sideways volatility that is nearly unpredictable on a daily basis, is a dangerous place for the time being and to move to the sidelines. I still stick by this statement as long as the S&P 500 remains range bound by the 1040 and 1103 levels. However, some of the risk barometer markets like the Australian Dollar and Crude Oil are now testing or have rallied above their own breakout levels. With the S&P 500 also nearing it's own range top it is possible that the short term moratorium on trading the correlated markets may be lifted by tomorrow. Until this time though I still recommend holding off on entry into the market even if there is a pattern breakout like the Australian Dollar. Above 1103 I have a projection for the S&P 500 to 1169, which will provide ample time for later entry on the move even if you have to wait an extra day. The S&P is the overall market indicator for the time being, so I need a confirmation in this market before I am willing to buy.
While I have been bearish to very bearish lately on a fundamental basis I have no problem jumping on the long side of a market rally if that is the direction the technicals say we are going. As the S&P nears the top of it's range I suggest looking for buy side trades on the correlated market for execution on a confirmed macro breakout.
Buys to Watch:
Sugar- The Sugar market remains relatively uncorrelated to the macro market so I have more confidence in entering a position in the market for the time being. On Friday Sugar closed above it's month long consolidation range setting off a bullish cup and handle pattern. The close Friday of 15.83 was just above the breakout level of 15.75 cents providing a projection to 17.68 cents. Right now Sugar does not appear to have an overwhelming amount of bullish momentum (dare I say moving like molasses) as it is only slightly up on the day thus far, but daily Stochastics for the market maintains a positive mode and the daily RSI also appears to now be broken out above the bearish trend range and on the brink of confirming a bullish reversal. Because the market does not have as much bullish momentum as I normally like to see I personally only have 1/4 of my regular position on for the time being and recommend starting off with a reduced entry size and scaling in. Thus far this morning the higher volume support level from 15.82 to 15.85 has provided the lows for the day, but below this level there is a low volume zone from 15.68 to 15.72, which would be a better level for entry on a pullback. Stop placement for the trade should probably be centered around the 15.45 level on the low end of the range of higher volume support below the consolidation breakout.
Sells to Watch:
Put on the Radar:
S&P 500- As I stated in the Opening Note, the S&P 500 has a bullish cup and handle pattern breakout above 1103 that projects a move to 1169. Today there is a high volume resistance zone from 1095 to 1097.50 that has provided the high of the range so far. With some of these risk barometer markets like the Aussie Dollar and Crude Oil already likely holding a move above their consolidation ranges it seems more likely that the S&P will trade above it's own range now. But, I still recommend waiting at least one day for confirmed close above it's own range prior to entry. I do not recommend holding a short position for the time being or trying to fade the market either.
Crude Oil- With a close above $75.72 the Crude Oil market has a projection to $81.93. The market already tested this level two days ago on a failed breakout, but has recovered for another test this morning. Although RSI for the daily chart does maintain a bearish trend range it is now nearing a test of this upper boundary and does have a postivie mode for Stochastics on the same chart. I suggest waiting until a confirmed close higher in the S&P 500 as well as in the Crude market before looking for long entry.
Australian Dollar and Canadian Dollar- Both of these Currency markets tend to move in a correlated manner recently, so I am grouping them together for the time being. The Australian Dollar is a good barometer for the risk trade along with Crude Oil, but the Canadian Dollar may be the better buy of the two with a less volatility. The Australian Dollar is now broken out of it's consolidation range on a bullish cup and handle pattern with a projection to .8896 above the .8448 breakout level. However, although it is much higher today the Canadian actually has a stronger rally pattern chart that already has a confirmed breakout. Above .9669 the Canadian has a projection to .9981 on it's own cup and handle pattern. Like Crude Oil I will be waiting for the Equity markets to show this macro move higher, but these two Currency markets should have the strongest upside, with the Aussie having more potential, but the Canadian being a less risky trade.
Bonds- By connecting the low from May 14th to the low from June 3rd on the daily chart you can see the bearish head and shoulders neckline breakout for the market. Below a value of 122.04 today the market has a projection to 116.07. The market is already substantially lower this morning, but if the Equity Indices do break out of their consolidation range with a rally the Bond market will likely set off this topping pattern.
Notes:
Coffee- I still do not have confirmation on what exactly caused the nearly 10% move in Coffee on Friday, so it will just sit in the notes section today. However, with a close above 141.45 last week the market now has a projection to 152.65, which would test the highs from December. The market did not pullback into the range yet today, but between 142.50 to 144.10 there is a large low volume zone that provides a good opportunity for long entry with some higher volume support below to the breakout close level. I will still do research to find out more about the fundamental story today.
Friday, June 11, 2010
Friday 6/11/10 Commodity Ideas
Opening Note:
It took me a little while to really embrace the idea, but after yesterday's action it is clear to me now that this is not a market that is suitable to trade for the time being. You may have noticed the paring back of trade ideas, which should be a sign to pull back one's participation in the market, but the trade seems to find a way to trick you into "understanding" the move. While support and resistance held up relatively well across the correlated market for the last few weeks, this was not the case yesterday as the S&P 500 decided to repeatedly trade over and under what I believed was an important intermediate level around 1072. Meanwhile, an early morning rally breakout from the recent strength of Crude Oil slowly squandered as it ticked back into it's sideways range despite the strengthening of the rest of the macro market throughout the day.
With the marketplace very correlated at the time being and the leader and laggard of a sector seemingly shifting day to day (Copper was the laggard yesterday, yet the strength this morning) I have decided that I do not want to participate until there is a clear and confirmed move from this sideways action. This basically means until the S&P 500 finds a move below 1040 or above 1103 my participation will be limited to less correlated markets like the Softs and Grains and to confirmed moves on patterns. Right now the best moves are coming on Fear rather than anything else and in my experience I find myself on the wrong end of fear moves too often with my limited risk and size. I have no desire to begin selling rally breakouts and buying market breaks out of consolidation, as experience has taught me that this is an even better way to reduce your trading account. So, I will be sitting on my hands for the time being and recommend the idea to others, especially if you have found yourself getting chopped over the last week. Let the Bulls and the Bears battle it out on this volatile, yet tight range and save your ammo so you are ready to jump back in when a clear winner emerges from the rubble.
Buys to Watch:
Sugar- The Sugar market has basically no correlation to the macro market for the time being, so I am less concerned about entry into the market right now. Sugar continues to be on the verge of a bullish breakout above it's month long consolidation range. A move above 15.75 cents projects to 17.68 with the possibility of a larger continuation on a correction in the oversold market. The daily chart RSI has now rallied above the recent bear market trend range and Stochastics for the weekly chart is now moving out of oversold territory with a positive mode after producing a buy signal 3 weeks ago. However, the weekly chart still remains in a bearish mode overall and the amount of time it is taking for the market to breakout is becoming concerning. Sugar has had ample opportunity over the last three days to rally above it's consolidation range, yet just does not seem to have the steam to complete the move. Prior to entry I now need a confirmed close above the breakout level rather than attempting a purchase the during the initial breakout.
Sells to Watch:
Put on the Radar:
Coffee- Coffee has an enormous breakout rally today. My fundamental knowledge of the Coffee market is non-existent so I plan to do some more research today before looking to enter the market to find out what the story is. However, the market has set off a smaller cup and handle pattern rally out of consolidation that has a projection range from 143.65 to 147.05. Furthermore, the rally today is so substantial that it is toying with a close above a larger consolidation range high of 141.45 that would provide a projection to 152.65 on a test of the highs from December. There is not a great risk reward entry level at the time being, but depending on the close today I will hopefully be able to come back on Monday with an explanation for the rally and a good risk/reward trade idea.
Gold- Gold continues to bounce off of it's bullish trendline on a trade that remains strong mainly on technical support rather than fundamentals for the time being. The trendline I am using on the Gold market daily chart is from the low March 25th to the low April 22nd. This may seem unconventional to those who believe you draw from one low to the next low so there is no violation, but using this trendline actually provides the market support despite some temporary violations. For this line there is no confirmed violation of two lower closes and you actually now have about 10 points of interaction with the market. You can notice the two bounces nearly exactly off of the line over the last two days, at $1218.7 today, as well despite strength in the macro market and a flight from the "run to safety" trade. If you are holding a long position I recommend using this line with two closes below as an exit signal rather than just waiting for the lower line the sits near $1198 today.
Silver- The neckline is at $17.82 today. The fundamentals and correlation to other markets for Silver is unlike anything I have witnessed for the market. Some days it rallies with Gold on the run to safety trade (which I believe it is not) and on other days it rallies with the Equities because it is an industrial metal (which makes more sense to me). Basically there really is nothing much more to say until it violates the head and shoulders neckline or begins a new rally leg. I just believe that when a market rallies no matter which direction the market moves without having a good fundamental story on it's own that something is wrong and it is likely to eventually reverse.
Crude Oil and Australian Dollar- Both markets were nearing their rally breakout levels, but both have failed this morning after a poor retail sales number this morning. Prior to this however, both markets were lower on the day despite most other supportive markets trading higher this morning. This reversal of strength to weakness is a signal to stay out of these markets for the time being, but keep them on your radar as a barometer for movement in the risk trade.
Notes:
Copper- Copper has a low volume zone from 2.8850 to 2.9130 with some stronger resistance from 2.91 to 2.96, but the market action over the last 12 hours has me concerned with trying to hold a short position. While Copper was the weakness among the Commodity markets for the last month it is the strongest market on my board this morning other than Coffee. While it is still possible that this short position trade works I think that the swings in Equities and other markets have made it too risky to trade Copper for the time being. I recommend exiting the market and waiting for the macro picture to become more clear.
Buy Gold vs. Sell Silver- Although the trade had what appeared to be a great setup and risk/reward potential it was quickly dismantled yesterday morning as the differential slammed through the $310 support level. There is not a good story or position in this spread anymore for the time being, so I recommend holding a flat position.
It took me a little while to really embrace the idea, but after yesterday's action it is clear to me now that this is not a market that is suitable to trade for the time being. You may have noticed the paring back of trade ideas, which should be a sign to pull back one's participation in the market, but the trade seems to find a way to trick you into "understanding" the move. While support and resistance held up relatively well across the correlated market for the last few weeks, this was not the case yesterday as the S&P 500 decided to repeatedly trade over and under what I believed was an important intermediate level around 1072. Meanwhile, an early morning rally breakout from the recent strength of Crude Oil slowly squandered as it ticked back into it's sideways range despite the strengthening of the rest of the macro market throughout the day.
With the marketplace very correlated at the time being and the leader and laggard of a sector seemingly shifting day to day (Copper was the laggard yesterday, yet the strength this morning) I have decided that I do not want to participate until there is a clear and confirmed move from this sideways action. This basically means until the S&P 500 finds a move below 1040 or above 1103 my participation will be limited to less correlated markets like the Softs and Grains and to confirmed moves on patterns. Right now the best moves are coming on Fear rather than anything else and in my experience I find myself on the wrong end of fear moves too often with my limited risk and size. I have no desire to begin selling rally breakouts and buying market breaks out of consolidation, as experience has taught me that this is an even better way to reduce your trading account. So, I will be sitting on my hands for the time being and recommend the idea to others, especially if you have found yourself getting chopped over the last week. Let the Bulls and the Bears battle it out on this volatile, yet tight range and save your ammo so you are ready to jump back in when a clear winner emerges from the rubble.
Buys to Watch:
Sugar- The Sugar market has basically no correlation to the macro market for the time being, so I am less concerned about entry into the market right now. Sugar continues to be on the verge of a bullish breakout above it's month long consolidation range. A move above 15.75 cents projects to 17.68 with the possibility of a larger continuation on a correction in the oversold market. The daily chart RSI has now rallied above the recent bear market trend range and Stochastics for the weekly chart is now moving out of oversold territory with a positive mode after producing a buy signal 3 weeks ago. However, the weekly chart still remains in a bearish mode overall and the amount of time it is taking for the market to breakout is becoming concerning. Sugar has had ample opportunity over the last three days to rally above it's consolidation range, yet just does not seem to have the steam to complete the move. Prior to entry I now need a confirmed close above the breakout level rather than attempting a purchase the during the initial breakout.
Sells to Watch:
Put on the Radar:
Coffee- Coffee has an enormous breakout rally today. My fundamental knowledge of the Coffee market is non-existent so I plan to do some more research today before looking to enter the market to find out what the story is. However, the market has set off a smaller cup and handle pattern rally out of consolidation that has a projection range from 143.65 to 147.05. Furthermore, the rally today is so substantial that it is toying with a close above a larger consolidation range high of 141.45 that would provide a projection to 152.65 on a test of the highs from December. There is not a great risk reward entry level at the time being, but depending on the close today I will hopefully be able to come back on Monday with an explanation for the rally and a good risk/reward trade idea.
Gold- Gold continues to bounce off of it's bullish trendline on a trade that remains strong mainly on technical support rather than fundamentals for the time being. The trendline I am using on the Gold market daily chart is from the low March 25th to the low April 22nd. This may seem unconventional to those who believe you draw from one low to the next low so there is no violation, but using this trendline actually provides the market support despite some temporary violations. For this line there is no confirmed violation of two lower closes and you actually now have about 10 points of interaction with the market. You can notice the two bounces nearly exactly off of the line over the last two days, at $1218.7 today, as well despite strength in the macro market and a flight from the "run to safety" trade. If you are holding a long position I recommend using this line with two closes below as an exit signal rather than just waiting for the lower line the sits near $1198 today.
Silver- The neckline is at $17.82 today. The fundamentals and correlation to other markets for Silver is unlike anything I have witnessed for the market. Some days it rallies with Gold on the run to safety trade (which I believe it is not) and on other days it rallies with the Equities because it is an industrial metal (which makes more sense to me). Basically there really is nothing much more to say until it violates the head and shoulders neckline or begins a new rally leg. I just believe that when a market rallies no matter which direction the market moves without having a good fundamental story on it's own that something is wrong and it is likely to eventually reverse.
Crude Oil and Australian Dollar- Both markets were nearing their rally breakout levels, but both have failed this morning after a poor retail sales number this morning. Prior to this however, both markets were lower on the day despite most other supportive markets trading higher this morning. This reversal of strength to weakness is a signal to stay out of these markets for the time being, but keep them on your radar as a barometer for movement in the risk trade.
Notes:
Copper- Copper has a low volume zone from 2.8850 to 2.9130 with some stronger resistance from 2.91 to 2.96, but the market action over the last 12 hours has me concerned with trying to hold a short position. While Copper was the weakness among the Commodity markets for the last month it is the strongest market on my board this morning other than Coffee. While it is still possible that this short position trade works I think that the swings in Equities and other markets have made it too risky to trade Copper for the time being. I recommend exiting the market and waiting for the macro picture to become more clear.
Buy Gold vs. Sell Silver- Although the trade had what appeared to be a great setup and risk/reward potential it was quickly dismantled yesterday morning as the differential slammed through the $310 support level. There is not a good story or position in this spread anymore for the time being, so I recommend holding a flat position.
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