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.