Thursday, June 3, 2010

Thursday 6/3/10 Commodity Ideas

Opening Note:
While the story on the start of June Tuesday was opening buying during the first hour followed by failure back to the lows, there was a complete reversal of this late day action yesterday. Market participants started the day with another strong rally on an up-trending 15 minute chart in Equities that appeared to fade around noon again. However, voracious buying entered the market again around 1:30 CT to create a whole new rally leg to close on it's highs. It is not a big secret that I hold a medium term bearish opinion and I am holding short positions, but as soon as I saw this buying come in across the entire board without a news story I was too familiar with this action from the 60 day February rally and it was an easy decision to cover early and fight another day. This action was unexpected after a disastrous failure Tuesday, but I think that you now have to keep up a 15 minute chart of the S&P 500 at all times to watch for this uptrend on the chart to gauge the amount of new long entry coming into the market and to bow out early if it looks similar to the intraday rallies on the 60 day rally.

Right now I believe that we are again at a fork in the road with the market as I see a couple different scenarios that could unfold over the rest of this week. The Jobs Report today and Unemployment tomorrow should actually hold a larger influence on the market than they have the last few months as The Bulls are banking on U.S. fundamental strength and recovery for their bullish opinion. Personally I have not been too impressed with the lack of recovery in Unemployment, but if they are going to see this recent bottom as a correction to buy The Bulls will have to step in to buy this number.

On the Radar today I included the rally projections that I have for the Equity Indices if they are going to rally in the short term, which could be a good opportunity to ride the wave higher for a day or two. However, I still see many inter-commodity relationships across the board that point to a much larger correction and a number of fundamental news stories that could continue to emerge to shake investor confidence. I would actually prefer a short term rally to these levels on a 50 - 61.8% correction on this recent break. I believe that this rally if it occurs is an opportunity to sell "bad buying" on the larger move lower and would love to get short Crude at $78 and the S&P at 1145. I recommend using caution over the rest of this week, but continuing to view the larger move as a bearish one.

Buys to Watch:

Sells to Watch:

Cotton- Cotton is still on a daily chart breakout below consolidation with the move below 80.13 projecting to 72.66 on the head and shoulders projection. Yesterday the market opened lower in the morning, but found a sizable mid-day rally of nearly a full cent. Although this rally went straight through the first entry point I provided yesterday and stalled out just below the higher entry level I provided, it still turned out to be a great selling opportunity as the market fell to close on it's dead ass lows. While it was closed the macro market did have a late day rally, which has propped the market higher this morning, but Cotton still remains a good sale after the crushing of the mid-day rally. I still would like a rally to the 79.54 to 79.66 price range for short entry with the higher volume resistance level from 79.90 to 80.10 as a level to place a stop above.

Copper (refer to entries 5/26 and 5/27 on my blog for reference)- If this stock market rally is to be believed then Copper is not doing a very convincing job of showing the same move. Despite a large macro rally that Copper slowly followed yesterday it is again weaker and testing the major support before a breakout on a large bearish move. For the continuation triangle I have a base trendline of $3.0030 today and on the large bearish topping pattern I have a value of $2.9070 today. The large projection on the move has a range from $2.10 to $2.32. I still recommend waiting for a close below the continuation triangle base before entering an initial position and entering a larger size after confirmation of the larger breakout. Daily chart Stochastics also set off a sell signal for the market yesterday while RSI maintains a bearish trend range on it's movement.

Sell Copper vs. Buy Gold (Gold/Copper to chart)- This longer term trade of roughly 6 - 8 weeks is broken out on the weekly chart and has a projection range from 515 - 550. Just for a brief recap, it is based on the large bearish move that I believe is coming in Copper with a Gold hedge as Gold should maintain prices better than Copper. I recommended a weaker initial entry entry level on this ratio trade between 404 and 406 yesterday with a stronger entry level of 391 to 395 on a larger pullback in the market and this morning the market is sitting right around 406 after pulling back to 399 yesterday. With a small initial position established I would like to wait for this lower entry level to put on more size with higher volume support from 387 to 390 for stop placement below. It may also be prudent to wait for a breakout close on Copper before establishing another position in the market if this lower entry level is not met.

Australian Dollar- I said I was not going to flip-flop with the Australian Dollar anymore, so I am keeping it on the sells to watch category unless the large bearish cup and handle pattern on the weekly chart is negated. The Aussie Dollar had a breakout value of .8547 on the cup and handle with a projection to .7784. This breakout value has now been tested twice over the last week's trade, but both attempts have come up short. The Aussie's short term path however will likely be determined by the Equities direction after the Unemployment report tomorrow. On Friday of last week the Aussie had a spike failure with a high of .8537, which is now the breakout value on a small cup and handle pattern on the daily chart that projects to .8809 on the short term move. It is very possible that there could be a spike test that runs through this breakout prior to a failure as well, so I recommend using caution on any short position still held in the market right now and to hold off on entry until further confirmation on this short term bullish pattern's confirmation or rejection.

Silver (but caution)- I had Silver on the sell list yesterday as well as I believe that the market is forming the right shoulder on a large bearish head and shoulders pattern currently. The high volume resistance I provided from $18.54 to $18.64 held up overnight to create the highs on a test of this level. I believe that you can still use this high volume area to enter a small initial short position against on an early entry for the larger move. The head and shoulders pattern has a breakout value today of $17.655 with a projection to $15.055. Silver's action lately has been inconsistent as it sometimes decides to move with Gold and other times with the macro market. As it was previously tied to the Gold on the rally continuation I believe this indecision is another sign that the market is reversing on it's topping pattern.

Put on the Radar:

Equities Cup and Handle Rally Projections- The key market to watch on this whole move is the S&P 500 as it has acted as the most reliable indicator throughout the recent volatility and currently remains below the breakout level. With Unemployment on the horizon tomorrow I believe it is unlikely that the Indices really move higher on this pattern today, but it is good to also have for tomorrow's report if they do take off after the announcement. As it has been the strength lately I believe that the Nasdaq is the best buy on this move if it occurs, but as a reminder, wait for S&P confirmation.

S&P 500- Above 1106.75 to 1146.25
Dow- Above 10,277 to 10,582
Nasdaq- Above 1874.25 to 1924.25

July Corn- The Corn market, and all of the Grains for that matter, have been a very tough trade with out-of-the-blue reversals and failure spikes. However, with a close below the recent support at $3.51 1/2 I now have a projection on Corn to $3.33 1/4.

Natural Gas- Natural Gas has a stocks number this morning that could be a catalyst so I wanted to include this market on the radar today. Since the Gulf Oil Spill has come into the news the Natural Gas market has garnered increased investor interest as an alternative energy source if off-shore drilling does not re-emerge as an option. The market has traded a fairly tight consolidation range with a number of false breakouts, but above $4.587 I have a projection for the market to $5.138. Stochastics for the market is in a positive mode, but the RSI daily chart indicator continues to remain locked in a bearish mode range. I recommend waiting for a confirmed breakout close for the market before initiating a position.

Notes:

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