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.