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.


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