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.