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.