Wednesday, June 30, 2010

Wednesday 6/30/10 Commodity Ideas

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.

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