*First off, roll your Equity Indices, Treasuries, and Currencies to September. I have talked a lot about specific levels in Equities so just mentally drop any numbers in the S&P 500 by 4 points now as I will now use the September contract levels for reference and discussion.
*Second off, Crop Production Report at 7:30 am that will move the markets of Commodities that grow, so do not be caught in the dark.
Opening Note:
While the stock market held the 1070 to 1076 level in the S&P 500 yesterday I would not consider the day a winner for the bears necessarily as the rest of the macro market displayed signs of recovery in many of the other Commodity sectors. Equities slid back near their lows on yesterday's close, but again have found support near the 1050 level and have rallied overnight. A number of central banks around the world (mainly the ECB) have kept their interest rates steady, which has supported the U.S. market this morning, but the jury is still out whether this will be a buy the rumor (rates are steady) or sell the fact (they can not raise rates because the market is so weak) trade.
In my sells to watch section yesterday I listed Copper, Crude Oil, and the Australian Dollar and provided levels that I believed would correlate in price and time-wise. However, if you watched these specific levels it was apparent that not all of these markets were created equal. It was interesting to watch these markets weed themselves out as the best short position with Copper and Equities winning, the Australian Dollar placing second, and Crude Oil falling in last as fundamentals supported the market. So, going forward I recommend focusing more on the Copper and Equities as the best markets to put a short position on.
Overnight the S&P 500 has tested the 1066 -1072 level for the September contract and has failed. I believe that the market is now heading towards another test of the 1036 level, which will likely fail this time around leading to a breakout on the large topping pattern with a projection range from 865 - 900. However, if a rally above this initial resistance is confirmed then a test of the 1096 level is in store. While supportive markets like the Australian Dollar and Crude Oil may be forming a base I still recommend playing the short side of the macro market and selling rallies until there is a confirmed rally breakout in one of these markets. Two sided volatility has ruled the market this week, but the general direction is still down.
Buys to Watch:
Buy Gold vs Sell Silver (Gold - Silver/2 to chart)- The differential between the two Metals fell at the start of the week, but likely found a base yesterday after testing the lower end of the large low volume zone on the market profile. Led by an odd Silver rally, the differential traded below the $320 level for most of yesterday, but rallied towards the close as the Metal sector weakened and is trading near $325 this morning. There is strong support around the $310 level for stop placement and if the market does trade below $320 again I believe it is a great buy. I expect the spread to rally back to the $345 - $350 level to test the highs as well as the large weekly chart head and shoulders pattern breakout that projects to $492.
Sugar- Sugar was on the radar yesterday, but is now moved to the buys as the rally breakout level has become closer. Above 15.75 the Sugar market has a projection to 17.68 on the bullish cup and handle pattern. Sugar is a huge loser since the start of the year and after forming a consolidation base is finally attempting a recovery rally. RSI for the daily chart is now testing the bear market highs on it's range and Stochastics provided a buy signal early last week and maintains positive momentum for the market as well. I recommend waiting for the breakout before buying, but after being pummeled for a number of months I could see Sugar having a stronger rally than projected.
Sells to Watch:
Copper- Copper is the weakest Commodity in my opinion as it was unable to even reach it's sell zone on the macro rally yesterday. Other correlated markets like the Australian Dollar and Crude Oil easily met their own, with Crude actually rallying above it's high volume resistance as well. With huge long term open interest and new entrants holding a losing position I believe that Copper still has a much larger move in store. The market remains in a bearish head and shoulders pattern that has a projection range from $2.12 - $2.32. The low volume zone between 2.8850 to 2.9130 was not reached yesterday, but still is a great level for short entry with trendline resistance from 2.91 to 2.94 and high volume resistance from 2.93 to 2.96. If you are looking for short entry it is important to also watch the S&P 500. If the stock market rallies for another bounce off of yesterday's resistance then Copper is unlikely to reach it's sell zone, but is still a good sale at this level if the macro market appears it will weaken.
Put on the Radar:
Silver- Silver has come back down to earth slightly over the last 24 hours and is now approaching the breakout level on it's bearish head and shoulders pattern again. Using the same trendline from the earlier failed pattern provides a value of $17.795 today and a projection to $15.20. I believe that the macro market is on a larger downward move with deflationary pressures that should lead Silver lower even if it is being used as a store of value. The recent increase in open interest should also add fuel to the market on the downside move with more liquidation if it occurs.
Gold- The Gold market did make a new high close on Tuesday, but failed after making new highs creating a possible double top on the market. Stochastics for the daily chart produced a sell signal for the market yesterday as well. There is an important bullish trendline for the market at $12.16.3 for the market today, which would signify a larger bearish move if it is violated. I still fundamentally hold a bearish opinion on the Gold market and do not recommend holding or entering long outright positions in the market.
Crude Oil- Crude Oil had a substantial rally yesterday as rumors of future offshore drilling regulation circulated and stocks numbers were lower. The market rallied above it's low volume sell zone and high volume resistance even before the stocks number was released as one of the strongest markets yesterday. It is now nearing it's bullish breakout level above $75.72 that projects a move to $81.93. I do not recommend holding a long position in the market unless it confirms a rally projection however. Crude is one of the stronger Commodities that has a high correlation to the stock market, so I will watch it as a barometer for macro direction, with a rally above consolidation meaning a likely rally in the rest of the market.
Australian Dollar- The September contract is trading about 90 ticks below the June contract, so adjust your previous numbers accordingly. The Aussie Dollar found support overnight with central banks keeping rates steady as the risk trade re-emerged, but has run into the high volume resistance level in the market that has acted as a top this morning. The .8350 level may provide the highs for the market as it is likely to weaken if the overall market does and is a decent low risk fade at this time. However, like the Crude Oil, the Aussie does have the possibility of a rally above it's recent consolidation range that projects to .89 above .8450. I do not recommend holding a long position in the market unless it confirms a rally breakout and still look at it as a potential short for the time being.
Notes:
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