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: