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.