Opening Note:
Yesterday
Although the Equity markets were able to close right near their previous settlement yesterday I would not necessarily consider this a win for the Bulls when you take into account how strong the market was heading into yesterday's open. While nearly every correlated/supportive Commodity market was trading higher yesterday at 8 am. the Crude Oil market along with the Gold and Silver markets led a wave of liquidation that carried over into the rest of the market. Another poor consumer confidence number, that was back near the lows for this year in February, did not help the market much at all either, but the real market sell off was fairly evident even before this number.
Metals
The Gold and Silver price breaks were the largest movers of the day, but the most interesting note about the move was that it actually came on option expiration day. Option expiration tends to find higher volume traded strike prices that act like a magnet with volatility and the expected moves oftentimes falling just after they expire (I know this all too well). As for continuation lower in Gold I expect the market should find support short term between $1140 - $1151 although I still believe there is likely at least another wave lower to around the $1100 level that will follow after a rally pullback.
Risk vs. Risk Aversion
Another note from yesterday was that although the macro market traded weaker from the stock market open, and sat relatively flat, the risk aversion markets like Bonds and the Japanese Yen fell concurrently when the recent inverse relationship suggests they might rally during this time. There have been times when they have not necessarily had the same magnitude of movement in the opposite direction during the day, but this was one of the more blatant moves in the same direction I have seen lately. I suspect that with the individual Bond and Yen charts now providing numerous sell signals and both looking overextended on their rallies that this was more of a focus on the individual markets rather than a significant change in correlation. Do keep an eye on this relationship on a day to day basis to see if there is a possible reversal emerging.
Currencies
I was excited yesterday morning as the Canadian Dollar, Mexican Peso, and Euro/Yen all had set off Bullish breakout continuation patterns, but as the Energy, Metal, and later Equity markets fell apart so did these Currencies. Along with the strong break in Crude Oil, that negated its own Bullish projection, this is not a positive sign for short term continuation higher for the macro market.
Today
The market is mixed this morning with Wheat the most notable gainer this morning while the Australian Dollar sticks out as the weakest. The Equity markets did have a brief rally overnight near the European open, but around 4:30 am suffered a price break along with most of the other correlated markets. With the Currency and Energy failure yesterday coupled with some strong resistance on the old Equity swing highs it looks like it will again be difficult for the market to see significant gains today. Moreover, the spike highs left from yesterday's trade in some of these markets show potential for a technical reversal while momentum indicators are also on the verge of producing sell signals in these markets. Bullish momentum looks to be in trouble for the short term, so I recommend lightening up on entry into Bullish macro trades for today. I think it is likely that we are now on day 2 of a 2 - 3 day pullback in the market, so looking for re-entry on the long side should be the trade tomorrow.
Buys to Watch:
Australian Dollar (but wait for larger pullback)- Yes the Australian Dollar is the weakest market coming into this morning, but it still is the best looking supportive Currency chart. The Australian Dollar experienced a sizable break at 8 pm yesterday evening, but all I was able to find on Australian news overnight was a report about a fine against a monopoly telephone company and something about copper wiring...I do not think this was the news item that broke the market. Looking at a daily chart for the market a shorter term trendline on the Bullish move connecting the low July 6th - July 19th low provides a 4 point trend that has a value today of .8829. It just so happens that there is a a low volume zone from .8796- .8848 with the patch from .8796 - .8818 being optimal and with higher volume support from .8760 - .8786, which is back near the original .8772 breakout level for the Aussie. Two consecutive closes below this trendline would blatantly tell me that the rally is over, but this level looks like a good risk/reward trade on the 2 day pullback in the market with the projection to .9297 still intact.
Sells to Watch:
Corn- Again, this Corn trade is strictly technical as there still are concerns about short term demand, yet potentially huge yields still battling on the fundamental story. Below the $3.86 1/2 the market has an objective of $3.62 1/2 on the Bearish head and shoulders pattern. The market did trade lower throughout the day yesterday, but Corn is again higher this morning along with the entire Grain Sector. Optimally I would like to sell Corn on a rally to $3.85 - 3.86 1/4 against the higher volume resistance for the market between $3.86 1/4 - $3.89 with a stop loss just above this level. Above $3.89 the Corn market would no longer be a short. Note: There is a bullish morning star candlestick pattern that could be forming today if the market is able to hold its current level throughout the day, which is a Bullish signal.
Put on the Radar:
Bonds- Bonds have negated their longer term Bullish trend from the lows early April, but there is another shorter term Bull trend that the market is battling with right now. From the May 13th - June 21st lows there is a trend that provides a value directly at the current lows for the market at 126.06 today. Momentum for Bonds remains negative with a clear Stochastics sell signal earlier this week while RSI for the daily chart is currently testing its own lows from the dip on July 13th. I believe that you can expect an initial move to near 123 in Bonds, which is also the 31.8% retracement level from the April lows. Late Note: Despite a small rally in Bonds after the weaker than expected Durable Goods number the Bonds are lower on the day while Equities are also lower...another Bearish sign for Bonds.
Euro/Yen Cross (Euro/Yen to chart)- The Euro/Yen Cross was in the buy section yesterday, but after failures in a number of related Currencies I want to move it to the Radar for right now while still mentioning that I think that it looks good. Today the Cross is seeking confirmation on the Bullish head and shoulders pattern that provides an objective of 119.34 with another close above 113.27. Today the Euro/Yen has given back overnight gains, so waiting for confirmation is a good idea prior to jumping in.
Notes:
Canadian Dollar- After an early initial breakout above .9726 the market failed hard after the Equity open. The market is no longer in play on the Bullish trade.
Crude Oil- With the move below $78.55 and now weaker trade thus far today the Crude Oil no longer has a Bullish pattern projection and I do not recommend owning it anymore.
Mexican Peso- Like the Canadian Dollar the Peso is no longer broken out on its Bullish pattern with two spiky highs left yesterday and again today overnight and I no longer recommend being long.
Wednesday, July 28, 2010
Tuesday, July 27, 2010
Tuesday 7/27/10 Commodity Ideas
Opening Note:
Although the Equity market encountered some strong resistance yesterday between 1105 -1111 in the S&P 500 it was able to tick away at this wall throughout the day to settle near the top of this range without much of a pullback if any. The supportive Commodity markets also followed suit with the Australian Dollar leading the Currencies and a nice recovery in Crude Oil some of the notable moves. In addition, the risk aversion Bond market suffered another break in price as it confirmed a breakout below its strong uptrend since early April, further adding to the Bullish case for Equities and Commodities.
The real fundamental story that I grasp right now is that with the recent change in the Fed's stance on the Economy the big money is now betting on rates staying near zero for a much longer period of time. This means that the institutional money is again looking to borrow cheap and buy assets (and risky ones) with this money yet again. Furthermore, you have a lower volume summer period, investor concern about the economic future, stubborn bears still trying to short the market, and low participation in the recent rally thus far. This bakes a cake that should look something like a cross between last July's failed head and shoulders pattern and subsequent rally in the S&P 500 and the rally in this same market that began February 5th of this year. The mix of short covering, low participation and volume, and late party-goers jumping on the conga line should continue to hold momentum on the move like last summer's rally. However, one must still keep in mind that the Economic circumstances are much different than this same time frame a year ago and I think that the big money is likely crazy if this is their long term plan. For right now I project that we will see these supportive markets continue back near the highs for this year, but after this technical objective is met I still feel that Economic concerns will regain the center stage.
This morning the macro market is much firmer, with nearly every supportive Commodity market higher already and without much of a break since the European open. If you recall in my Thursday Afternoon Update I detailed a small checklist of things to watch to see if there will be long allocation entering the market in the morning and so far we have one strong signal with this European buying. Although there was not buying in the Metals this morning it looks like there is a strong possibility of some coming into the Crude market on the open, which is all you should need to confirm that there will likely be more on the 8:30 am stock market open.
**I was fairly active trading this morning and have a lot of markets to cover, so in the interest of time I will be briefer than normal this morning. I have my email open all day though, so if there's questions, comments, discussion, ideas you can always shoot me an email.
Buys to Watch:
Nasdaq- The Nasdaq now has confirmation on its projection of 1950 with two consecutive closes above 1866.25 and as I noted in the Opening, it is likely that there will be continued buying on the stock market open this morning. If the market does provide a pullback to lower volume overnight trade from 1888.50 - 1891.50 this would be good level for entry today with the higher volume trade from 1878 - 1880 yesterday providing support. Keep an eye on the S&P 500 as well because resistance in the market at 1130 could provide a temporary stall on an Equity rally. Side Note: Above 10,536 the Dow has a projection of 11,462 on a less reliable pattern projection that would take the market back to new highs for the year.
Euro/Yen Cross (Euro/Yen to chart)- The Euro/Yen Cross has a strong Bullish head and shoulders pattern breakout this morning with a move above 113.27 projecting a move to 119.34. The Euro/Yen Cross is also a key gauge on the risk trade and this breakout rally in the cross also projects gains in the supportive Equity and Commodity markets.
Australian Dollar, Canadian Dollar, Mexican Peso- I personally am focusing on doing a blend of these three markets with the Australian Dollar obviously the strongest of the three recently, but with the Canadian and Peso on the verge of Bullish rally breakouts. The Australian Dollar still has an objective of .9297 on the already confirmed pattern. The Canadian Dollar is on the verge of rallying above the .9726 breakout level for the market that would provide an objective of 1.013. Finally, the Peso has a rally breakout this morning above .078575 that projects a move to .080550. No I have not ever traded the Peso, but yes I did buy some for the first time this morning because the chart does look slightly better than the Canadian. I do not have time to provide specific levels for each entry, but the markets have pulled back slightly from their highs already this morning, which could provide some opportunity for entry today.
Sells to Watch:
Corn- This is strictly a technical trade for right now as the growing season is still under way and can fundamentally drive the market. However, after yesterday's break the Corn market now has a confirmed bearish head and shoulders pattern with the breakout below $3.86 1/2 on Friday now providing an objective of $3.62 1/2. There is some higher volume resistance from 3.86 1/4 - 3.89 that would be a good level to sell against.
Put on the Radar:
Copper and Crude Oil- Copper has the projection to $3.3210 and Crude Oil the projection to $81.48. However, both markets appear rather tired this morning, with Crude actually selling off on its open this morning despite stronger Equities and Commodities markets. I recommend only using small size for long entry on pullbacks in these markets for today.
Bonds- Bonds now have negated their strong uptrend from early April and with negative momentum and liquidation in other risk aversion markets like the Yen I believe that Bonds will decline. Looking for a move to the 123 handle should be an initial objective with a possible downside to the 121 handle on a larger move. I recommend looking at the September Puts for the market with 31 days till expiration as another option for short entry in the Bond market.
Notes:
Although the Equity market encountered some strong resistance yesterday between 1105 -1111 in the S&P 500 it was able to tick away at this wall throughout the day to settle near the top of this range without much of a pullback if any. The supportive Commodity markets also followed suit with the Australian Dollar leading the Currencies and a nice recovery in Crude Oil some of the notable moves. In addition, the risk aversion Bond market suffered another break in price as it confirmed a breakout below its strong uptrend since early April, further adding to the Bullish case for Equities and Commodities.
The real fundamental story that I grasp right now is that with the recent change in the Fed's stance on the Economy the big money is now betting on rates staying near zero for a much longer period of time. This means that the institutional money is again looking to borrow cheap and buy assets (and risky ones) with this money yet again. Furthermore, you have a lower volume summer period, investor concern about the economic future, stubborn bears still trying to short the market, and low participation in the recent rally thus far. This bakes a cake that should look something like a cross between last July's failed head and shoulders pattern and subsequent rally in the S&P 500 and the rally in this same market that began February 5th of this year. The mix of short covering, low participation and volume, and late party-goers jumping on the conga line should continue to hold momentum on the move like last summer's rally. However, one must still keep in mind that the Economic circumstances are much different than this same time frame a year ago and I think that the big money is likely crazy if this is their long term plan. For right now I project that we will see these supportive markets continue back near the highs for this year, but after this technical objective is met I still feel that Economic concerns will regain the center stage.
This morning the macro market is much firmer, with nearly every supportive Commodity market higher already and without much of a break since the European open. If you recall in my Thursday Afternoon Update I detailed a small checklist of things to watch to see if there will be long allocation entering the market in the morning and so far we have one strong signal with this European buying. Although there was not buying in the Metals this morning it looks like there is a strong possibility of some coming into the Crude market on the open, which is all you should need to confirm that there will likely be more on the 8:30 am stock market open.
**I was fairly active trading this morning and have a lot of markets to cover, so in the interest of time I will be briefer than normal this morning. I have my email open all day though, so if there's questions, comments, discussion, ideas you can always shoot me an email.
Buys to Watch:
Nasdaq- The Nasdaq now has confirmation on its projection of 1950 with two consecutive closes above 1866.25 and as I noted in the Opening, it is likely that there will be continued buying on the stock market open this morning. If the market does provide a pullback to lower volume overnight trade from 1888.50 - 1891.50 this would be good level for entry today with the higher volume trade from 1878 - 1880 yesterday providing support. Keep an eye on the S&P 500 as well because resistance in the market at 1130 could provide a temporary stall on an Equity rally. Side Note: Above 10,536 the Dow has a projection of 11,462 on a less reliable pattern projection that would take the market back to new highs for the year.
Euro/Yen Cross (Euro/Yen to chart)- The Euro/Yen Cross has a strong Bullish head and shoulders pattern breakout this morning with a move above 113.27 projecting a move to 119.34. The Euro/Yen Cross is also a key gauge on the risk trade and this breakout rally in the cross also projects gains in the supportive Equity and Commodity markets.
Australian Dollar, Canadian Dollar, Mexican Peso- I personally am focusing on doing a blend of these three markets with the Australian Dollar obviously the strongest of the three recently, but with the Canadian and Peso on the verge of Bullish rally breakouts. The Australian Dollar still has an objective of .9297 on the already confirmed pattern. The Canadian Dollar is on the verge of rallying above the .9726 breakout level for the market that would provide an objective of 1.013. Finally, the Peso has a rally breakout this morning above .078575 that projects a move to .080550. No I have not ever traded the Peso, but yes I did buy some for the first time this morning because the chart does look slightly better than the Canadian. I do not have time to provide specific levels for each entry, but the markets have pulled back slightly from their highs already this morning, which could provide some opportunity for entry today.
Sells to Watch:
Corn- This is strictly a technical trade for right now as the growing season is still under way and can fundamentally drive the market. However, after yesterday's break the Corn market now has a confirmed bearish head and shoulders pattern with the breakout below $3.86 1/2 on Friday now providing an objective of $3.62 1/2. There is some higher volume resistance from 3.86 1/4 - 3.89 that would be a good level to sell against.
Put on the Radar:
Copper and Crude Oil- Copper has the projection to $3.3210 and Crude Oil the projection to $81.48. However, both markets appear rather tired this morning, with Crude actually selling off on its open this morning despite stronger Equities and Commodities markets. I recommend only using small size for long entry on pullbacks in these markets for today.
Bonds- Bonds now have negated their strong uptrend from early April and with negative momentum and liquidation in other risk aversion markets like the Yen I believe that Bonds will decline. Looking for a move to the 123 handle should be an initial objective with a possible downside to the 121 handle on a larger move. I recommend looking at the September Puts for the market with 31 days till expiration as another option for short entry in the Bond market.
Notes:
Monday, July 26, 2010
Monday 7/26/10 Commodity Ideas
Opening Note:
Although I only managed a couple of peeks on Friday it appears that there was another slow end to the week, but more gains for the supportive macro markets. The European bank stress tests were released on Friday with very little impact on the market. Notable from Friday though is the fact that the Bond market violated its strong uptrend from early April with a close below 127.26, which may be confirmed by another close today below 128.00.
This morning the S&P 500 is again encountering some strong resistance with the main higher volume level between 1105 - 1111. Although the Nasdaq and Dow are now the leaders among the Equities the S&P 500 should still be looked at as an indicator, so the macro market should have difficulty seeing big gains today. The Dollar Index is sitting slightly weaker than all of the the Foreign Currencies as of 7 am, but other than a couple Metals and some of the Softs there is not a supportive market trading higher yet this morning. Equities suffered a price break overnight on the European open as well, so I believe that it is unlikely that we will see large buying enter the market this morning. Overall the preparation this morning leading up to this important resistance does not feel like a strong pre-battle setup and I expect that we will likely trade sideways to moderately weaker for the day.
However, in my afternoon update on Thursday I outlined what I expect to happen over the next 5 - 6 weeks as the technical signals are now pointing towards a rally back to the yearly highs in a number of the supportive markets. Copper, the Australian Dollar, and the Nasdaq are now all on Bullish rallies above their previous swing highs with shorter term objectives, but some like the Aussie already with a projection above the highs for the year. Furthermore, the Fixed Income markets are beginning to show signs of topping on their 3 month rally as another signal that the momentum is shifting more Bullish for the supportive markets. I recommend employing a buying dips strategy in the stronger supportive markets that were listed above. Until the S&P 500 is able to rally above the higher volume resistance referred to earlier we are still sitting in a sideways range as I do not expect the market to have enough rally momentum today. But, I feel it is likely that we will establish a rally above this level within the next few days that should garner more support on continuation higher.
Buys to Watch:
Copper- On Friday Copper reached its initial Bullish objective of $3.2150, but with a confirmed rally above $3.1230 the market now has an objective of $3.3210. On this recent rally RSI for the daily chart has now risen into Bull market territory as confirmation that the previous Bear trend has reversed. There is some higher volume support in the market between $3.1630 - 3.1680 left from the last two sessions that has provided support thus far today, but for entry I am looking for a larger pullback. Between $3.1050 and 3.1340 there is a low volume zone with higher volume support below from $3.0880 - 3.0980 as well as the previous breakout swing level providing support from $3.1040 to 3.1150. Although I would love the opportunity to purhcase Copper near $3.11 I also would like to note that on strong Bullish moves the market usually does not provide the best pullback entry levels, so it is possible that we may not see a pullback all the way to the low volume area or only into the top of this area.
Australian Dollar- With the rally above .8772 now confirmed the market has an objective of .9297 on the Bullish cup and handle pattern. Nearby there is some higher volume support left from the last two sessions trade from .8870 - .8886 that has provided the low thus far today, but like the Copper I would also prefer looking for a pullback in prices prior to entry. The Aussie has a low volume zone from .8803 - .8819 with higher volume support from .8765 - .8787 for stop placement below this level.
Sells to Watch:
Put on the Radar:
Nasdaq (with S&P 500 indicator)- The Nasdaq is currently trading above the 1866.25 breakout level with an objective of 1950 now, but with high volume resistance still sitting above the Equity markets I believe that it could struggle rallying today. The 1105 - 1111 level in the S&P 500 has already produced the high on the market's range today and will likely act as at least a temporary top. There is however some low volume trade from 1095 - 1095.75 in the S&P 500 with a correlated lower volume level of 1864 in the Nasdaq that should provide a possible shorter term entry level with good risk/reward. The Nasdaq has stronger support falling right at 1860, which appears to be a critical level now to gauge the market's strength. A move below 1860 would indicate more sideways trade for the Equities again, so look for this level to hold if we are going to see a rally in the market this week.
Notes:
Palladium- Palladium is a thin market, but is still a good indicator of Equity and Commodity strength. Since the start of the recovery in March '09 the Palladium market has mimicked and often led the Equity markets in their direction. Palladium is now beginning to turn into a more Bullish looking chart after looking quite worrisome. This is another signal of confirmation that we should continue to see gains in the supportive markets on a larger rally.
Crude Oil- Crude Oil has a lot of fundamental factors (Oil spill, tropical storms, supply/demand) that push and pull the market right now, but when the macro picture is improving in the other markets Crude has a tendency to move higher despite whatever its own fundamentals are saying. This is why it is surprising that it is one of the laggards this morning as it has now traded back below the $78.55 breakout level after a price reversal on Friday. Although Crude does have an objective of $81.48 above this level I recommend focusing on the Copper and Aussie for right now as the better looking charts for long entry.
Although I only managed a couple of peeks on Friday it appears that there was another slow end to the week, but more gains for the supportive macro markets. The European bank stress tests were released on Friday with very little impact on the market. Notable from Friday though is the fact that the Bond market violated its strong uptrend from early April with a close below 127.26, which may be confirmed by another close today below 128.00.
This morning the S&P 500 is again encountering some strong resistance with the main higher volume level between 1105 - 1111. Although the Nasdaq and Dow are now the leaders among the Equities the S&P 500 should still be looked at as an indicator, so the macro market should have difficulty seeing big gains today. The Dollar Index is sitting slightly weaker than all of the the Foreign Currencies as of 7 am, but other than a couple Metals and some of the Softs there is not a supportive market trading higher yet this morning. Equities suffered a price break overnight on the European open as well, so I believe that it is unlikely that we will see large buying enter the market this morning. Overall the preparation this morning leading up to this important resistance does not feel like a strong pre-battle setup and I expect that we will likely trade sideways to moderately weaker for the day.
However, in my afternoon update on Thursday I outlined what I expect to happen over the next 5 - 6 weeks as the technical signals are now pointing towards a rally back to the yearly highs in a number of the supportive markets. Copper, the Australian Dollar, and the Nasdaq are now all on Bullish rallies above their previous swing highs with shorter term objectives, but some like the Aussie already with a projection above the highs for the year. Furthermore, the Fixed Income markets are beginning to show signs of topping on their 3 month rally as another signal that the momentum is shifting more Bullish for the supportive markets. I recommend employing a buying dips strategy in the stronger supportive markets that were listed above. Until the S&P 500 is able to rally above the higher volume resistance referred to earlier we are still sitting in a sideways range as I do not expect the market to have enough rally momentum today. But, I feel it is likely that we will establish a rally above this level within the next few days that should garner more support on continuation higher.
Buys to Watch:
Copper- On Friday Copper reached its initial Bullish objective of $3.2150, but with a confirmed rally above $3.1230 the market now has an objective of $3.3210. On this recent rally RSI for the daily chart has now risen into Bull market territory as confirmation that the previous Bear trend has reversed. There is some higher volume support in the market between $3.1630 - 3.1680 left from the last two sessions that has provided support thus far today, but for entry I am looking for a larger pullback. Between $3.1050 and 3.1340 there is a low volume zone with higher volume support below from $3.0880 - 3.0980 as well as the previous breakout swing level providing support from $3.1040 to 3.1150. Although I would love the opportunity to purhcase Copper near $3.11 I also would like to note that on strong Bullish moves the market usually does not provide the best pullback entry levels, so it is possible that we may not see a pullback all the way to the low volume area or only into the top of this area.
Australian Dollar- With the rally above .8772 now confirmed the market has an objective of .9297 on the Bullish cup and handle pattern. Nearby there is some higher volume support left from the last two sessions trade from .8870 - .8886 that has provided the low thus far today, but like the Copper I would also prefer looking for a pullback in prices prior to entry. The Aussie has a low volume zone from .8803 - .8819 with higher volume support from .8765 - .8787 for stop placement below this level.
Sells to Watch:
Put on the Radar:
Nasdaq (with S&P 500 indicator)- The Nasdaq is currently trading above the 1866.25 breakout level with an objective of 1950 now, but with high volume resistance still sitting above the Equity markets I believe that it could struggle rallying today. The 1105 - 1111 level in the S&P 500 has already produced the high on the market's range today and will likely act as at least a temporary top. There is however some low volume trade from 1095 - 1095.75 in the S&P 500 with a correlated lower volume level of 1864 in the Nasdaq that should provide a possible shorter term entry level with good risk/reward. The Nasdaq has stronger support falling right at 1860, which appears to be a critical level now to gauge the market's strength. A move below 1860 would indicate more sideways trade for the Equities again, so look for this level to hold if we are going to see a rally in the market this week.
Notes:
Palladium- Palladium is a thin market, but is still a good indicator of Equity and Commodity strength. Since the start of the recovery in March '09 the Palladium market has mimicked and often led the Equity markets in their direction. Palladium is now beginning to turn into a more Bullish looking chart after looking quite worrisome. This is another signal of confirmation that we should continue to see gains in the supportive markets on a larger rally.
Crude Oil- Crude Oil has a lot of fundamental factors (Oil spill, tropical storms, supply/demand) that push and pull the market right now, but when the macro picture is improving in the other markets Crude has a tendency to move higher despite whatever its own fundamentals are saying. This is why it is surprising that it is one of the laggards this morning as it has now traded back below the $78.55 breakout level after a price reversal on Friday. Although Crude does have an objective of $81.48 above this level I recommend focusing on the Copper and Aussie for right now as the better looking charts for long entry.
Thursday, July 22, 2010
Thursday Afternoon Update and Realization
Afternoon Update
The Realization
In yesterday's letter I think I adequately animated my mental anguish over Tuesday morning's unanticipated buying spree. This was the morning the market exploded higher across the board despite the lack of any significant Bullish fundamental or technical signals. It is in fact a re-examination of this buying, coupled with today's action, that has me coming to a more thorough conclusion this afternoon. The reason we are seeing this buying enter has little to do with the news or technicals of the day (regardless of what you hear on TV or read in a newsletter...these guys need to come up with some sort of explanation to get a paycheck), but rather with the over-riding story that free money is still available.
Although the macro market continues to sit in a sideways range there appears to be a shift in the environment that was evident after this morning's open. The trade has acted impulsively in either direction with contrary reactions to both Bullish and Bearish fundamental and technical signals. However, it is pretty clear after the buying that continued this morning that there is now an overwhelming amount of allocation into the supportive markets. While the market broke heavily in preparation to Bernacke's report yesterday afternoon, it appears that the big money is now banking on the assumption that the extended period of 0% rates will continue much longer. This means the borrow cheap and bet big on risky assets trade looks like it is back on for the time being.
How the Allocation Works, the Indicators, and How to Trade it
Allocation
As we have seen over the last 18 months in the market it is indeed now money flow that is the largest fundamental in the market. While it can be seen in the technicals and can correlate to fundamentals it is in itself the driving force for price. Right now it appears that the money is coming in beginning around 7:30 am (CT) and specifically within the first hour of the stock market open at 8:30 am (CT), but in the past we have also seen another round at 2 pm (CT) during the last hour of Equity trade. During the morning though it is strong...and stronger than normal...due to the low volume over the summer months. You also now have more computer trading programs than ever before and many attempt to front run buying when it gets a hint that it is coming to sell it back higher. This means that the spurts are bigger and easily run over higher volume and technical resistance levels in the market. Moreover, I speculate that the institutional money is attempting "purposeful buying", meaning they are not necessarily looking for the best entry, but rather to in fact push the market higher.
Right now the buying is coming into the Equity, Energy (minus Nat. Gas), Metal, the Australian Dollar, and the Canadian Dollar markets as the most correlated group. Both the Soft and Grain markets have had their own rounds of allocation during June and the beginning of July, but they appear to be following their individual fundamentals...or lack thereof for right now. Also, the European Currencies seem to still be trading the European story rather than the correlation to U.S. Equities. Although this Currency group can move with the macro market, as it did today, it is not necessarily the same move as I will describe in the Beyond section.
Indicators
As you may have noticed from some of my late notes I have a few indicators that I look for to see if an allocation is coming for the day. First, I look for buying on the European open beginning between 1 - 3 am (CT). Oftentimes this is followed by a continuation on the trend higher overnight and into the morning. Next, there is often buying that enters the market during the Metal open (namely in Gold and Silver) at 7:20 am. This is not a necessary signal, as it did not occur this morning, but if it does then you have another red flag. Finally, there is usually a flood into Crude Oil on the 8 am open like this morning. We usually see very little break on the rallies leading up to the big buying that enters at 8:30 across all of the market because (and this is partially speculation) you have a large group of prop traders working for these institutions that know the buying is coming and front run the trade themselves (I wish I got peak orders). If you get 2 out of 3 of these signals you can bet that the inflow is coming.
Trade
To take advantage of the trade it is usually best to jump in around 7:30 am, but if the opportunity is not ripe yet then waiting until the 8:30 stock market open is second best. Due to the current volatility and skittishness of the market I still recommend executing this more as a day trade than a position entry as well. There are still likely to be violent breaks in the market and the release of poor fundamental news can always sidetrack a rally. Putting this all together means that I recommend buying dips as the best strategy to carry forward over the next couple months.
Where the Technicals Point
As I look at the market right now the technical leaders among the market are Nasdaq, Crude Oil, Copper, and the Australian Dollar, so I will go through and highlight what the rally possibilities are for each market:
Nasdaq- Short term the market is on the verge of a smaller Bullish breakout that projects a move above 1866.25 to nearly exactly 1950. However, this smaller move would indicate a rally above the previous swing high that would project a larger objective for the market. Because the Nasdaq is downward sloping with a lower previous low I will use the Dow with a higher low as an indicator for Equities. Above 10,536 the Dow projects a move based on the left low to 11,462 or to just above its highs for the year.
Crude Oil- Short term Crude Oil has set off a Bullish pattern above $78.55 that projects a move to $81.48. This move in turn will set off a much larger projection above $80.82 that then has an objective of $91.17.
Copper- Copper has set off a pattern today above $3.1230 that now has a projection of $3.3210. Although the market also came very close to the apex of the triangle consolidation pattern we should also keep in mind the 46 cent projection that has an objective of around $3.52 for the larger move.
Australian Dollar- The Aussie Dollar is stronger technically than the Canadian and with a close above .8772 that provides an objective of .9297 or just above the highs for the year.
In Summary
Most of these correlated markets have shorter term projections, but will likely eventually provide larger objectives through a series of domino moves. These objectives all point towards a macro rally back near the previous highs for the year. Although this is not an exact science and there are a lot of causal what ifs I view this move as a strong rally that will likely unfold over the rest of this month and August.
What to Keep an Eye On and Beyond
Fixed Income
I have repeatedly pointed out that the Fixed Income markets continue to maintain their uptrending rally, so this should be an interesting sidenote to gauge the future action. Money can flow into both risk and risk aversion assets as a hedge, but I still believe that the market is in a mode where only one will dominate. This means that if the macro rally holds true that both the Japanese Yen and Fixed Income should suffer a break in prices over the next month and a half. However, as the Fixed Income markets tend to front run the Equity moves it is highly possible that after a macro rally we could see another subsequent break, as a move that lags behind but follows this drop in interest rates.
European Currencies
The European Currencies should also be an interesting note as their correlation to the broader market is suspect at best right now. We saw during the first half of the year how these Currencies can fall off the table while the rest of the market can simultaneously continue to rally. The Currencies tend to move in a cyclical fashion over a longer series of time and according to a 3 leg wave I still see the Euro at least travelling to par with the U.S. Dollar over a series of time. The duration of this move is still up in the air though and we shall see if the next move is sooner rather than later or swifter rather than slower.
Fundamental Concerns and Cyclical Patterns
I still do not believe that we are out of the proverbial woods on the global concerns that are now front and center in the markets. The European debt and unrest story, Chinese market bubble, U.S. debt and overspending, and unwinding of stimulus plans should continue to develop over time. While the break in the market since late April was rather nasty I believe that this is still more of a precursor to a further market decline either later this year or next. The swings in the market over the last half decade have followed a similar pattern with Currency moves leading roughly six months ahead of Equities and Commodities and Fixed Income moves leading these same markets by roughly 5 months. While this rally looks probable I would still keep a potential larger move lower on your radar going forward. Double top anybody?
Finally
In the Gartman Letter on Wednesday he referred to Tuesday's action as a tectonic shift to begin buying Equity dips off of. Although he did not presume much this was the first place that spoke something about Tuesday's action and led me to my essay today. Nothing in the markets is for sure, but if this picture does unwind just remember that you heard it here 2nd (and with much more detail).
Have a good weekend and I will be back Monday.
The Realization
In yesterday's letter I think I adequately animated my mental anguish over Tuesday morning's unanticipated buying spree. This was the morning the market exploded higher across the board despite the lack of any significant Bullish fundamental or technical signals. It is in fact a re-examination of this buying, coupled with today's action, that has me coming to a more thorough conclusion this afternoon. The reason we are seeing this buying enter has little to do with the news or technicals of the day (regardless of what you hear on TV or read in a newsletter...these guys need to come up with some sort of explanation to get a paycheck), but rather with the over-riding story that free money is still available.
Although the macro market continues to sit in a sideways range there appears to be a shift in the environment that was evident after this morning's open. The trade has acted impulsively in either direction with contrary reactions to both Bullish and Bearish fundamental and technical signals. However, it is pretty clear after the buying that continued this morning that there is now an overwhelming amount of allocation into the supportive markets. While the market broke heavily in preparation to Bernacke's report yesterday afternoon, it appears that the big money is now banking on the assumption that the extended period of 0% rates will continue much longer. This means the borrow cheap and bet big on risky assets trade looks like it is back on for the time being.
How the Allocation Works, the Indicators, and How to Trade it
Allocation
As we have seen over the last 18 months in the market it is indeed now money flow that is the largest fundamental in the market. While it can be seen in the technicals and can correlate to fundamentals it is in itself the driving force for price. Right now it appears that the money is coming in beginning around 7:30 am (CT) and specifically within the first hour of the stock market open at 8:30 am (CT), but in the past we have also seen another round at 2 pm (CT) during the last hour of Equity trade. During the morning though it is strong...and stronger than normal...due to the low volume over the summer months. You also now have more computer trading programs than ever before and many attempt to front run buying when it gets a hint that it is coming to sell it back higher. This means that the spurts are bigger and easily run over higher volume and technical resistance levels in the market. Moreover, I speculate that the institutional money is attempting "purposeful buying", meaning they are not necessarily looking for the best entry, but rather to in fact push the market higher.
Right now the buying is coming into the Equity, Energy (minus Nat. Gas), Metal, the Australian Dollar, and the Canadian Dollar markets as the most correlated group. Both the Soft and Grain markets have had their own rounds of allocation during June and the beginning of July, but they appear to be following their individual fundamentals...or lack thereof for right now. Also, the European Currencies seem to still be trading the European story rather than the correlation to U.S. Equities. Although this Currency group can move with the macro market, as it did today, it is not necessarily the same move as I will describe in the Beyond section.
Indicators
As you may have noticed from some of my late notes I have a few indicators that I look for to see if an allocation is coming for the day. First, I look for buying on the European open beginning between 1 - 3 am (CT). Oftentimes this is followed by a continuation on the trend higher overnight and into the morning. Next, there is often buying that enters the market during the Metal open (namely in Gold and Silver) at 7:20 am. This is not a necessary signal, as it did not occur this morning, but if it does then you have another red flag. Finally, there is usually a flood into Crude Oil on the 8 am open like this morning. We usually see very little break on the rallies leading up to the big buying that enters at 8:30 across all of the market because (and this is partially speculation) you have a large group of prop traders working for these institutions that know the buying is coming and front run the trade themselves (I wish I got peak orders). If you get 2 out of 3 of these signals you can bet that the inflow is coming.
Trade
To take advantage of the trade it is usually best to jump in around 7:30 am, but if the opportunity is not ripe yet then waiting until the 8:30 stock market open is second best. Due to the current volatility and skittishness of the market I still recommend executing this more as a day trade than a position entry as well. There are still likely to be violent breaks in the market and the release of poor fundamental news can always sidetrack a rally. Putting this all together means that I recommend buying dips as the best strategy to carry forward over the next couple months.
Where the Technicals Point
As I look at the market right now the technical leaders among the market are Nasdaq, Crude Oil, Copper, and the Australian Dollar, so I will go through and highlight what the rally possibilities are for each market:
Nasdaq- Short term the market is on the verge of a smaller Bullish breakout that projects a move above 1866.25 to nearly exactly 1950. However, this smaller move would indicate a rally above the previous swing high that would project a larger objective for the market. Because the Nasdaq is downward sloping with a lower previous low I will use the Dow with a higher low as an indicator for Equities. Above 10,536 the Dow projects a move based on the left low to 11,462 or to just above its highs for the year.
Crude Oil- Short term Crude Oil has set off a Bullish pattern above $78.55 that projects a move to $81.48. This move in turn will set off a much larger projection above $80.82 that then has an objective of $91.17.
Copper- Copper has set off a pattern today above $3.1230 that now has a projection of $3.3210. Although the market also came very close to the apex of the triangle consolidation pattern we should also keep in mind the 46 cent projection that has an objective of around $3.52 for the larger move.
Australian Dollar- The Aussie Dollar is stronger technically than the Canadian and with a close above .8772 that provides an objective of .9297 or just above the highs for the year.
In Summary
Most of these correlated markets have shorter term projections, but will likely eventually provide larger objectives through a series of domino moves. These objectives all point towards a macro rally back near the previous highs for the year. Although this is not an exact science and there are a lot of causal what ifs I view this move as a strong rally that will likely unfold over the rest of this month and August.
What to Keep an Eye On and Beyond
Fixed Income
I have repeatedly pointed out that the Fixed Income markets continue to maintain their uptrending rally, so this should be an interesting sidenote to gauge the future action. Money can flow into both risk and risk aversion assets as a hedge, but I still believe that the market is in a mode where only one will dominate. This means that if the macro rally holds true that both the Japanese Yen and Fixed Income should suffer a break in prices over the next month and a half. However, as the Fixed Income markets tend to front run the Equity moves it is highly possible that after a macro rally we could see another subsequent break, as a move that lags behind but follows this drop in interest rates.
European Currencies
The European Currencies should also be an interesting note as their correlation to the broader market is suspect at best right now. We saw during the first half of the year how these Currencies can fall off the table while the rest of the market can simultaneously continue to rally. The Currencies tend to move in a cyclical fashion over a longer series of time and according to a 3 leg wave I still see the Euro at least travelling to par with the U.S. Dollar over a series of time. The duration of this move is still up in the air though and we shall see if the next move is sooner rather than later or swifter rather than slower.
Fundamental Concerns and Cyclical Patterns
I still do not believe that we are out of the proverbial woods on the global concerns that are now front and center in the markets. The European debt and unrest story, Chinese market bubble, U.S. debt and overspending, and unwinding of stimulus plans should continue to develop over time. While the break in the market since late April was rather nasty I believe that this is still more of a precursor to a further market decline either later this year or next. The swings in the market over the last half decade have followed a similar pattern with Currency moves leading roughly six months ahead of Equities and Commodities and Fixed Income moves leading these same markets by roughly 5 months. While this rally looks probable I would still keep a potential larger move lower on your radar going forward. Double top anybody?
Finally
In the Gartman Letter on Wednesday he referred to Tuesday's action as a tectonic shift to begin buying Equity dips off of. Although he did not presume much this was the first place that spoke something about Tuesday's action and led me to my essay today. Nothing in the markets is for sure, but if this picture does unwind just remember that you heard it here 2nd (and with much more detail).
Have a good weekend and I will be back Monday.
Thursday 7/22/10 Commodity Ideas
Opening Note:
Yesterday
Boy...the stock market is not very friendly to Bernacke right now. Although the market was already trading slightly lower yesterday it was a mid-day break prior to Bernacke's speech that sent the market lower to close without a hint of a rally for the second half of the day. While this was happening the Fixed Income markets exploded inversely to new highs while the supportive Commodity and Currency markets fell apart along with Equities.
Today
Now jump to this morning...the Dow already has triple digit gains, Copper has continued higher on its torrid pace, every Currency on my board is at least moderately higher (except the Dollar), and nearly every supportive Commodity market is also trading higher. However, the Fixed Income markets really are not seeing much of a price break thus far and the Yen remains slightly higher on the day as another risk aversion market. The main driver this morning is more earnings beating expectations and a positive PMI number out of Europe that has overwhelmed the Bearish sentiment of yesterday's uncertain comments out of Bernacke, but we shall see if Jobless Claims or Existing Home Sales this morning take apart these gains.
Important Correlations
A few things are important to note among the inter-commodity correlation web. We still remain in a very tightly correlated market for the time being, but there is again some divergence among the Bullish and Bearish pull for right now. Pull up a daily chart of the Bonds and slap a trendline on it from the low April 7th to the low June 16th and notice that this Bull trend has not had two consecutive closes below it for this entire time. There are times when money flows into both Fixed Income and Equities, but this is not an instance where that correlation is in play. Fixed Income, being the largest worldwide market, tends to lead Equities and not the other way around. The fact that we are beginning to see some scary levels on these Fixed Income markets again does not paint a Bullish picture for the Equity markets. If the Fixed Income tends to lead and has a straight uptrend over the last 3 1/2 months while Equities have sat sideways over the last couple months we could see a lagging move lower in the stock market on the heels of this current drop in interest rates.
However, over the last 3 days Copper has completely taken off on a genuine rally and this morning the Australian Dollar has finally made new highs after repeatedly failing on its 8 previous attempts. Although the market now looks like it is fading after the Jobless Claims number, both of these are positive short term signs that could lead the macro market higher for a short period. Crude Oil and some of the other Metal and Currency markets are not showing the same voracity though, so take these signs with a grain of salt at least for today.
Day Trade is the Smart Trade
This market action over the last 24 hours is again why I feel that day trading is the way to go for right now. If you did sell the Dow yesterday afternoon you went to bed with a triple digit winner, but woke up with just about a scratch this morning despite your excellent analysis. With overall positive Earnings reports and overall negative economic reports lately we have a bi-polar sideways market that is difficult to predict and shifts on a 12 hour basis. Focusing on shorter moves and taking profits when you have them should continue to be the way to trade for the rest of this month.
**Late Note- The market has recovered nicely since the weaker than expected Jobless Claims number. Although there was not much buying on the Metal open the Energy market has seen big buying enter since it's open. With the Stock Market now hanging near it's high it is very possible that there could be an early rally. However, between 1077 - 1079 for the S&P 500 there is resistance as well as from 1086.50 - 1091, so I do not expect the rally to continue much higher.
***European Stress Tests Released Tomorrow
Buys to Watch:
December Soybean Meal (and the Grain Sector)- Seriously...throw me a bone here. I have been on the Soybean Meal rally for a couple weeks now, as it has the best technical looking base and fluid chart pattern among the Grain Sector, but despite having good support the market just can not seem to hold a rally. The cards have not fallen right for the market on a number of different occasions now as well, as again this morning the Grain Sector is higher but the Bean Oil is leading the Soybean Complex. Right now if you are still long Meal you need to keep an eye on the Oil Share chart (Dec. Bean Oil - Dec. Soy Meal) to decide whether to hold the Meal position. This spread has set up a base, and looking at a 60 minute chart if it is able to rally above 1125 it looks likely that continues to at least 1250 in favor of the Bean Oil. It is also possible that it heads back into this base range, so until the spread has a rally breakout I would stick with the Meal for the time being.
For entry in Meal the higher volume support is still between $279 - 281 and the longer term projection is to $307.1 for the market. With the lows overnight at $283 in the Dec. Meal I now will not hold a long position below this level and will instead look for entry in either a long position in Soybeans or Wheat (Wheat rally above $6.00 today should maintain the Bullish move). Overnight Wheat, Beans, and Corn are all higher, so if Meal is unable to sustain prices above the overnight lows then the trade is dead to me and I would rather find more action by watching paint dry, water boil, or playing with sticks.
Sells to Watch:
Put on the Radar:
Copper- Call me skeptical or a chicken, but I am still waiting on long entry into the copper market. Just two days ago the Copper was on the Radar as a sell, but after the last few days the market has reversed to a Bullish breakout. The market has an objective of $3.2150 that is already in play with the move above $3.07 yesterday, but overnight the market rallied above some higher volume resistance from a previous swing high that now provides a larger objective of $3.3210. This previous high volume swing high of $3.1230 now provides support for the market from $3.1040 - 3.1150 for purchase against, but the near term support from yesterday does not fall until $3.0880 - $3.0980. This means that stop placement does have a pretty wide range, so I recommend waiting for a pullback to near the $3.12 level if you are looking to buy Copper.
Euro- The Euro is higher...much higher this morning on the positive news out of Europe, but the market is running into some stronger resistance from the possible reversal top in the market. I am not convinced as of right now that the Euro has made a definite short term top, but the stretch of low volume trade between 1.2838 - 1.2872 has reached the upper end of this range this morning. There is high volume resistance falling between 1.2884 - 1.2906 for stop placement above on a low risk trade possibility for today. I again am not positive that the Euro is moving much lower, but I expect a move to around 1.27 at least on this 1:6 risk/reward proposition if you can sell it near the upper end of the low vol zone. Be aware that the European Stress Tests are set to be released around noon tomorrow, yet I have heard rumors that they may be released even earlier. Unless you already have a sizable profit I would not recommend holding a position in the Euro.
Bonds- Bonds found a strong rally on Bernacke's "Unusual Uncertainty" comments and made a new high close yesterday as it maintained another rally bounce off of the upward trend. There is now a good low volume zone left from yesterday's rally between 128.11 - 128.23 with the lower end from 128.11 - 128.17 being the preferred level for long entry. Yesterday's higher volume support falls between 128.03 - 128.09, but the previous spike high for the market has higher volume support that begins at 128.13 with a significant patch of support down to 1.28. The longer term projection on the weekly chart is still to 133 - 134, but consistent with the day trade philosophy I recommend riding the rally and taking profits after momentum emerges and begins to fail on the 15 minute chart. Looking for profits around a test of 130 is a good level to look for.
Notes:
September Coffee- I know very little about the fundamentals of the Coffee market, but the report that I received yesterday predicted a Bearish move in the market as much of the previous rally was on Fund allocation that has dried up without a real Bullish story in the physical market. Below 156.85 Coffee has an objective of 143.80 on the Bearish cup and handle reversal. Yesterday afternoon before the 12:30 (CT) close the market did break below this 156.85 level, but strong buying emerged just below this level as 1 Lot Iceberg orders rallied the market to close just above 157 and maintain the close above the breakout. Protective buying? Bullish Fake Out? No Real Story? I am not sure, but with a tight stop I would not mind looking at this one again if it dips below 157.
Yesterday
Boy...the stock market is not very friendly to Bernacke right now. Although the market was already trading slightly lower yesterday it was a mid-day break prior to Bernacke's speech that sent the market lower to close without a hint of a rally for the second half of the day. While this was happening the Fixed Income markets exploded inversely to new highs while the supportive Commodity and Currency markets fell apart along with Equities.
Today
Now jump to this morning...the Dow already has triple digit gains, Copper has continued higher on its torrid pace, every Currency on my board is at least moderately higher (except the Dollar), and nearly every supportive Commodity market is also trading higher. However, the Fixed Income markets really are not seeing much of a price break thus far and the Yen remains slightly higher on the day as another risk aversion market. The main driver this morning is more earnings beating expectations and a positive PMI number out of Europe that has overwhelmed the Bearish sentiment of yesterday's uncertain comments out of Bernacke, but we shall see if Jobless Claims or Existing Home Sales this morning take apart these gains.
Important Correlations
A few things are important to note among the inter-commodity correlation web. We still remain in a very tightly correlated market for the time being, but there is again some divergence among the Bullish and Bearish pull for right now. Pull up a daily chart of the Bonds and slap a trendline on it from the low April 7th to the low June 16th and notice that this Bull trend has not had two consecutive closes below it for this entire time. There are times when money flows into both Fixed Income and Equities, but this is not an instance where that correlation is in play. Fixed Income, being the largest worldwide market, tends to lead Equities and not the other way around. The fact that we are beginning to see some scary levels on these Fixed Income markets again does not paint a Bullish picture for the Equity markets. If the Fixed Income tends to lead and has a straight uptrend over the last 3 1/2 months while Equities have sat sideways over the last couple months we could see a lagging move lower in the stock market on the heels of this current drop in interest rates.
However, over the last 3 days Copper has completely taken off on a genuine rally and this morning the Australian Dollar has finally made new highs after repeatedly failing on its 8 previous attempts. Although the market now looks like it is fading after the Jobless Claims number, both of these are positive short term signs that could lead the macro market higher for a short period. Crude Oil and some of the other Metal and Currency markets are not showing the same voracity though, so take these signs with a grain of salt at least for today.
Day Trade is the Smart Trade
This market action over the last 24 hours is again why I feel that day trading is the way to go for right now. If you did sell the Dow yesterday afternoon you went to bed with a triple digit winner, but woke up with just about a scratch this morning despite your excellent analysis. With overall positive Earnings reports and overall negative economic reports lately we have a bi-polar sideways market that is difficult to predict and shifts on a 12 hour basis. Focusing on shorter moves and taking profits when you have them should continue to be the way to trade for the rest of this month.
**Late Note- The market has recovered nicely since the weaker than expected Jobless Claims number. Although there was not much buying on the Metal open the Energy market has seen big buying enter since it's open. With the Stock Market now hanging near it's high it is very possible that there could be an early rally. However, between 1077 - 1079 for the S&P 500 there is resistance as well as from 1086.50 - 1091, so I do not expect the rally to continue much higher.
***European Stress Tests Released Tomorrow
Buys to Watch:
December Soybean Meal (and the Grain Sector)- Seriously...throw me a bone here. I have been on the Soybean Meal rally for a couple weeks now, as it has the best technical looking base and fluid chart pattern among the Grain Sector, but despite having good support the market just can not seem to hold a rally. The cards have not fallen right for the market on a number of different occasions now as well, as again this morning the Grain Sector is higher but the Bean Oil is leading the Soybean Complex. Right now if you are still long Meal you need to keep an eye on the Oil Share chart (Dec. Bean Oil - Dec. Soy Meal) to decide whether to hold the Meal position. This spread has set up a base, and looking at a 60 minute chart if it is able to rally above 1125 it looks likely that continues to at least 1250 in favor of the Bean Oil. It is also possible that it heads back into this base range, so until the spread has a rally breakout I would stick with the Meal for the time being.
For entry in Meal the higher volume support is still between $279 - 281 and the longer term projection is to $307.1 for the market. With the lows overnight at $283 in the Dec. Meal I now will not hold a long position below this level and will instead look for entry in either a long position in Soybeans or Wheat (Wheat rally above $6.00 today should maintain the Bullish move). Overnight Wheat, Beans, and Corn are all higher, so if Meal is unable to sustain prices above the overnight lows then the trade is dead to me and I would rather find more action by watching paint dry, water boil, or playing with sticks.
Sells to Watch:
Put on the Radar:
Copper- Call me skeptical or a chicken, but I am still waiting on long entry into the copper market. Just two days ago the Copper was on the Radar as a sell, but after the last few days the market has reversed to a Bullish breakout. The market has an objective of $3.2150 that is already in play with the move above $3.07 yesterday, but overnight the market rallied above some higher volume resistance from a previous swing high that now provides a larger objective of $3.3210. This previous high volume swing high of $3.1230 now provides support for the market from $3.1040 - 3.1150 for purchase against, but the near term support from yesterday does not fall until $3.0880 - $3.0980. This means that stop placement does have a pretty wide range, so I recommend waiting for a pullback to near the $3.12 level if you are looking to buy Copper.
Euro- The Euro is higher...much higher this morning on the positive news out of Europe, but the market is running into some stronger resistance from the possible reversal top in the market. I am not convinced as of right now that the Euro has made a definite short term top, but the stretch of low volume trade between 1.2838 - 1.2872 has reached the upper end of this range this morning. There is high volume resistance falling between 1.2884 - 1.2906 for stop placement above on a low risk trade possibility for today. I again am not positive that the Euro is moving much lower, but I expect a move to around 1.27 at least on this 1:6 risk/reward proposition if you can sell it near the upper end of the low vol zone. Be aware that the European Stress Tests are set to be released around noon tomorrow, yet I have heard rumors that they may be released even earlier. Unless you already have a sizable profit I would not recommend holding a position in the Euro.
Bonds- Bonds found a strong rally on Bernacke's "Unusual Uncertainty" comments and made a new high close yesterday as it maintained another rally bounce off of the upward trend. There is now a good low volume zone left from yesterday's rally between 128.11 - 128.23 with the lower end from 128.11 - 128.17 being the preferred level for long entry. Yesterday's higher volume support falls between 128.03 - 128.09, but the previous spike high for the market has higher volume support that begins at 128.13 with a significant patch of support down to 1.28. The longer term projection on the weekly chart is still to 133 - 134, but consistent with the day trade philosophy I recommend riding the rally and taking profits after momentum emerges and begins to fail on the 15 minute chart. Looking for profits around a test of 130 is a good level to look for.
Notes:
September Coffee- I know very little about the fundamentals of the Coffee market, but the report that I received yesterday predicted a Bearish move in the market as much of the previous rally was on Fund allocation that has dried up without a real Bullish story in the physical market. Below 156.85 Coffee has an objective of 143.80 on the Bearish cup and handle reversal. Yesterday afternoon before the 12:30 (CT) close the market did break below this 156.85 level, but strong buying emerged just below this level as 1 Lot Iceberg orders rallied the market to close just above 157 and maintain the close above the breakout. Protective buying? Bullish Fake Out? No Real Story? I am not sure, but with a tight stop I would not mind looking at this one again if it dips below 157.
Wednesday, July 21, 2010
Wednesday 7/21/10 Commodity Ideas
Opening Note:
My prediction in yesterday's letter that we could see continued losses in Equities throughout yesterday proved to be exactly the opposite as the market promptly made a base around 7:30 as the risk trade was put back on across the entire market. The Australian Dollar, Copper, Crude Oil, and Gold all saw strong buying enter the market around the U.S. stock market open that continued on an up-trending line as the leaders for the market yesterday. Finding myself caught off guard on this strong rally I glanced at a few different market newsletters to see if anybody else had predicted the precipitous gains and what exactly they were watching, but all I really found was similar opinions to my own or vague references to sideways trade (if somebody does have an analyst that predicted a strong rally I am interested to see what they were looking at).
I put together a small replay to go over how this rally could be evident with the signals provided and hopefully find a proper conclusion:
To begin, Friday saw a strong bearish reversal in the macro market with Monday sitting in more of a sideways range trade. Although Monday was sideways trade, most of the supportive markets reversed to negative momentum and trend indicators with a strong correlation between the macro market. Monday evening IBM reported negative earnings that sent the market lower below the sideways range from earlier in the day with stronger support falling all the way at 1040 for the S&P 500 below 1057. After trading lower overnight weaker than expected earnings from Goldman Sachs and Housing Starts numbers were released around 7:30 am. This means technical support fell significantly lower with negative Bearish momentum, Earnings data was weaker than expected, and Economic Data was weaker than expected. Still, despite Bearish looking short term daily charts, the Metals reversed higher as buying entered on the open. This was followed by buying of Equities, most Commodity Sectors, and the Supportive Currencies (Aussie & Canadian for right now).
Now, one could argue that the S&P 500 found psychological support at 1050, but if you made this argument and bought off this level you have gotten run over at least 5 times the last 2 1/2 months. You could also say that the market was oversold after Friday's action, but I say erroneous as the daily charts are not saying anything near this assumption except possibly in the Metals. The one compelling argument that I can make and my conclusion is that the short term 15 minute and 60 minute chart momentum reversed to a bullish mode after forming a base. The way that the trade is going right now, it seems that regardless if the move is Bullish or Bearish the market pushes prices as far as it can as low volume allows the superior trading programs to really move the market right now.
In conclusion, I have to say that looking for anything more than a 24 hour trade right now is a difficult proposition. Trading technical patterns and support/resistance is very inconsistent as is the fundamental story from day to day. I have gotten worked over going with the breakout, fading against support/resistance, and looking for reversals. The only way that I have made money during July is going with these shorter term momentum shifts during the main trading hours and taking profits later that day. I believe we will continue to see sideways trade going forward for the rest of this month and recommend looking for these shorter moves rather than focusing on larger patterns or projections for right now. The short term technicals trump the daily charts for right now and I feel that this is the best indicator now to catch trades.
Buys to Watch:
December Soybean Meal- The Meal again held the higher volume support level from $279 - 281 despite lower Soybeans and Bean Oil leading the Grain Sector in gains yesterday. Although the Meal has sat near the bottom of the lower volume entry range from $281 - 286 for the last 36 hours it finally looks like it may have a decent base to rally off of as it has settled above $284 as of 7:15 am this morning. The larger projection on the move of $307.1 still stands, but there is now some lighter resistance at $288 and slightly heavier from $290 - 292 to compete with. Although Stochastics for the daily chart did produce a sell signal yesterday, this is looking more like a 2 day pullback on the Bullish move and with a nice base now should have momentum to rally. I expect Meal to see some gains today and will have a difficult time holding a long position any further if the market can not rally today. Also, make sure to have a fairly tight stop below the $279 level as the trade is no longer Bullish below this level.
Sells to Watch:
Put on the Radar:
Euro Currency- The Euro has fallen over the last two days, likely confirming a reversal in the market. Daily Stochastics produced a sell signal 2 days ago for the market and after an outside day down yesterday (a bearish engulfing candlestick pattern) the Euro looks like it is now ripe to look for selling opportunities. Because the Euro market still has some existing uptrends for the daily chart...one falling at 1.2760 today...I am waiting for a stronger reversal pattern and entry level to quantify risk prior to entry, but be ready to start shorting the Euro again.
Notes:
Copper- What a shift in Copper over the last 24 hours! At this time yesterday morning I was looking at a confirmed Bearish breakout on the triangle consolidation pattern, but after a 17 cent rally since yesterday's newsletter the market has a strong reversal with a breakout above the triangle consolidation. I think this pretty much proves that Copper is just not a market to trade for right now as the best trades in the market are made buying lows without support and selling highs without resistance. Above $3.07 the market does have a projection of $3.2150, but after repeatedly getting tooled buying Copper breakouts I am not interested in following this move. Copper is abundant in computer algorithms right now, so the moves extend further than expected and stop at unpredictable levels. Along with both Gold and Silver I do not recommend trading Copper for the time being.
September Coffee- Along with the Metals I also have most of the Soft Sector on my "markets to avoid" list for the time being, but I wanted to at least note the potential price break on a breakout below consolidation. Below 156.85 Coffee has an objective of 143.80 on a move below the last months sideways range trade. There is strong support from 157 - 159.40 so it is likely that Coffee will stay in this range, but it would likely have strong momentum on the move lower if it is initiated.
My prediction in yesterday's letter that we could see continued losses in Equities throughout yesterday proved to be exactly the opposite as the market promptly made a base around 7:30 as the risk trade was put back on across the entire market. The Australian Dollar, Copper, Crude Oil, and Gold all saw strong buying enter the market around the U.S. stock market open that continued on an up-trending line as the leaders for the market yesterday. Finding myself caught off guard on this strong rally I glanced at a few different market newsletters to see if anybody else had predicted the precipitous gains and what exactly they were watching, but all I really found was similar opinions to my own or vague references to sideways trade (if somebody does have an analyst that predicted a strong rally I am interested to see what they were looking at).
I put together a small replay to go over how this rally could be evident with the signals provided and hopefully find a proper conclusion:
To begin, Friday saw a strong bearish reversal in the macro market with Monday sitting in more of a sideways range trade. Although Monday was sideways trade, most of the supportive markets reversed to negative momentum and trend indicators with a strong correlation between the macro market. Monday evening IBM reported negative earnings that sent the market lower below the sideways range from earlier in the day with stronger support falling all the way at 1040 for the S&P 500 below 1057. After trading lower overnight weaker than expected earnings from Goldman Sachs and Housing Starts numbers were released around 7:30 am. This means technical support fell significantly lower with negative Bearish momentum, Earnings data was weaker than expected, and Economic Data was weaker than expected. Still, despite Bearish looking short term daily charts, the Metals reversed higher as buying entered on the open. This was followed by buying of Equities, most Commodity Sectors, and the Supportive Currencies (Aussie & Canadian for right now).
Now, one could argue that the S&P 500 found psychological support at 1050, but if you made this argument and bought off this level you have gotten run over at least 5 times the last 2 1/2 months. You could also say that the market was oversold after Friday's action, but I say erroneous as the daily charts are not saying anything near this assumption except possibly in the Metals. The one compelling argument that I can make and my conclusion is that the short term 15 minute and 60 minute chart momentum reversed to a bullish mode after forming a base. The way that the trade is going right now, it seems that regardless if the move is Bullish or Bearish the market pushes prices as far as it can as low volume allows the superior trading programs to really move the market right now.
In conclusion, I have to say that looking for anything more than a 24 hour trade right now is a difficult proposition. Trading technical patterns and support/resistance is very inconsistent as is the fundamental story from day to day. I have gotten worked over going with the breakout, fading against support/resistance, and looking for reversals. The only way that I have made money during July is going with these shorter term momentum shifts during the main trading hours and taking profits later that day. I believe we will continue to see sideways trade going forward for the rest of this month and recommend looking for these shorter moves rather than focusing on larger patterns or projections for right now. The short term technicals trump the daily charts for right now and I feel that this is the best indicator now to catch trades.
Buys to Watch:
December Soybean Meal- The Meal again held the higher volume support level from $279 - 281 despite lower Soybeans and Bean Oil leading the Grain Sector in gains yesterday. Although the Meal has sat near the bottom of the lower volume entry range from $281 - 286 for the last 36 hours it finally looks like it may have a decent base to rally off of as it has settled above $284 as of 7:15 am this morning. The larger projection on the move of $307.1 still stands, but there is now some lighter resistance at $288 and slightly heavier from $290 - 292 to compete with. Although Stochastics for the daily chart did produce a sell signal yesterday, this is looking more like a 2 day pullback on the Bullish move and with a nice base now should have momentum to rally. I expect Meal to see some gains today and will have a difficult time holding a long position any further if the market can not rally today. Also, make sure to have a fairly tight stop below the $279 level as the trade is no longer Bullish below this level.
Sells to Watch:
Put on the Radar:
Euro Currency- The Euro has fallen over the last two days, likely confirming a reversal in the market. Daily Stochastics produced a sell signal 2 days ago for the market and after an outside day down yesterday (a bearish engulfing candlestick pattern) the Euro looks like it is now ripe to look for selling opportunities. Because the Euro market still has some existing uptrends for the daily chart...one falling at 1.2760 today...I am waiting for a stronger reversal pattern and entry level to quantify risk prior to entry, but be ready to start shorting the Euro again.
Notes:
Copper- What a shift in Copper over the last 24 hours! At this time yesterday morning I was looking at a confirmed Bearish breakout on the triangle consolidation pattern, but after a 17 cent rally since yesterday's newsletter the market has a strong reversal with a breakout above the triangle consolidation. I think this pretty much proves that Copper is just not a market to trade for right now as the best trades in the market are made buying lows without support and selling highs without resistance. Above $3.07 the market does have a projection of $3.2150, but after repeatedly getting tooled buying Copper breakouts I am not interested in following this move. Copper is abundant in computer algorithms right now, so the moves extend further than expected and stop at unpredictable levels. Along with both Gold and Silver I do not recommend trading Copper for the time being.
September Coffee- Along with the Metals I also have most of the Soft Sector on my "markets to avoid" list for the time being, but I wanted to at least note the potential price break on a breakout below consolidation. Below 156.85 Coffee has an objective of 143.80 on a move below the last months sideways range trade. There is strong support from 157 - 159.40 so it is likely that Coffee will stay in this range, but it would likely have strong momentum on the move lower if it is initiated.
Tuesday, July 20, 2010
Tuesday 7/20/10 Commodity Ideas
Opening Note:
Following Friday's Equity debacle the market fell into a tight range yesterday as a mixed macro trade produced a day without an interesting story and provided very little new information. The S&P 500 stayed exactly on the tick inside my support resistance levels yesterday from 1057 -59 support and 1069 - 71 resistance. One thing of note was that even after renewed weather concerns in the Gulf the Crude Oil market rejected a strong opening push above $78 and is now back trading near $76 for the September contract, as yet another highlight of Bullish failure among the correlated Commodity markets.
This morning the market is moderately weaker (moderately now meaning just barely triple digit dow losses) with the Dollar Index higher along with the Fixed Income markets and nearly every supportive market at least slightly lower. The S&P 500 has dipped below the 1057 support level already and is trending lower. Without much support for the market until near 1039.50 I expect that the market could continue to weaken and become another day of substantial losses.
The overall market continues to remain in a Bearish mode for right now so I recommend looking to sell rallies and taking a short approach among the supportive markets. However, with the low volume throughout the month of July and mainly sideways trade expectations still should be tempered on the magnitude of the moves.
Buys to Watch:
December Soybean Meal- Along with the rest of the Grain complex yesterday the December Meal suffered a sizable price break. The market traded all the way down to $281.5 on a test of the higher volume support from $279 - $281. Although the market found a late rally before the close yesterday it is again trading near this $281 support level again this morning. Between $281 - $286 the market has sat in a previous low volume zone for the market, which is a good area for long entry against the support level. The market still maintains a projection of $307.1 on its bullish breakout pattern, but this trade is on its last acceptable level for it to remain in the Buys column. Make sure to use a fairly tight stop upon new entry today below this $279 level because below this the pattern is negated and the market is no longer a buy.
Sells to Watch:
Put on the Radar:
Copper- Copper confirmed the breakout below it consolidation triangle yesterday with close below $2.9685, but has found some rally support this morning based off some future expectations on housing data despite a weaker number this morning. Today the trend value on the downside breakout is $2.9760, which falls in the middle of the large low volume "single prints" area on the market profile chart between $2.9620 and $3.0000. The market has traded into this low volume area overnight and again this morning. I believe that looking for small initial entry at this level is a good idea, but the higher volume resistance does not fall until $3.0220, so waiting for values in the upper end of this range would provide the need for less risk. The triangle pattern projects a 46 cent move (this is modified from yesterday's entry), which would mean that below the $2.96 breakout level on Friday we can expect a move to exactly $2.50 if Copper holds the current pattern. If Copper is able to establish some downward momentum then it will be moved to the sell list to look for further short entry opportunities.
Dollar Index (Euro)- Both the Dollar Index and the European Currencies appear to have potential reversals underway as pretty much all of these markets have nearly completed their expected moves. Although I still believe that the European Currencies are less predictable currently I do like the base that the Dollar Index has set up over the last 4 days and the potential "Hammer" candlestick that may be formed today as another sign of a Bullish reversal. Furthermore, the Dollar Index now has a fresh buy signal from oversold territory on the daily chart Stochastics. I think that it is time to start looking at these markets as reversals and look for opportunities to enter short positions in the European Currencies and long positions in the Dollar Index.
Notes:
Nasdaq- The Nasdaq could potentially be shifting back to the laggard of the Equity Sector despite many fundamentalists still touting the technology sector. As of late Apple has fallen under pressure and after creating a volatility pattern over the last few months is in danger of violating its 18 month upward trend. Apple makes up around 20% of the Nasdaq market cap, so a fall from grace from Apple would mean trouble for the Nasdaq Index itself. Keep an eye on the Apple stock chart and if it does indeed violate the Bullish trend then look for the Nasdaq to fall with it.
Gold and Silver (with a warning)- The Gold market still has a Bearish second leg projection to around $1151 and with the move below $1185 the move was seemingly confirmed. Silver as well is trading near the bottom of its range over the last several months and although it does not have an identifiable shorter objective it does project a move of $15 - $15.50 below the $17.25 level. However, as you can see just from a 15 minute chart this morning of both the Gold and Silver markets that both are unpredictably volatile for the time being. What you have in both markets is large entities that are entering long term positions in the market that are seemingly random in nature on a day to day basis. There is a large camp (I do not disagree either) that fundamentally believe that Gold and Silver are both good long term investments, so trading on a shorter term basis can be choppy and unpredictable based on buying that does not care about what is happening that day. In addition, both markets are flooded with computer algorithms that front-run this investment and swing the market with greater volatility than the market used to see even just a few months ago. I recommend taking note of these possible moves, but staying out of both markets for right now as all of this market action is a recipe for the individual trader to get run over.
Following Friday's Equity debacle the market fell into a tight range yesterday as a mixed macro trade produced a day without an interesting story and provided very little new information. The S&P 500 stayed exactly on the tick inside my support resistance levels yesterday from 1057 -59 support and 1069 - 71 resistance. One thing of note was that even after renewed weather concerns in the Gulf the Crude Oil market rejected a strong opening push above $78 and is now back trading near $76 for the September contract, as yet another highlight of Bullish failure among the correlated Commodity markets.
This morning the market is moderately weaker (moderately now meaning just barely triple digit dow losses) with the Dollar Index higher along with the Fixed Income markets and nearly every supportive market at least slightly lower. The S&P 500 has dipped below the 1057 support level already and is trending lower. Without much support for the market until near 1039.50 I expect that the market could continue to weaken and become another day of substantial losses.
The overall market continues to remain in a Bearish mode for right now so I recommend looking to sell rallies and taking a short approach among the supportive markets. However, with the low volume throughout the month of July and mainly sideways trade expectations still should be tempered on the magnitude of the moves.
Buys to Watch:
December Soybean Meal- Along with the rest of the Grain complex yesterday the December Meal suffered a sizable price break. The market traded all the way down to $281.5 on a test of the higher volume support from $279 - $281. Although the market found a late rally before the close yesterday it is again trading near this $281 support level again this morning. Between $281 - $286 the market has sat in a previous low volume zone for the market, which is a good area for long entry against the support level. The market still maintains a projection of $307.1 on its bullish breakout pattern, but this trade is on its last acceptable level for it to remain in the Buys column. Make sure to use a fairly tight stop upon new entry today below this $279 level because below this the pattern is negated and the market is no longer a buy.
Sells to Watch:
Put on the Radar:
Copper- Copper confirmed the breakout below it consolidation triangle yesterday with close below $2.9685, but has found some rally support this morning based off some future expectations on housing data despite a weaker number this morning. Today the trend value on the downside breakout is $2.9760, which falls in the middle of the large low volume "single prints" area on the market profile chart between $2.9620 and $3.0000. The market has traded into this low volume area overnight and again this morning. I believe that looking for small initial entry at this level is a good idea, but the higher volume resistance does not fall until $3.0220, so waiting for values in the upper end of this range would provide the need for less risk. The triangle pattern projects a 46 cent move (this is modified from yesterday's entry), which would mean that below the $2.96 breakout level on Friday we can expect a move to exactly $2.50 if Copper holds the current pattern. If Copper is able to establish some downward momentum then it will be moved to the sell list to look for further short entry opportunities.
Dollar Index (Euro)- Both the Dollar Index and the European Currencies appear to have potential reversals underway as pretty much all of these markets have nearly completed their expected moves. Although I still believe that the European Currencies are less predictable currently I do like the base that the Dollar Index has set up over the last 4 days and the potential "Hammer" candlestick that may be formed today as another sign of a Bullish reversal. Furthermore, the Dollar Index now has a fresh buy signal from oversold territory on the daily chart Stochastics. I think that it is time to start looking at these markets as reversals and look for opportunities to enter short positions in the European Currencies and long positions in the Dollar Index.
Notes:
Nasdaq- The Nasdaq could potentially be shifting back to the laggard of the Equity Sector despite many fundamentalists still touting the technology sector. As of late Apple has fallen under pressure and after creating a volatility pattern over the last few months is in danger of violating its 18 month upward trend. Apple makes up around 20% of the Nasdaq market cap, so a fall from grace from Apple would mean trouble for the Nasdaq Index itself. Keep an eye on the Apple stock chart and if it does indeed violate the Bullish trend then look for the Nasdaq to fall with it.
Gold and Silver (with a warning)- The Gold market still has a Bearish second leg projection to around $1151 and with the move below $1185 the move was seemingly confirmed. Silver as well is trading near the bottom of its range over the last several months and although it does not have an identifiable shorter objective it does project a move of $15 - $15.50 below the $17.25 level. However, as you can see just from a 15 minute chart this morning of both the Gold and Silver markets that both are unpredictably volatile for the time being. What you have in both markets is large entities that are entering long term positions in the market that are seemingly random in nature on a day to day basis. There is a large camp (I do not disagree either) that fundamentally believe that Gold and Silver are both good long term investments, so trading on a shorter term basis can be choppy and unpredictable based on buying that does not care about what is happening that day. In addition, both markets are flooded with computer algorithms that front-run this investment and swing the market with greater volatility than the market used to see even just a few months ago. I recommend taking note of these possible moves, but staying out of both markets for right now as all of this market action is a recipe for the individual trader to get run over.
Monday, July 19, 2010
Monday 7/19/10 Commodity Ideas
Opening Note:
After weaker than expected CPI, Consumer Confidence, and other economic data and positive Earnings out of some of the Financials the macro market took a turn for the worst just prior to Friday's open. An intraday downtrend led Equities lower throughout the whole day without much of a rally at any point during trading hours. This marks a shift in the recent pattern as weak Economic data has been overruled by the Earnings over the last couple weeks. This fundamental shift turned much of the market's sentiment as those that championed the recent rally (some like Mad Money's Cramer even calling 1003 S&P 500 "the lows for the year") already have sounded shaky both Friday and today after 1 single sizable lower day.
The key I have found for trading this summer market is flexibility and although I found the rally to be compelling earlier last week the technicals were screaming that the mode had shifted and a further market break was coming by Friday morning. This shift to a Bearish mode for the market continues today, and likely over the coming week at least, but I still believe that it is not the time to get too bearish either as the market is still sitting in a range despite the break on Friday. While I recommend focusing on the short side of the trade until the preponderance of evidence shifts back into a Bullish mode I am not too confident that this will be a large move lower just yet (although I still think there is one on the horizon within the next few months).
This morning the market is mostly firmer, but minimally. While Equities are higher and the risk aversion assets are lower the supportive Metals have turned slightly lower with the Currencies rather mixed. After such a lousy day Friday I consider this actually an impressive performance as the lows in S&P 500 thus far have hung above Friday's lows. I do not think that we will see much more upside for the macro market today than what we have already seen in the highs on the range, but it does not feel like another wipe out day like Friday. I suggest trading from a Bearish perspective going forward this week, but with limited expectations as it is more likely that we are still sitting in a range trade.
Buys to Watch:
December Soybean Meal- The December Meal was able to find a rally late Friday prior to the close to settle just above $290 despite suffering throughout the middle of day, establishing confirmation on the market's projection of $307.1. However, the market took a hit late this morning to settle at $286 at 7:15 am. While this move lower took out the weaker support level between $286.4 - $287.2, there is still a large low volume zone stretching between $281 - $286 with higher volume support from $279 - $281 for stop placement below. The Meal has traded lower this morning along with the Nov. Beans and Dec. Corn, so keep an eye on both of these markets for insight. However, both Beans and Corn should find support without trading much lower this morning.
Sells to Watch:
Put on the Radar:
Copper- On Friday Copper established a downside breakout below the bottom trend on its triangle consolidation. Drawn from the low June 7th to the close on July 1st the trendline has a value of $2.9685 today. The triangle pattern projects a move with a magnitude of 50 cents, which would mean an objective near $2.46, but with the pattern coming very near its apex the objective on the move is less reliable. Because this move is unconfirmed and the resistance for entry is very iffy for today I recommend waiting on entry for another day to wait for confirmation and to see if better resistance emerges to sell against. The market has a large low volume zone from the break on Friday between $2.9620 all the way to $3.0000, so the only real way to get short the market today is selling against the scary low end of this range, which was actually the high thus far and not a great idea for entry.
S&P 500 Support/Resistance- Overnight the S&P 500 found support at the higher volume level between 1057 and 1059 that should at least provide temporary support for the trade this morning. The nearby higher volume resistance sits from 1069 - 1071, which subsequently produced the high on the range overnight as well. Above this resistance there is a large swath of "single prints" on the market profile between 1076.25 - 1084, which although large is a good area to sell the S&P 500 against the 1086.50 resistance. Finally, below 1057 there is very little support in the market until 1039.50, so below this nearby support it would be a good idea to hold a short position.
Bonds and Japanese Yen- The Bonds and Yen both had strong recoveries last week to further confirm their Bullish continuation. I am not yet comfortable placing either on the Buy list for the time being, but for the Yen I still have a larger projection to around 119 and for Bonds to between the 133 and 134 handles. Some levels to keep your eye on and possibly initiate a small long position for Bonds fall between 127.26 - 127.29 with higher volume support from 127.14 - 127.22 and for the Yen against stronger support from 114.42 - 114.56. Below each of these respective support levels there is a long way until the next major support level, so I would wait for a new level tomorrow.
Notes:
Cocoa- I swear I had this written down by 6 am, but I recommend exiting long positions in Cocoa. On Friday the market rallied to $3210, but fell back $45 to settle at $3165 and again just barely above the $3144 breakout level. Within the last hour the market has also broken the $3126 support line that I provided for stop placement and with inconsistent volatility it does not feel like a good market to hold a position for right now.
Metals- Both Gold and Silver are hanging on the verge of setting off a continuation pattern lower, with Gold projecting a move to just above $1150. However, by my calculations about 99.9% of the trade in both of these markets appears to be coming off computer trading programs that have significantly changed the landscape of the short term trade over this year. As you have likely noticed if you trade the markets, the amount of fading programs (programs that jump in and buy the lows with large volume to scare shorts out of the market in an attempt to swing the market higher on a short covering rally and reject the breakout) have made it difficult to carry a short position.
After weaker than expected CPI, Consumer Confidence, and other economic data and positive Earnings out of some of the Financials the macro market took a turn for the worst just prior to Friday's open. An intraday downtrend led Equities lower throughout the whole day without much of a rally at any point during trading hours. This marks a shift in the recent pattern as weak Economic data has been overruled by the Earnings over the last couple weeks. This fundamental shift turned much of the market's sentiment as those that championed the recent rally (some like Mad Money's Cramer even calling 1003 S&P 500 "the lows for the year") already have sounded shaky both Friday and today after 1 single sizable lower day.
The key I have found for trading this summer market is flexibility and although I found the rally to be compelling earlier last week the technicals were screaming that the mode had shifted and a further market break was coming by Friday morning. This shift to a Bearish mode for the market continues today, and likely over the coming week at least, but I still believe that it is not the time to get too bearish either as the market is still sitting in a range despite the break on Friday. While I recommend focusing on the short side of the trade until the preponderance of evidence shifts back into a Bullish mode I am not too confident that this will be a large move lower just yet (although I still think there is one on the horizon within the next few months).
This morning the market is mostly firmer, but minimally. While Equities are higher and the risk aversion assets are lower the supportive Metals have turned slightly lower with the Currencies rather mixed. After such a lousy day Friday I consider this actually an impressive performance as the lows in S&P 500 thus far have hung above Friday's lows. I do not think that we will see much more upside for the macro market today than what we have already seen in the highs on the range, but it does not feel like another wipe out day like Friday. I suggest trading from a Bearish perspective going forward this week, but with limited expectations as it is more likely that we are still sitting in a range trade.
Buys to Watch:
December Soybean Meal- The December Meal was able to find a rally late Friday prior to the close to settle just above $290 despite suffering throughout the middle of day, establishing confirmation on the market's projection of $307.1. However, the market took a hit late this morning to settle at $286 at 7:15 am. While this move lower took out the weaker support level between $286.4 - $287.2, there is still a large low volume zone stretching between $281 - $286 with higher volume support from $279 - $281 for stop placement below. The Meal has traded lower this morning along with the Nov. Beans and Dec. Corn, so keep an eye on both of these markets for insight. However, both Beans and Corn should find support without trading much lower this morning.
Sells to Watch:
Put on the Radar:
Copper- On Friday Copper established a downside breakout below the bottom trend on its triangle consolidation. Drawn from the low June 7th to the close on July 1st the trendline has a value of $2.9685 today. The triangle pattern projects a move with a magnitude of 50 cents, which would mean an objective near $2.46, but with the pattern coming very near its apex the objective on the move is less reliable. Because this move is unconfirmed and the resistance for entry is very iffy for today I recommend waiting on entry for another day to wait for confirmation and to see if better resistance emerges to sell against. The market has a large low volume zone from the break on Friday between $2.9620 all the way to $3.0000, so the only real way to get short the market today is selling against the scary low end of this range, which was actually the high thus far and not a great idea for entry.
S&P 500 Support/Resistance- Overnight the S&P 500 found support at the higher volume level between 1057 and 1059 that should at least provide temporary support for the trade this morning. The nearby higher volume resistance sits from 1069 - 1071, which subsequently produced the high on the range overnight as well. Above this resistance there is a large swath of "single prints" on the market profile between 1076.25 - 1084, which although large is a good area to sell the S&P 500 against the 1086.50 resistance. Finally, below 1057 there is very little support in the market until 1039.50, so below this nearby support it would be a good idea to hold a short position.
Bonds and Japanese Yen- The Bonds and Yen both had strong recoveries last week to further confirm their Bullish continuation. I am not yet comfortable placing either on the Buy list for the time being, but for the Yen I still have a larger projection to around 119 and for Bonds to between the 133 and 134 handles. Some levels to keep your eye on and possibly initiate a small long position for Bonds fall between 127.26 - 127.29 with higher volume support from 127.14 - 127.22 and for the Yen against stronger support from 114.42 - 114.56. Below each of these respective support levels there is a long way until the next major support level, so I would wait for a new level tomorrow.
Notes:
Cocoa- I swear I had this written down by 6 am, but I recommend exiting long positions in Cocoa. On Friday the market rallied to $3210, but fell back $45 to settle at $3165 and again just barely above the $3144 breakout level. Within the last hour the market has also broken the $3126 support line that I provided for stop placement and with inconsistent volatility it does not feel like a good market to hold a position for right now.
Metals- Both Gold and Silver are hanging on the verge of setting off a continuation pattern lower, with Gold projecting a move to just above $1150. However, by my calculations about 99.9% of the trade in both of these markets appears to be coming off computer trading programs that have significantly changed the landscape of the short term trade over this year. As you have likely noticed if you trade the markets, the amount of fading programs (programs that jump in and buy the lows with large volume to scare shorts out of the market in an attempt to swing the market higher on a short covering rally and reject the breakout) have made it difficult to carry a short position.
Friday, July 16, 2010
Friday 7/16/10 Commodity Ideas
Opening Note:
Led by an opening break the Equity markets cleared out some of the weak longs in the first hour of trade, but found support on their higher volume base to rally in the late afternoon to settle only slightly lower on the day. This again was an impressive performance from the Equity markets as positive Earnings reports have trumped the weak Economic data and concerning macro troubles around the globe. The Equities have been the leader in the macro market over the last few days and I have expressed optimism that they have good potential for short term continuation, but as of this morning I am concerned that this is not likely not the case anymore as a number of factors are pointing towards a top forming and ensuing move lower:
First off, the risk aversion markets of the Japanese Yen and Bonds now have reversed to maintain their climb higher, and in the Yen's case have now rallied to new highs on the move. The Dollar Index, one of the other risk aversion markets, has come under significant pressure over the last month, but is now entering some higher volume support between 80.50 and 82.50 that should provide a good reversal opportunity for the market.
Next, I will go into greater depth in the Notes section, but I have about 7 different supportive markets across the Currency, Energy, Metal, and Equity Sectors that now look like they are possibly forming bearish head and shoulders patterns on their daily charts. The first few could be coincidence, but to have 7 that fit this basic pattern is not accidental.
Furthermore, the supportive markets like the Australian Dollar, Crude Oil, and Copper that ran higher in front of the Equity rally have given back strength lately. All have had futile attempts at taking out the previous swing highs for their individual market and have fallen into more of a laggard mode in relation to the Equities. The rally patterns had sizable projections that would have pointed to a large macro rally, but after 9+ spike failures in the Australian Dollar over the last 4 days I do not believe that the 10th attempt has a strong possibility of a rally breakout.
Finally, the S&P 500 is trapped against higher volume resistance ranging from 1105 - 1114, the 1130 level that is the 50% retracement level from the April highs, and the roughly 1145 level that coincides with the 61.8% retracement level from these same highs. Sure there may be attempts at taking these out, but the fundamental support for the market is waning along with momentum. I seriously doubt the Equities ability to continue above all of these resistance levels for the time being.
This morning the market is pretty close to even across the board with a rally breakout above 115 for the Japanese Yen, further short covering in the Euro near the 130 level, and subsequently a lower Dollar the most notable moves. For today I believe that it is likely that the market will remain rather range bound heading into the weekly close, but as I have made the case already, the momentum in the market has shifted from a bullish mode back to a bearish tone. With most markets still remaining in a range bound trade I do not feel that this is the time to begin making large longer term bets one way or the other because the possibility still remains that the macro market moves higher or lower, with the move likely having momentum after this consolidation buildup. However, the probability that the move is lower has now increased.
Buys to Watch:
December Soybean Meal- I know that I am waiting for 2 daily closes for confirmation on the move, but when the Meal has over a $10 rally on the breakout I feel pretty confident that the move will hold. The December Meal rallied above the $279.8 breakout level yesterday with a close above $290 and now has a projection of $307.1. The December contract again outperformed the August contract yesterday, which also gives more confirmation that this is the better long term market to play the Meal rally in. For initiation of a long position today there is a small low volume zone between $287.4 - 287.8 with higher volume support 286.4 - 287.2. This is not the greatest entry level, but with the market hanging higher overnight without much of a pullback I wanted to provide this higher number. If the market does provide a larger pullback then the range from $281.6 - 286.0 is all a low volume zone for long entry with higher volume support from 279 - 281 for stop placement below. It is also important to keep an eye on the November Soybeans. Right now I have a smaller projection for the Nov Beans of $10.00, but the market did close above the $9.87 swing high from April yesterday, which could point towards a move near $11 if momentum maintains.
September Cocoa- I put this one in the Buys section with caution. The September Cocoa now has two consecutive closes at or above the breakout level of $3144 and now has a projection of $3348. Cocoa has moved higher early this morning and the two previous days of trade now provide some good support to purchase against. There is a lower volume zone between $3156 - $3174 left from this morning's rally with higher volume support ranging from $3126 - 3154 for stop placement below. I am strictly waiting for this pullback level and placing my stop just below this higher volume support upon entry because below this level the market easily has the ability to fall over $100. There is also resistance in the market between $3225 and 3256 that will provide some pressure on the market if it is reached. This is my least friendly trade suggestion for the time being, so I recommend using smaller size for execution.
Sells to Watch:
Put on the Radar:
S&P 500- The S&P 500 is still in the range between high volume support and resistance. The resistance still remains between 1105 and 1114 with the low volume zone between 1098.25 - 1103.25 being a good level to take long profits or to enter a short position fade against the resistance levels. The higher volume support still falls between 1069 - 1080 with the stronger portion between 1069 - 1075 being a good level to take short profits or enter a long position fade against between 1076 - 1081. Per my essay in the Opening Note (with great transitional paragraph intros I must add) I believe that we are now more likely to take out the support level than the resistance level, but this range will likely hold for at least today.
Australian Dollar- The Aussie has been on the radar as a potential buy for well over a week, but momentum in the market appears to be shifting meaning that it is no longer a buy. Over the last four days there have been at least 9 attempts at a breakout above the .8772 level, but each rally has ended in failure. It is now very unlikely that there will be a successful move above the breakout. I still recommend keeping this market on your radar as an indicator, because a move below .7600 would mean that the support has fallen apart and the macro market will likely travel lower with the Aussie.
Japanese Yen- In my confusion over the last couple weeks my opinion of the Yen shifted to more of a potentially Bearish correction on the Bullish move, but since finding support at the low volume level between 112.12 and 112.54 the market has taken off on a rocket fuel rally. This morning the market has held a rally above the 115 resistance level that would now point towards a resumption of the earlier objective of 119 for the market. Along with the Bond market I know believe that you have to look at the Yen as market to strictly only look for buying opportunities.
Notes:
The 7 Supportive Market Bearish Head and Shoulders- The markets are: Crude Oil, Dow, Palladium, Platinum, Silver, Canadian Dollar, and Peso (yes the Peso is supportive). With each of these markets putting in an initial top on what could be a right shoulder over the last few days it appears that the macro market's momentum is also losing steam.
European Currencies- You say tomato...I say short covering. Yes the Euro, Pound, and Franc will all higher yesterday again, but this is not to be taken as a supportive move for the macro market. The European Currencies were the most popular short over the first half of the year and this recent break appears to now be nothing more than temporary short covering lately. I know that the violation of the downward trend for the Euro yesterday between 1.28 and 1.285 caused a number of shorts to cover, which has continued into today. However, I believe that these markets will now lose bullish steam. The Euro has a projection of 1.3090 and the Franc a projection of .9730. I believe that these are great levels to take profits on long positions if they are reached and also levels to start looking at shorting these Currencies again.
Bonds- With the reversal and resumption of the upward trend in the market I believe you have to look for further buying opportunities going forward. The weekly chart for the Bonds still has a pattern projection between 133 and 134, which along with confirmation from the Yen is now the next target area. There is a good low volume level between 127.01 - 127.11 with higher volume support at 126.25 - 126.26 for stop placement. This is a great setup, but before placing the Bonds on the Buy list I would like to see a rally above the 128 resistance.
Led by an opening break the Equity markets cleared out some of the weak longs in the first hour of trade, but found support on their higher volume base to rally in the late afternoon to settle only slightly lower on the day. This again was an impressive performance from the Equity markets as positive Earnings reports have trumped the weak Economic data and concerning macro troubles around the globe. The Equities have been the leader in the macro market over the last few days and I have expressed optimism that they have good potential for short term continuation, but as of this morning I am concerned that this is not likely not the case anymore as a number of factors are pointing towards a top forming and ensuing move lower:
First off, the risk aversion markets of the Japanese Yen and Bonds now have reversed to maintain their climb higher, and in the Yen's case have now rallied to new highs on the move. The Dollar Index, one of the other risk aversion markets, has come under significant pressure over the last month, but is now entering some higher volume support between 80.50 and 82.50 that should provide a good reversal opportunity for the market.
Next, I will go into greater depth in the Notes section, but I have about 7 different supportive markets across the Currency, Energy, Metal, and Equity Sectors that now look like they are possibly forming bearish head and shoulders patterns on their daily charts. The first few could be coincidence, but to have 7 that fit this basic pattern is not accidental.
Furthermore, the supportive markets like the Australian Dollar, Crude Oil, and Copper that ran higher in front of the Equity rally have given back strength lately. All have had futile attempts at taking out the previous swing highs for their individual market and have fallen into more of a laggard mode in relation to the Equities. The rally patterns had sizable projections that would have pointed to a large macro rally, but after 9+ spike failures in the Australian Dollar over the last 4 days I do not believe that the 10th attempt has a strong possibility of a rally breakout.
Finally, the S&P 500 is trapped against higher volume resistance ranging from 1105 - 1114, the 1130 level that is the 50% retracement level from the April highs, and the roughly 1145 level that coincides with the 61.8% retracement level from these same highs. Sure there may be attempts at taking these out, but the fundamental support for the market is waning along with momentum. I seriously doubt the Equities ability to continue above all of these resistance levels for the time being.
This morning the market is pretty close to even across the board with a rally breakout above 115 for the Japanese Yen, further short covering in the Euro near the 130 level, and subsequently a lower Dollar the most notable moves. For today I believe that it is likely that the market will remain rather range bound heading into the weekly close, but as I have made the case already, the momentum in the market has shifted from a bullish mode back to a bearish tone. With most markets still remaining in a range bound trade I do not feel that this is the time to begin making large longer term bets one way or the other because the possibility still remains that the macro market moves higher or lower, with the move likely having momentum after this consolidation buildup. However, the probability that the move is lower has now increased.
Buys to Watch:
December Soybean Meal- I know that I am waiting for 2 daily closes for confirmation on the move, but when the Meal has over a $10 rally on the breakout I feel pretty confident that the move will hold. The December Meal rallied above the $279.8 breakout level yesterday with a close above $290 and now has a projection of $307.1. The December contract again outperformed the August contract yesterday, which also gives more confirmation that this is the better long term market to play the Meal rally in. For initiation of a long position today there is a small low volume zone between $287.4 - 287.8 with higher volume support 286.4 - 287.2. This is not the greatest entry level, but with the market hanging higher overnight without much of a pullback I wanted to provide this higher number. If the market does provide a larger pullback then the range from $281.6 - 286.0 is all a low volume zone for long entry with higher volume support from 279 - 281 for stop placement below. It is also important to keep an eye on the November Soybeans. Right now I have a smaller projection for the Nov Beans of $10.00, but the market did close above the $9.87 swing high from April yesterday, which could point towards a move near $11 if momentum maintains.
September Cocoa- I put this one in the Buys section with caution. The September Cocoa now has two consecutive closes at or above the breakout level of $3144 and now has a projection of $3348. Cocoa has moved higher early this morning and the two previous days of trade now provide some good support to purchase against. There is a lower volume zone between $3156 - $3174 left from this morning's rally with higher volume support ranging from $3126 - 3154 for stop placement below. I am strictly waiting for this pullback level and placing my stop just below this higher volume support upon entry because below this level the market easily has the ability to fall over $100. There is also resistance in the market between $3225 and 3256 that will provide some pressure on the market if it is reached. This is my least friendly trade suggestion for the time being, so I recommend using smaller size for execution.
Sells to Watch:
Put on the Radar:
S&P 500- The S&P 500 is still in the range between high volume support and resistance. The resistance still remains between 1105 and 1114 with the low volume zone between 1098.25 - 1103.25 being a good level to take long profits or to enter a short position fade against the resistance levels. The higher volume support still falls between 1069 - 1080 with the stronger portion between 1069 - 1075 being a good level to take short profits or enter a long position fade against between 1076 - 1081. Per my essay in the Opening Note (with great transitional paragraph intros I must add) I believe that we are now more likely to take out the support level than the resistance level, but this range will likely hold for at least today.
Australian Dollar- The Aussie has been on the radar as a potential buy for well over a week, but momentum in the market appears to be shifting meaning that it is no longer a buy. Over the last four days there have been at least 9 attempts at a breakout above the .8772 level, but each rally has ended in failure. It is now very unlikely that there will be a successful move above the breakout. I still recommend keeping this market on your radar as an indicator, because a move below .7600 would mean that the support has fallen apart and the macro market will likely travel lower with the Aussie.
Japanese Yen- In my confusion over the last couple weeks my opinion of the Yen shifted to more of a potentially Bearish correction on the Bullish move, but since finding support at the low volume level between 112.12 and 112.54 the market has taken off on a rocket fuel rally. This morning the market has held a rally above the 115 resistance level that would now point towards a resumption of the earlier objective of 119 for the market. Along with the Bond market I know believe that you have to look at the Yen as market to strictly only look for buying opportunities.
Notes:
The 7 Supportive Market Bearish Head and Shoulders- The markets are: Crude Oil, Dow, Palladium, Platinum, Silver, Canadian Dollar, and Peso (yes the Peso is supportive). With each of these markets putting in an initial top on what could be a right shoulder over the last few days it appears that the macro market's momentum is also losing steam.
European Currencies- You say tomato...I say short covering. Yes the Euro, Pound, and Franc will all higher yesterday again, but this is not to be taken as a supportive move for the macro market. The European Currencies were the most popular short over the first half of the year and this recent break appears to now be nothing more than temporary short covering lately. I know that the violation of the downward trend for the Euro yesterday between 1.28 and 1.285 caused a number of shorts to cover, which has continued into today. However, I believe that these markets will now lose bullish steam. The Euro has a projection of 1.3090 and the Franc a projection of .9730. I believe that these are great levels to take profits on long positions if they are reached and also levels to start looking at shorting these Currencies again.
Bonds- With the reversal and resumption of the upward trend in the market I believe you have to look for further buying opportunities going forward. The weekly chart for the Bonds still has a pattern projection between 133 and 134, which along with confirmation from the Yen is now the next target area. There is a good low volume level between 127.01 - 127.11 with higher volume support at 126.25 - 126.26 for stop placement. This is a great setup, but before placing the Bonds on the Buy list I would like to see a rally above the 128 resistance.
Thursday, July 15, 2010
Thursday 7/15/10 Commodity Ideas
Opening Note:
When I woke up this morning my first two thoughts were "Damn, it's like a convection oven outside already" and "This looks like a pretty awful day to be trading". At 6:30 am now both of these statements still stand.
Yesterday was mostly a sideways range day for the supportive Commodity markets with swings back and forth as fundamental news was released. While Earnings have mostly beat expectations thus far the Economic releases continue to be disappointing with the Fed Notes yesterday confirming the speculation that they would downgrade their forecast on the recovery (Really? The Fed's not behind the curve at all again...). This provided a small break in prices, but after finding support the Equities were able to again close just slightly higher on the day. With so much negativity already baked into the market according to some analysts in the media I would not be surprised if their response to a catastrophic natural disaster right now was "Well this is not positive news for the market, but the market was expecting a large-scale disaster such as this".
While the supportive markets were mostly range bound yesterday the Bullish reversal by the Fixed Income Sector was the most notable move for the day, showing divergence from the correlations across the market that pointed towards further gains on the macro rally. After a lower day on Tuesday, that temporarily negated the Bull trend for the market, Bonds were able to reverse higher on a positive 30 yr. auction and the extension on the timeframe for economic recovery from the Fed. The fact that now both the Yen and the Fixed Income markets refuse to move much lower does not agree well with much more continuation higher in Equities or Commodities. Although money can flow into both the risk and risk aversion assets at the same time, the general relationship over the last few months has been an inverse between Equity and Fixed Income prices and I do not believe that this will change going forward over the rest of the year.
Right now I sit here a bit befuddled at the current macro picture and honestly do not have any trade ideas that are in play today. The supportive markets are again all higher this morning, although only slightly, with the Dollar Index the largest decliner and the Fixed Income markets hanging tough and only slightly lower. The S&P 500 is pretty much stuck in a range for right now between higher volume support and resistance. With two fairly weak attempts at an assault on the volume resistance I believe that the Equity and Commodity markets may come under a bit of pressure over the rest of this week, so I expect more two sided trade today and tomorrow and honestly do not see any reason to take part in it. However, the path of least resistance over the rest of this month still appears to be higher so I am still looking for buying opportunities over the short term.
With mostly a range trade over the month of July, despite some big swings, I am making a temporary rule that I absolutely must have confirmation before entering a breakout on a pattern trade. Part of my trading style is front-running some of these likely patterns with low risk and larger reward, but all that this approach is producing right now is chop. I have a few trades that remain on the radar for now and I recommend waiting with me on the sidelines for confirmation on the move prior to entry. I personally plan on leaving early today and would recommend the same for any trader that does not specialize in trading ranges.
Buys to Watch:
Sells to Watch:
Put on the Radar:
S&P 500 (what to look for today and tomorrow)- The S&P 500 is stuck in a range between higher volume support and resistance that is creating a choppy swing trade between the levels. The higher volume support for the market falls between 1069 - 1081with the 1069 - 1075 portion being stronger on the more recent trade. Meanwhile, the high volume resistance lies between 1105 - 1114. Yesterday my low volume buy zone between 1082 and 1085 acted as a base on both market dips throughout the day and the Dow level between 10,256 - 10,277 has acted as a base now 3 times in the last 24 hours. However, this base now looks only good on temporary moves. Between 1098.25 and 1103.25 there is a low volume zone that is a great place to take profits on long positions as the market has failed each time it has reached this zone and confronted the high volume resistance. I believe that the market is now likely to make a stronger test of the higher volume base over the rest of this week so I encourage taking profits on long positions and limiting expectations on trades to levels between this range.
Australian Dollar- As I am now waiting for definite confirmation on pattern breakouts I am moving the Aussie to the Radar from the Buys section. The low volume zone from .8722 - .8730 with higher volume support from .8672 - .8712 provided support on 3 dips over the last 24 hours, but the market still refuses to hold a trade above the .8772 breakout level. Above .8772 the Australian Dollar has a projection of .929 on a large move that may last over a month. Rather than attempt to front-run the move I recommend waiting until there is a clear rally above the breakout level.
December Soy Meal- The August contract for the Meal was in the Buy section for a number of days last week, but with the decline in the Aug - Dec spread and the the Aug- Nov Bean spread the August contract is no longer the desirable way to play the bullish Meal trade. The December Meal chart has now finally begun to catch up to the Bullish characteristics of the Meal front months and provides a longer term way to ride the trade higher. Today the Meal is trading above the $279.8 breakout level that provides an objective of $307.1 on a confirmed move above this level. I am waiting for two consecutive closes above this $280 level prior to looking for entry on the Bullish move.
Notes:
September Cocoa- The fundamental story for the Cocoa is a short term demand increase that is tied to large open interest still remaining on the front month July contract as it nears expiration, especially in London. Although this story is short term bullish, most of the fundamental reports I have read for the market still do not predict a much larger bullish move, so this technical trade should sit in the notes section for now. Technically the chart projects a move to $3348 above $3144. Yesterday the market settled just above this breakout level at $3153, but today the trade has not had bullish acceleration while it has had the chance. I am not a big fan of this trade yet, so there is a reason it is in the Notes unless conditions improve.
Euro and Swiss Franc- The European Currencies have acted impressively over the last few days and today the Swiss Franc has a measurable Bullish pattern breakout. Above .9553 the market has an objective of .9730. I also know that the Euro is now above many stop levels for shorts ranging between 1.28 - 1.2850 as short covering still appears to be leading these Currencies higher. On a bullish head and shoulders pattern formed at the base for the Euro I have an objective of 1.3090, which is a level that could coincide with the Swiss Franc objective and be a good level to take profits.
When I woke up this morning my first two thoughts were "Damn, it's like a convection oven outside already" and "This looks like a pretty awful day to be trading". At 6:30 am now both of these statements still stand.
Yesterday was mostly a sideways range day for the supportive Commodity markets with swings back and forth as fundamental news was released. While Earnings have mostly beat expectations thus far the Economic releases continue to be disappointing with the Fed Notes yesterday confirming the speculation that they would downgrade their forecast on the recovery (Really? The Fed's not behind the curve at all again...). This provided a small break in prices, but after finding support the Equities were able to again close just slightly higher on the day. With so much negativity already baked into the market according to some analysts in the media I would not be surprised if their response to a catastrophic natural disaster right now was "Well this is not positive news for the market, but the market was expecting a large-scale disaster such as this".
While the supportive markets were mostly range bound yesterday the Bullish reversal by the Fixed Income Sector was the most notable move for the day, showing divergence from the correlations across the market that pointed towards further gains on the macro rally. After a lower day on Tuesday, that temporarily negated the Bull trend for the market, Bonds were able to reverse higher on a positive 30 yr. auction and the extension on the timeframe for economic recovery from the Fed. The fact that now both the Yen and the Fixed Income markets refuse to move much lower does not agree well with much more continuation higher in Equities or Commodities. Although money can flow into both the risk and risk aversion assets at the same time, the general relationship over the last few months has been an inverse between Equity and Fixed Income prices and I do not believe that this will change going forward over the rest of the year.
Right now I sit here a bit befuddled at the current macro picture and honestly do not have any trade ideas that are in play today. The supportive markets are again all higher this morning, although only slightly, with the Dollar Index the largest decliner and the Fixed Income markets hanging tough and only slightly lower. The S&P 500 is pretty much stuck in a range for right now between higher volume support and resistance. With two fairly weak attempts at an assault on the volume resistance I believe that the Equity and Commodity markets may come under a bit of pressure over the rest of this week, so I expect more two sided trade today and tomorrow and honestly do not see any reason to take part in it. However, the path of least resistance over the rest of this month still appears to be higher so I am still looking for buying opportunities over the short term.
With mostly a range trade over the month of July, despite some big swings, I am making a temporary rule that I absolutely must have confirmation before entering a breakout on a pattern trade. Part of my trading style is front-running some of these likely patterns with low risk and larger reward, but all that this approach is producing right now is chop. I have a few trades that remain on the radar for now and I recommend waiting with me on the sidelines for confirmation on the move prior to entry. I personally plan on leaving early today and would recommend the same for any trader that does not specialize in trading ranges.
Buys to Watch:
Sells to Watch:
Put on the Radar:
S&P 500 (what to look for today and tomorrow)- The S&P 500 is stuck in a range between higher volume support and resistance that is creating a choppy swing trade between the levels. The higher volume support for the market falls between 1069 - 1081with the 1069 - 1075 portion being stronger on the more recent trade. Meanwhile, the high volume resistance lies between 1105 - 1114. Yesterday my low volume buy zone between 1082 and 1085 acted as a base on both market dips throughout the day and the Dow level between 10,256 - 10,277 has acted as a base now 3 times in the last 24 hours. However, this base now looks only good on temporary moves. Between 1098.25 and 1103.25 there is a low volume zone that is a great place to take profits on long positions as the market has failed each time it has reached this zone and confronted the high volume resistance. I believe that the market is now likely to make a stronger test of the higher volume base over the rest of this week so I encourage taking profits on long positions and limiting expectations on trades to levels between this range.
Australian Dollar- As I am now waiting for definite confirmation on pattern breakouts I am moving the Aussie to the Radar from the Buys section. The low volume zone from .8722 - .8730 with higher volume support from .8672 - .8712 provided support on 3 dips over the last 24 hours, but the market still refuses to hold a trade above the .8772 breakout level. Above .8772 the Australian Dollar has a projection of .929 on a large move that may last over a month. Rather than attempt to front-run the move I recommend waiting until there is a clear rally above the breakout level.
December Soy Meal- The August contract for the Meal was in the Buy section for a number of days last week, but with the decline in the Aug - Dec spread and the the Aug- Nov Bean spread the August contract is no longer the desirable way to play the bullish Meal trade. The December Meal chart has now finally begun to catch up to the Bullish characteristics of the Meal front months and provides a longer term way to ride the trade higher. Today the Meal is trading above the $279.8 breakout level that provides an objective of $307.1 on a confirmed move above this level. I am waiting for two consecutive closes above this $280 level prior to looking for entry on the Bullish move.
Notes:
September Cocoa- The fundamental story for the Cocoa is a short term demand increase that is tied to large open interest still remaining on the front month July contract as it nears expiration, especially in London. Although this story is short term bullish, most of the fundamental reports I have read for the market still do not predict a much larger bullish move, so this technical trade should sit in the notes section for now. Technically the chart projects a move to $3348 above $3144. Yesterday the market settled just above this breakout level at $3153, but today the trade has not had bullish acceleration while it has had the chance. I am not a big fan of this trade yet, so there is a reason it is in the Notes unless conditions improve.
Euro and Swiss Franc- The European Currencies have acted impressively over the last few days and today the Swiss Franc has a measurable Bullish pattern breakout. Above .9553 the market has an objective of .9730. I also know that the Euro is now above many stop levels for shorts ranging between 1.28 - 1.2850 as short covering still appears to be leading these Currencies higher. On a bullish head and shoulders pattern formed at the base for the Euro I have an objective of 1.3090, which is a level that could coincide with the Swiss Franc objective and be a good level to take profits.
Tuesday, July 13, 2010
Tuesday 7/13/10 Commodity Ideas
Opening Note:
On another yawner of a day, with low volume and low volatility, the macro market traded very mixed as a number of supportive markets like Crude Oil, Copper, and the Aussie Dollar settled lower yesterday while Equities maintained their march with another higher close. After the Bell yesterday afternoon Alcoa released Earnings that beat estimates, which started Earnings Season on a positive not that has carried over into this morning. This morning Equities are again the leaders higher as they have rallied since the European Open and brought many of the supportive markets along with them. Most importantly, the S&P 500 has managed to rally above the 1081 high volume pivot point that should now provide support for the market with a settlement above this level later today. A close above 1081 signifies to me that a shift needs to be made for the individual trader, with the focus now on looking for buying opportunities in the supportive markets as continuation higher is now more likely over the next month.
Although the S&P 500 is the main indicator market in my opinion still I would like to make note of some conditions that still concern me about the market. First off, the markets that I listed in the Where Are We Going section over the last few days are not in strong agreement with this Equity rally. While Bonds, one of the centerpiece risk aversion markets, did give up mid-day gains yesterday and are trading slightly lower this morning the Japanese Yen has actually performed quite well over the last 36 hours. It is very possible that money is coming in to buy both riskier and risk aversion assets for the time being, and the likely explanation for this move in the relationship. However, with Bonds only modestly lower over the last few sessions and the Yen performing well the risk aversion markets are not necessarily saying all systems are go for a strong macro rally.
Another note of concern is that the supportive markets of the Australian Dollar and Copper that have led the way technically higher among Commodities are now lagging while the Equities rally. Although the Aussie was likely due for a bit of a slowdown, it has had a rather weak (think Popeye minus the spinach) attempt at taking out the swing high resistance that would project a continuation higher. Copper was the second half of the odd couple that also began trending higher before the rest of the market, but had a rally rejection against resistance as well and has settled back lower into its sideways range. The fact that these technical leaders on the early rally have not continued higher is another bit of pause that says hold off on jumping all over the Bullish trade.
Despite these bits of concern I still am seeing similar action among the Equity Indices that is very reminiscent of the rally portions over the last year and a half that makes me believe that looking for Buying opportunities is the way to go forward. On the daily 15 minute charts I am again seeing the "trendlines of death" that slowly tick through the heaviest of resistance, the check mark days that sell off after the early buying yet rally to close on their highs, and weaker support levels halting breaks in the market that likely would have continued lower last month (1067.50 was my weak support yesterday...1059 was the stronger support). Whatever the combination of influences is among institutional investors, computer trading programs, short term traders, and manipulator programs I have learned that when I see these patterns it is time to stop fighting the rally and to go with it.
If the S&P 500 closes above 1081 this afternoon I recommend playing the long side of the macro trade going forward as this is likely a 20 day move higher. There are still a number of short positions across the market, so it is likely that short covering will continue for a time as well, adding to the rally. If you look back at July of 2009 you can see a similar situation with the failed head and shoulders pattern and the subsequent persistent rally that followed as a previous market comparison of what could follow (although I'm not betting on new highs just yet).
**Late Note- Be careful today. July has had very low volume thus far making it much easier for the computer programs to run the markets as they please. This morning they are out in full force in Metals and Energies specifically. The environment with these programs makes it very difficult for the short term trader as some of these are specifically predatory, so use caution and patience.
Buys to Watch:
August Soybean Meal- The August Meal trade has become a bit less attractive with the daily sell offs prior to the close, but the market did find a new high trade yesterday and support continues to hold with minimal pullbacks. The Meal still has a projection of $324.7 on the rally above $293.9 and I now believe that you can move your stop a bit higher above the previous $289 suggestion. The market has found support several times near the $297.6 - $298 level with a move below this area having the ability to move all the way back to near $290 with minimal support, making a stop near $297 a way to take risk off the table. For entry there is not a great level again today, but a pullback near $300 is a decent support level to buy off of. I think it is important to also keep an eye on the November Soybean market as well when trading this August Meal contract. The November Beans are struggling to hold gains above the $9.47 1/4 rally breakout that should point towards a 40 cent move higher. If the Nov. Beans show signs of failure above this level then the Meal trade will likely not work as well.
Sells to Watch:
Put on the Radar (where are we going update):
S&P 500- I would like to wait for a close above 1081, but I am impressed with the way that the Equities dismantled the strong high volume resistance and have continued this morning, so I may take some nibbles at buying some dips today. The 1076 - 1081 level now becomes support for the market as a pivot, with the next stronger resistance level falling between 1105 - 1114. I think it is very likely that we will see a rally to this level this week and a subsequent attempt at the 1130 high in the near future.
Bonds- As previously discussed, the Bonds have held in fairly well this morning in spite of the Equity rally over the last 24 hours. In contrast though, my Bond trendline falls at 126.10 today on a settlement basis, which is unlikely to be met if the macro rally continues today. There still is the weaker/lower trendline for the market at 125.16 today, but I believe that this is unlikely to hold if it is tested. Take note that there still is the low volume area in Bonds between 125.26 and 125.28 with the higher volume support below this level from 125.09 - 125.24, which has provided the lows for the market this session. However, towards the low end of this support level Bonds will likely be a good short position with a move back between 120 - 121 likely.
Japanese Yen- The Japanese Yen is a bit of an anomaly this morning as it is still higher on the day despite the strengthening macro rally. The lower volume level between 112.14 - 112.56 with support from 111.96 -112.12 continues to support the market. I still think that with the macro rally possibly underway that holding off on purchasing the Yen is good idea for the time being.
Australian Dollar- The Australian Dollar has acted very disappointing for the Bulls over the last few days, but has gotten a lift this morning on the early macro rally. Above .8772 the Aussie has a objective of .926 near the highs for the year in the market. If the Aussie is able to recover and rally above this breakout then I believe it is the best Currency to buy.
Copper- Copper has acted weak over the last couple sessions and again is one of the laggards this morning. The triangle top and bottom lines fall at $3.0685 and $2.9375 respectively today with a potentially large 50 cent move projected from the breakout. However, with the pattern nearing the apex of the triangle it is less likely that a move of this magnitude will follow.
Notes:
On another yawner of a day, with low volume and low volatility, the macro market traded very mixed as a number of supportive markets like Crude Oil, Copper, and the Aussie Dollar settled lower yesterday while Equities maintained their march with another higher close. After the Bell yesterday afternoon Alcoa released Earnings that beat estimates, which started Earnings Season on a positive not that has carried over into this morning. This morning Equities are again the leaders higher as they have rallied since the European Open and brought many of the supportive markets along with them. Most importantly, the S&P 500 has managed to rally above the 1081 high volume pivot point that should now provide support for the market with a settlement above this level later today. A close above 1081 signifies to me that a shift needs to be made for the individual trader, with the focus now on looking for buying opportunities in the supportive markets as continuation higher is now more likely over the next month.
Although the S&P 500 is the main indicator market in my opinion still I would like to make note of some conditions that still concern me about the market. First off, the markets that I listed in the Where Are We Going section over the last few days are not in strong agreement with this Equity rally. While Bonds, one of the centerpiece risk aversion markets, did give up mid-day gains yesterday and are trading slightly lower this morning the Japanese Yen has actually performed quite well over the last 36 hours. It is very possible that money is coming in to buy both riskier and risk aversion assets for the time being, and the likely explanation for this move in the relationship. However, with Bonds only modestly lower over the last few sessions and the Yen performing well the risk aversion markets are not necessarily saying all systems are go for a strong macro rally.
Another note of concern is that the supportive markets of the Australian Dollar and Copper that have led the way technically higher among Commodities are now lagging while the Equities rally. Although the Aussie was likely due for a bit of a slowdown, it has had a rather weak (think Popeye minus the spinach) attempt at taking out the swing high resistance that would project a continuation higher. Copper was the second half of the odd couple that also began trending higher before the rest of the market, but had a rally rejection against resistance as well and has settled back lower into its sideways range. The fact that these technical leaders on the early rally have not continued higher is another bit of pause that says hold off on jumping all over the Bullish trade.
Despite these bits of concern I still am seeing similar action among the Equity Indices that is very reminiscent of the rally portions over the last year and a half that makes me believe that looking for Buying opportunities is the way to go forward. On the daily 15 minute charts I am again seeing the "trendlines of death" that slowly tick through the heaviest of resistance, the check mark days that sell off after the early buying yet rally to close on their highs, and weaker support levels halting breaks in the market that likely would have continued lower last month (1067.50 was my weak support yesterday...1059 was the stronger support). Whatever the combination of influences is among institutional investors, computer trading programs, short term traders, and manipulator programs I have learned that when I see these patterns it is time to stop fighting the rally and to go with it.
If the S&P 500 closes above 1081 this afternoon I recommend playing the long side of the macro trade going forward as this is likely a 20 day move higher. There are still a number of short positions across the market, so it is likely that short covering will continue for a time as well, adding to the rally. If you look back at July of 2009 you can see a similar situation with the failed head and shoulders pattern and the subsequent persistent rally that followed as a previous market comparison of what could follow (although I'm not betting on new highs just yet).
**Late Note- Be careful today. July has had very low volume thus far making it much easier for the computer programs to run the markets as they please. This morning they are out in full force in Metals and Energies specifically. The environment with these programs makes it very difficult for the short term trader as some of these are specifically predatory, so use caution and patience.
Buys to Watch:
August Soybean Meal- The August Meal trade has become a bit less attractive with the daily sell offs prior to the close, but the market did find a new high trade yesterday and support continues to hold with minimal pullbacks. The Meal still has a projection of $324.7 on the rally above $293.9 and I now believe that you can move your stop a bit higher above the previous $289 suggestion. The market has found support several times near the $297.6 - $298 level with a move below this area having the ability to move all the way back to near $290 with minimal support, making a stop near $297 a way to take risk off the table. For entry there is not a great level again today, but a pullback near $300 is a decent support level to buy off of. I think it is important to also keep an eye on the November Soybean market as well when trading this August Meal contract. The November Beans are struggling to hold gains above the $9.47 1/4 rally breakout that should point towards a 40 cent move higher. If the Nov. Beans show signs of failure above this level then the Meal trade will likely not work as well.
Sells to Watch:
Put on the Radar (where are we going update):
S&P 500- I would like to wait for a close above 1081, but I am impressed with the way that the Equities dismantled the strong high volume resistance and have continued this morning, so I may take some nibbles at buying some dips today. The 1076 - 1081 level now becomes support for the market as a pivot, with the next stronger resistance level falling between 1105 - 1114. I think it is very likely that we will see a rally to this level this week and a subsequent attempt at the 1130 high in the near future.
Bonds- As previously discussed, the Bonds have held in fairly well this morning in spite of the Equity rally over the last 24 hours. In contrast though, my Bond trendline falls at 126.10 today on a settlement basis, which is unlikely to be met if the macro rally continues today. There still is the weaker/lower trendline for the market at 125.16 today, but I believe that this is unlikely to hold if it is tested. Take note that there still is the low volume area in Bonds between 125.26 and 125.28 with the higher volume support below this level from 125.09 - 125.24, which has provided the lows for the market this session. However, towards the low end of this support level Bonds will likely be a good short position with a move back between 120 - 121 likely.
Japanese Yen- The Japanese Yen is a bit of an anomaly this morning as it is still higher on the day despite the strengthening macro rally. The lower volume level between 112.14 - 112.56 with support from 111.96 -112.12 continues to support the market. I still think that with the macro rally possibly underway that holding off on purchasing the Yen is good idea for the time being.
Australian Dollar- The Australian Dollar has acted very disappointing for the Bulls over the last few days, but has gotten a lift this morning on the early macro rally. Above .8772 the Aussie has a objective of .926 near the highs for the year in the market. If the Aussie is able to recover and rally above this breakout then I believe it is the best Currency to buy.
Copper- Copper has acted weak over the last couple sessions and again is one of the laggards this morning. The triangle top and bottom lines fall at $3.0685 and $2.9375 respectively today with a potentially large 50 cent move projected from the breakout. However, with the pattern nearing the apex of the triangle it is less likely that a move of this magnitude will follow.
Notes:
Monday, July 12, 2010
Monday 7/12/10 Commodity Ideas
Opening Note:
One of the slowest days I can remember over the last few months saw the macro market close slightly higher Friday after trading in a small range for most of the day. Buying again came into the market at the 7:30, 8:30, and 9:30 am (CT) hourly intervals as one can conclude that institutional money was allocated at these time slots over last week into many of the Commodity and Equity markets. While this can be taken as a positive signal I am cautious about making too much of this move as whether this is maneuverable "buy the dip" money or the lumbering, long-term "buy and hold" strategy means two different things, with the latter providing less positive support. There was little to note as far as movement among the inter-Commodity relationships as well with risk and risk aversion markets pretty much falling in line.
The Grain Sector had tepid trade after the USDA releases Friday, where Wheat finally declined, but the rest of the Sector held steady to slightly higher. After a more bearish than bullish report across the sector this was an impressive performance. However, after huge gains over the last week and a half we will see if the Bullish momentum can sustain as allocation lightens and short covering dries out.
If you are a hardcore Bull I am sure that you are tired of hearing this evidence, but if you pull up an S&P 500 chart you can again see that this rally last week was again conducted on low volume in comparison to the recent market breaks. In addition, the rally has yet to take out strong resistance or post a higher trade than the last swing high in the market. What this says to me is that we are still looking at a continuation on the bear market for the time being.
This morning the macro market is slightly weaker with the inter-Commodity relationships pretty much falling in line again. This week there are some moderately important economic releases and earnings season begins, with Friday's CPI number holding my interest the most for the week. In my radar section on Friday I laid out a contingency plan for which markets to keep on your radar to determine whether to trade from the bullish or bearish side going forward. Today I will update this Where Are We Going section, but I recommend checking out Friday's Radar Section on my blog if you have yet to digest the full layout. In my opinion there are very few trades out there right now (as you will see from my Buys and Sells) so I recommend trading less and with smaller size until we get a better directional picture.
Buys to Watch:
August Soybean Meal- The Auggie Meal still maintains the bullish rally breakout above $293.9 with a projection of $324.7 after small gains again on Friday. However, I do have to make some concerning notes about the market. With both RSI and the Fast Stochastics line now extended into overbought territory the rally on the daily chart is beginning to show signs of slowing as lower highs have been made over the last three sessions, including today thus far. The Bean Oil also led the rally among the Soybean Complex Friday after the report marking the first time in a while that the Oil has led a rally. Finally, the November Soybeans have had a difficult time holding rallies above their own $9.47 1/4 breakout which would point to continued gains if the move above this level had more momentum. While there is a 3-pack of cautionary signals I still believe that both the Meal and Soybean charts look positive, with this recent lack of momentum possibly just a temporary pullback. I do not have a definitive great level for entry into Meal, but there is higher volume support from $296.8 - 297.6, lower volume level to buy between 293.4 - 294.2 and a better buy level near $291 with the stronger support from $289.2 to $290. For new entry I recommend using both a November Soybean and August Meal Chart to attempt to find a bottom near one of these levels as I am not confident I can say at which level a market break would find support. Below $289 I would exit the trade.
Sells to Watch:
Put on the Radar (Where Are We Going Update):
S&P 500- Friday's trade tested the higher volume resistance for the S&P 500 between 1070 and 1081 with a settlement of 1074.25 at the stock market close. The market is again hanging around this resistance level this morning after small range trade overnight, but there has not been a significant attempt at a rally above this resistance yet. 1081 is also the 61.8% Fibonacci Retracement level when measuring the recent break from 1130 - 1003. The Equity markets appear to be rather determined at holding gains over the last week, but until a move above 1081 is confirmed I recommend selling rallies.
Australian Dollar- With independently bullish fundamental news the Australian Dollar has been the short term leader among the non-European Currencies. While it has the most bullish technical chart it has had difficulty posting trade above the previous .8772 swing high. This morning it is actually one of the weaker Currencies and is trading nearly a full point below its bullish breakout. The Aussie is likely the best buy if there is to be a continuation on the macro rally, but only on a move above .8772. Until continuation is confirmed I still suggest selling rallies.
Copper- Copper is still within its triangle consolidation after a failed attempt at a bullish breakout on Friday. Today the top trendline drawn from the Close May 13th to the High June 25th has a value of $3.0730 with the base trendline from the Low June 7th to the July 1st Close at $2.93 today. This triangle pattern projects a large 50 cent move depending on the direction of the breakout, but the market is increasingly closer to the apex of this triangle decreasing the reliability of the pattern. RSI is still in a Bear trend range for the daily chart despite all of the rally action in the market recently and with the failure Friday I recommend selling rallies in Copper unless there is a bullish pattern initiation. Between $3.0760 and $3.0830 there are "single prints" on the market profile, which is a good area to sell against the higher volume resistance from $3.0840 - 3.0920.
Bonds- Today my Bond trendline from the Low April 29th to the Low June 16th has a value of 126.03. Overnight the low trade was 126.06, but the market has traded higher since. As a possible purchase level today there is a lower volume zone from 126.12 - 126.14, which is a good low risk purchase against support from 126.07 - 126.11. I would also like to note that there is a less supportive trendline that connects to the low June 21st that provides a value of roughly 125.15 today that should also provide a degree of support leaving the low volume zone from 125.26 - 125.28 with support ranging from 125.09 and 125.24. Bonds finding support at this current level is a bearish signal for the macro market and I advocate buying breaks in Bonds going forward unless the market's uptrend is violated.
Japanese Yen- Although the Yen does not have a bullish trendline that is near the current price level I did provide a low volume zone from 112.14 and 112.56 with higher volume support from 111.96 - 112.12 on Friday. Overnight the market traded into this level with a low trade of 112.25 and has rallied back to 113 this morning. The Yen holding this support level is the most bearish signal for the macro environment among all of these markets and continues to be a good level for long entry if it is traded into again.
**Conclusion- Thus far all of my resistance and support levels for the individual risk and risk aversion markets have held leading me to maintain my stance that supportive market rallies should be sold. But, I am still being overly-picky about entry levels for these markets right now. The fact that both Copper and the Aussie have faded a decent amount and the risk aversion markets have bounced back leads me to believe that a move above the 1081 pivot level in the S&P 500 will be unsuccessful despite the market hanging near relatively unchanged this morning.
Notes:
December Cotton (and a Coffee Note)- My 2nd attempt at shorting this Cotton contract over the last week was again unsuccessful as the market found base support near 73.65 for the third time and exploded higher. Allocation entered the market at 9:30 am and sent the computer trading programs crazy on a fast market higher that quickly ran my stop loss levels. Both the Cotton and Coffee markets appear to have a ridiculous amount of computer programs in the market for the time being that whips the price around to a degree that it is not conducive to the short or medium-term trader for the time being. With both markets relatively thin it is advantageous when the programs push your way, but with more sideways trade and fading programs in the market lately they tend to just steal the individuals money. Going forward I do not recommend trading Cotton or Coffee outrights unless there is a real story to jump on, so they will not be featured in the Buys or Sells columns.
European Currencies- The Euro, Pound, and especially the Swiss Franc are all lower this morning after settling weaker on Friday as well. The Euro still has a bullish head and shoulders pattern that can be projected to just above the 130 level, but both the Pound and Franc have had extended rallies that appear to be reversing lower. I do not believe that the probability on a Euro rally continuation is high if both the Pound and Franc roll over, so keep an eye on these markets as they may soon move to the radar or sell column.
One of the slowest days I can remember over the last few months saw the macro market close slightly higher Friday after trading in a small range for most of the day. Buying again came into the market at the 7:30, 8:30, and 9:30 am (CT) hourly intervals as one can conclude that institutional money was allocated at these time slots over last week into many of the Commodity and Equity markets. While this can be taken as a positive signal I am cautious about making too much of this move as whether this is maneuverable "buy the dip" money or the lumbering, long-term "buy and hold" strategy means two different things, with the latter providing less positive support. There was little to note as far as movement among the inter-Commodity relationships as well with risk and risk aversion markets pretty much falling in line.
The Grain Sector had tepid trade after the USDA releases Friday, where Wheat finally declined, but the rest of the Sector held steady to slightly higher. After a more bearish than bullish report across the sector this was an impressive performance. However, after huge gains over the last week and a half we will see if the Bullish momentum can sustain as allocation lightens and short covering dries out.
If you are a hardcore Bull I am sure that you are tired of hearing this evidence, but if you pull up an S&P 500 chart you can again see that this rally last week was again conducted on low volume in comparison to the recent market breaks. In addition, the rally has yet to take out strong resistance or post a higher trade than the last swing high in the market. What this says to me is that we are still looking at a continuation on the bear market for the time being.
This morning the macro market is slightly weaker with the inter-Commodity relationships pretty much falling in line again. This week there are some moderately important economic releases and earnings season begins, with Friday's CPI number holding my interest the most for the week. In my radar section on Friday I laid out a contingency plan for which markets to keep on your radar to determine whether to trade from the bullish or bearish side going forward. Today I will update this Where Are We Going section, but I recommend checking out Friday's Radar Section on my blog if you have yet to digest the full layout. In my opinion there are very few trades out there right now (as you will see from my Buys and Sells) so I recommend trading less and with smaller size until we get a better directional picture.
Buys to Watch:
August Soybean Meal- The Auggie Meal still maintains the bullish rally breakout above $293.9 with a projection of $324.7 after small gains again on Friday. However, I do have to make some concerning notes about the market. With both RSI and the Fast Stochastics line now extended into overbought territory the rally on the daily chart is beginning to show signs of slowing as lower highs have been made over the last three sessions, including today thus far. The Bean Oil also led the rally among the Soybean Complex Friday after the report marking the first time in a while that the Oil has led a rally. Finally, the November Soybeans have had a difficult time holding rallies above their own $9.47 1/4 breakout which would point to continued gains if the move above this level had more momentum. While there is a 3-pack of cautionary signals I still believe that both the Meal and Soybean charts look positive, with this recent lack of momentum possibly just a temporary pullback. I do not have a definitive great level for entry into Meal, but there is higher volume support from $296.8 - 297.6, lower volume level to buy between 293.4 - 294.2 and a better buy level near $291 with the stronger support from $289.2 to $290. For new entry I recommend using both a November Soybean and August Meal Chart to attempt to find a bottom near one of these levels as I am not confident I can say at which level a market break would find support. Below $289 I would exit the trade.
Sells to Watch:
Put on the Radar (Where Are We Going Update):
S&P 500- Friday's trade tested the higher volume resistance for the S&P 500 between 1070 and 1081 with a settlement of 1074.25 at the stock market close. The market is again hanging around this resistance level this morning after small range trade overnight, but there has not been a significant attempt at a rally above this resistance yet. 1081 is also the 61.8% Fibonacci Retracement level when measuring the recent break from 1130 - 1003. The Equity markets appear to be rather determined at holding gains over the last week, but until a move above 1081 is confirmed I recommend selling rallies.
Australian Dollar- With independently bullish fundamental news the Australian Dollar has been the short term leader among the non-European Currencies. While it has the most bullish technical chart it has had difficulty posting trade above the previous .8772 swing high. This morning it is actually one of the weaker Currencies and is trading nearly a full point below its bullish breakout. The Aussie is likely the best buy if there is to be a continuation on the macro rally, but only on a move above .8772. Until continuation is confirmed I still suggest selling rallies.
Copper- Copper is still within its triangle consolidation after a failed attempt at a bullish breakout on Friday. Today the top trendline drawn from the Close May 13th to the High June 25th has a value of $3.0730 with the base trendline from the Low June 7th to the July 1st Close at $2.93 today. This triangle pattern projects a large 50 cent move depending on the direction of the breakout, but the market is increasingly closer to the apex of this triangle decreasing the reliability of the pattern. RSI is still in a Bear trend range for the daily chart despite all of the rally action in the market recently and with the failure Friday I recommend selling rallies in Copper unless there is a bullish pattern initiation. Between $3.0760 and $3.0830 there are "single prints" on the market profile, which is a good area to sell against the higher volume resistance from $3.0840 - 3.0920.
Bonds- Today my Bond trendline from the Low April 29th to the Low June 16th has a value of 126.03. Overnight the low trade was 126.06, but the market has traded higher since. As a possible purchase level today there is a lower volume zone from 126.12 - 126.14, which is a good low risk purchase against support from 126.07 - 126.11. I would also like to note that there is a less supportive trendline that connects to the low June 21st that provides a value of roughly 125.15 today that should also provide a degree of support leaving the low volume zone from 125.26 - 125.28 with support ranging from 125.09 and 125.24. Bonds finding support at this current level is a bearish signal for the macro market and I advocate buying breaks in Bonds going forward unless the market's uptrend is violated.
Japanese Yen- Although the Yen does not have a bullish trendline that is near the current price level I did provide a low volume zone from 112.14 and 112.56 with higher volume support from 111.96 - 112.12 on Friday. Overnight the market traded into this level with a low trade of 112.25 and has rallied back to 113 this morning. The Yen holding this support level is the most bearish signal for the macro environment among all of these markets and continues to be a good level for long entry if it is traded into again.
**Conclusion- Thus far all of my resistance and support levels for the individual risk and risk aversion markets have held leading me to maintain my stance that supportive market rallies should be sold. But, I am still being overly-picky about entry levels for these markets right now. The fact that both Copper and the Aussie have faded a decent amount and the risk aversion markets have bounced back leads me to believe that a move above the 1081 pivot level in the S&P 500 will be unsuccessful despite the market hanging near relatively unchanged this morning.
Notes:
December Cotton (and a Coffee Note)- My 2nd attempt at shorting this Cotton contract over the last week was again unsuccessful as the market found base support near 73.65 for the third time and exploded higher. Allocation entered the market at 9:30 am and sent the computer trading programs crazy on a fast market higher that quickly ran my stop loss levels. Both the Cotton and Coffee markets appear to have a ridiculous amount of computer programs in the market for the time being that whips the price around to a degree that it is not conducive to the short or medium-term trader for the time being. With both markets relatively thin it is advantageous when the programs push your way, but with more sideways trade and fading programs in the market lately they tend to just steal the individuals money. Going forward I do not recommend trading Cotton or Coffee outrights unless there is a real story to jump on, so they will not be featured in the Buys or Sells columns.
European Currencies- The Euro, Pound, and especially the Swiss Franc are all lower this morning after settling weaker on Friday as well. The Euro still has a bullish head and shoulders pattern that can be projected to just above the 130 level, but both the Pound and Franc have had extended rallies that appear to be reversing lower. I do not believe that the probability on a Euro rally continuation is high if both the Pound and Franc roll over, so keep an eye on these markets as they may soon move to the radar or sell column.
Friday, July 9, 2010
Friday 7/9/10 Commodity Ideas
Opening Note:
Yesterday the 7:30 am (CT) Jobless Claims report set an early tone of gains in Equities and Commodities that despite trending lower after the first hour of trade were able to mount an impressive late afternoon rally to close back near the early highs for the day. The Australian Dollar again led the gainers along with Crude Oil while the risk aversion assets like the Bonds and Yen finally had a decent sized break as the laggards, confirming the 3 day inflow into riskier assets was not an errant move. The macro market story however took second fiddle to the Kevin Costner-like (the guy's a movie star and he's nearly single-handedly cleaning up the Gulf) Grain sector. Further short covering in Wheat and Corn and a complimentary Soybean rally in the sector fueled continued gains and new breakouts above consolidation ranges prior to this morning's crop production and supply/demand reports.
I have had an inner-debate over the last 48 hours whether trying to catch the bullish side of this recent rally should be in my game plan and whether it is something that I should recommend to readers. I continue to be fundamentally and technically bearish going forward for the rest of the year, but if the Bulls are right this could be the reversal that shoots the market to new highs as relentless shorts are caught in their positions. So, I have put together a contingency plan (The Where Are We Going Special) in the Radar Section that should outline and provide confirmation on whether this is a Bull move to jump on or a new top to Fade.
This morning the macro market is pretty mixed with the Canadian Dollar and Coffee sticking out as the biggest winners and Bonds and the European Currencies the laggards. When I say leaders and laggards I would also like to note that even the movers are small thus far. The market direction for the day remains uncertain to me at this point, so again there are only a couple trade suggestions for today. I still recommend trading smaller for the time being and taking profits when you have them as the intra-day swings counteract much of one's ability to hold positions through the noise.
*Grains and Cotton have Crop Production and Supply/Demand Reports this morning. Both of my current trade ideas are among this group so please check out the reports for yourself prior to following the suggestions. As I do not have time to pour over the reports prior to sending this letter I will send a follow up prior to the Grain open at 9:30 CT if there is a significant change that will effect the trade ideas.
Buys to Watch:
August Soybean Meal- The August Soy Meal had a new 2nd higher close above its bullish breakout level of $293.9 yesterday further confirming the new market projection of $324.7. As stated above, there are significant Grain reports that will effect the market, but with the Grain Sector rallying on all cylinders the Auggie Meal was able to rally to $303.7 before falling in the last 10 minutes to settle at $297.6. This left a spiky top on the daily chart that is a bit unsettling along with the fact that RSI for the daily chart has climbed into overbought territory for the time being. Furthermore, the November Soybeans, which are leading the way among the Soybean Complex, rallied above their own swing high breakout level of $9.47 1/4, but were unable to hold a close above this level leaving the door open for a rally failure in the market. However, Stochastics for the Meal chart remain in a positive mode that is not yet overbought making the RSI move less concerning, as it can hang up in this O.B. territory for a while, and the chart still looks great. I will not recommend levels for entry today as the open after a report is very dicey, but I am still maintaining my stop level below the $289.2 high volume support level for the time being and will be looking for further entry as long as the report is satisfactory.
****Late Note- Initial report for Grains and Soybeans looks moderately bearish. Be careful on entry into Meal today.
Sells to Watch:
December Cotton- December Cotton was on the Sell list Wednesday, but after strong buying entered across the entire macro market the bearish breakout for the market was negated. Despite the macro rally December Cotton still positioned itself as a laggard among the Commodity Sector and with a price break yesterday settled with a low close below the 74.09 cent breakout level. The market now has a projection to roughly 69 cents on the dot. While the Grain Sector is closed during the release of the 7:30 am (CT) report, the Cotton market is open so it should be reliable to enter the market once the report is released. There is not a great level for entry this morning, but placing your trade around a stop level just above the 74.60 higher volume resistance is a good idea and be aware that the market has found support near 73.65 both of the last two days.
Put on the Radar (The Where Are We Going Special):
To formulate a contingency plan on how to play this most recent market rally I have put together a group of markets that encompasses both riskier assets and risk aversion assets. I am using the S&P 500 market as the leading indicator for the Equity Sector as a reference point, the recent leaders among the risk assets technically in the Aussie Dollar and Copper, and the risk aversion markets of Bonds and the Japanese Yen. First I will describe what I am seeing in each individual market:
S&P 500- The S&P 500 has had an impressive rally over the last 3 days with only a minimal pullback, but it is now coming upon heavy volume and technical resistance. Between 1070 and 1081 there is a significant chunk of trade that has already acted as a pivot point for the market on numerous past encounters. Furthermore, when you measure the Fibonacci Retracement levels from the 1130 spike high to the 1003 base you receive a 61.8% retracement level of 1081 on the dot. Above this 1081 pivot point the market will likely rally to test the 1117 high close level and 1130 on on the most recent swing high and has a decent possibility on continuation above these levels.
Australian Dollar- As noted on yesterday's radar, the Australian Dollar is testing the .8675 previous high close and .8772 high trade from the last swing high. The Australian Economy has received positive news over the last week with upgrades on growth and unemployment, which has boosted the Aussie Dollar market independently above many of the other correlated Currency markets. This is the first market that is highly correlated to the U.S. Equity market to test it's latest swing high making it one of the better upside indicator for the macro move. When you measure the Fibonacci levels from the April highs in the market to the lows on the May dip you receive a 61.8% retracement level that is right at the previous .8772 high. Although the Aussie made a higher close yesterday above the previous swing high close it has fallen overnight and not had a significant attempt at the .8772 high. If the market is able to rally and hold a move above this high it projects a move back to the highs for the year above .92 making it one of the best buys.
Copper- Copper is in a triangle consolidation for the time being. To form the triangle draw a top trendline from the Close May 13th to the High June 25th and draw your own bottom for the time being as it is not really in play for the time being. This descending top provides a value of $3.0770 today that will act as resistance. Furthermore, there are "single prints" (extremely low volume area) from 3.0760 - 3.0830 with high volume resistance from 3.0840 - 3.0920 that should provide stronger resistance near this top trend. A bullish breakout from this triangle would likely mean a 50 cent move from the breakout level and likely point towards a test of the highs for the year.
Bonds- Bonds have faded over the last few days, but the market still has a strong uptrend intact. To form this trend draw a line from the Low April 29th to the Low June 16th to receive a support level of 125.29 for today. Like Copper, Bonds also have "single prints" on the market profile from 125.26 - 125.28 with some high volume support ranging all the way from 125.09 to 125.24 for further support. The Bonds are a risk aversion asset that moves opposite Equities for the time being, so support and resumption of the upward move would mean a break is likely to occur in Equities and Commodities.
Japanese Yen- Like the Bonds, the Japanese Yen has had a strong uptrend over the last month and a half as a risk aversion asset. Although the Yen does not have a good uptrend for the chart that is nearby there is a significant low volume "Gap" left between 112.14 and 112.56 with some higher volume support from 111.96 - 112.12. This low volume zone was one that I was looking to be filled a couple weeks ago as a good zone to buy, but was never traded back into. This area would likely provide decent support if it was traded into over the next few days.
**Putting it all together- So, taking all of these markets together as indicators it looks like the macro market is running into a significant wall nearby that should provide resistance for a move higher. It is likely that all of these markets move to test their individual levels at nearly the same time and I kind of like to look at the overlay between them as a spider web or balloon that stretches and bends but maintains for the duration. If these support resistance levels fail then I believe that you can follow the Bullish side of Equities and Commodities as the S&P 500 will likely test 1130 and the Aussie and Copper should be the best buys among the supportive markets. However, for the time being I am willing to step in with some small size at these "single print" and low volume areas with a small initial size to attempt a lower risk fade on the markets. I think that maintaining the risk/reward is crucial, so I recommend only stepping in once these markets reach their individual levels.
Notes:
Yesterday the 7:30 am (CT) Jobless Claims report set an early tone of gains in Equities and Commodities that despite trending lower after the first hour of trade were able to mount an impressive late afternoon rally to close back near the early highs for the day. The Australian Dollar again led the gainers along with Crude Oil while the risk aversion assets like the Bonds and Yen finally had a decent sized break as the laggards, confirming the 3 day inflow into riskier assets was not an errant move. The macro market story however took second fiddle to the Kevin Costner-like (the guy's a movie star and he's nearly single-handedly cleaning up the Gulf) Grain sector. Further short covering in Wheat and Corn and a complimentary Soybean rally in the sector fueled continued gains and new breakouts above consolidation ranges prior to this morning's crop production and supply/demand reports.
I have had an inner-debate over the last 48 hours whether trying to catch the bullish side of this recent rally should be in my game plan and whether it is something that I should recommend to readers. I continue to be fundamentally and technically bearish going forward for the rest of the year, but if the Bulls are right this could be the reversal that shoots the market to new highs as relentless shorts are caught in their positions. So, I have put together a contingency plan (The Where Are We Going Special) in the Radar Section that should outline and provide confirmation on whether this is a Bull move to jump on or a new top to Fade.
This morning the macro market is pretty mixed with the Canadian Dollar and Coffee sticking out as the biggest winners and Bonds and the European Currencies the laggards. When I say leaders and laggards I would also like to note that even the movers are small thus far. The market direction for the day remains uncertain to me at this point, so again there are only a couple trade suggestions for today. I still recommend trading smaller for the time being and taking profits when you have them as the intra-day swings counteract much of one's ability to hold positions through the noise.
*Grains and Cotton have Crop Production and Supply/Demand Reports this morning. Both of my current trade ideas are among this group so please check out the reports for yourself prior to following the suggestions. As I do not have time to pour over the reports prior to sending this letter I will send a follow up prior to the Grain open at 9:30 CT if there is a significant change that will effect the trade ideas.
Buys to Watch:
August Soybean Meal- The August Soy Meal had a new 2nd higher close above its bullish breakout level of $293.9 yesterday further confirming the new market projection of $324.7. As stated above, there are significant Grain reports that will effect the market, but with the Grain Sector rallying on all cylinders the Auggie Meal was able to rally to $303.7 before falling in the last 10 minutes to settle at $297.6. This left a spiky top on the daily chart that is a bit unsettling along with the fact that RSI for the daily chart has climbed into overbought territory for the time being. Furthermore, the November Soybeans, which are leading the way among the Soybean Complex, rallied above their own swing high breakout level of $9.47 1/4, but were unable to hold a close above this level leaving the door open for a rally failure in the market. However, Stochastics for the Meal chart remain in a positive mode that is not yet overbought making the RSI move less concerning, as it can hang up in this O.B. territory for a while, and the chart still looks great. I will not recommend levels for entry today as the open after a report is very dicey, but I am still maintaining my stop level below the $289.2 high volume support level for the time being and will be looking for further entry as long as the report is satisfactory.
****Late Note- Initial report for Grains and Soybeans looks moderately bearish. Be careful on entry into Meal today.
Sells to Watch:
December Cotton- December Cotton was on the Sell list Wednesday, but after strong buying entered across the entire macro market the bearish breakout for the market was negated. Despite the macro rally December Cotton still positioned itself as a laggard among the Commodity Sector and with a price break yesterday settled with a low close below the 74.09 cent breakout level. The market now has a projection to roughly 69 cents on the dot. While the Grain Sector is closed during the release of the 7:30 am (CT) report, the Cotton market is open so it should be reliable to enter the market once the report is released. There is not a great level for entry this morning, but placing your trade around a stop level just above the 74.60 higher volume resistance is a good idea and be aware that the market has found support near 73.65 both of the last two days.
Put on the Radar (The Where Are We Going Special):
To formulate a contingency plan on how to play this most recent market rally I have put together a group of markets that encompasses both riskier assets and risk aversion assets. I am using the S&P 500 market as the leading indicator for the Equity Sector as a reference point, the recent leaders among the risk assets technically in the Aussie Dollar and Copper, and the risk aversion markets of Bonds and the Japanese Yen. First I will describe what I am seeing in each individual market:
S&P 500- The S&P 500 has had an impressive rally over the last 3 days with only a minimal pullback, but it is now coming upon heavy volume and technical resistance. Between 1070 and 1081 there is a significant chunk of trade that has already acted as a pivot point for the market on numerous past encounters. Furthermore, when you measure the Fibonacci Retracement levels from the 1130 spike high to the 1003 base you receive a 61.8% retracement level of 1081 on the dot. Above this 1081 pivot point the market will likely rally to test the 1117 high close level and 1130 on on the most recent swing high and has a decent possibility on continuation above these levels.
Australian Dollar- As noted on yesterday's radar, the Australian Dollar is testing the .8675 previous high close and .8772 high trade from the last swing high. The Australian Economy has received positive news over the last week with upgrades on growth and unemployment, which has boosted the Aussie Dollar market independently above many of the other correlated Currency markets. This is the first market that is highly correlated to the U.S. Equity market to test it's latest swing high making it one of the better upside indicator for the macro move. When you measure the Fibonacci levels from the April highs in the market to the lows on the May dip you receive a 61.8% retracement level that is right at the previous .8772 high. Although the Aussie made a higher close yesterday above the previous swing high close it has fallen overnight and not had a significant attempt at the .8772 high. If the market is able to rally and hold a move above this high it projects a move back to the highs for the year above .92 making it one of the best buys.
Copper- Copper is in a triangle consolidation for the time being. To form the triangle draw a top trendline from the Close May 13th to the High June 25th and draw your own bottom for the time being as it is not really in play for the time being. This descending top provides a value of $3.0770 today that will act as resistance. Furthermore, there are "single prints" (extremely low volume area) from 3.0760 - 3.0830 with high volume resistance from 3.0840 - 3.0920 that should provide stronger resistance near this top trend. A bullish breakout from this triangle would likely mean a 50 cent move from the breakout level and likely point towards a test of the highs for the year.
Bonds- Bonds have faded over the last few days, but the market still has a strong uptrend intact. To form this trend draw a line from the Low April 29th to the Low June 16th to receive a support level of 125.29 for today. Like Copper, Bonds also have "single prints" on the market profile from 125.26 - 125.28 with some high volume support ranging all the way from 125.09 to 125.24 for further support. The Bonds are a risk aversion asset that moves opposite Equities for the time being, so support and resumption of the upward move would mean a break is likely to occur in Equities and Commodities.
Japanese Yen- Like the Bonds, the Japanese Yen has had a strong uptrend over the last month and a half as a risk aversion asset. Although the Yen does not have a good uptrend for the chart that is nearby there is a significant low volume "Gap" left between 112.14 and 112.56 with some higher volume support from 111.96 - 112.12. This low volume zone was one that I was looking to be filled a couple weeks ago as a good zone to buy, but was never traded back into. This area would likely provide decent support if it was traded into over the next few days.
**Putting it all together- So, taking all of these markets together as indicators it looks like the macro market is running into a significant wall nearby that should provide resistance for a move higher. It is likely that all of these markets move to test their individual levels at nearly the same time and I kind of like to look at the overlay between them as a spider web or balloon that stretches and bends but maintains for the duration. If these support resistance levels fail then I believe that you can follow the Bullish side of Equities and Commodities as the S&P 500 will likely test 1130 and the Aussie and Copper should be the best buys among the supportive markets. However, for the time being I am willing to step in with some small size at these "single print" and low volume areas with a small initial size to attempt a lower risk fade on the markets. I think that maintaining the risk/reward is crucial, so I recommend only stepping in once these markets reach their individual levels.
Notes:
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