Tuesday 7/27/10 Commodity Ideas

Opening Note:
Although the Equity market encountered some strong resistance yesterday between 1105 -1111 in the S&P 500 it was able to tick away at this wall throughout the day to settle near the top of this range without much of a pullback if any. The supportive Commodity markets also followed suit with the Australian Dollar leading the Currencies and a nice recovery in Crude Oil some of the notable moves. In addition, the risk aversion Bond market suffered another break in price as it confirmed a breakout below its strong uptrend since early April, further adding to the Bullish case for Equities and Commodities.

The real fundamental story that I grasp right now is that with the recent change in the Fed's stance on the Economy the big money is now betting on rates staying near zero for a much longer period of time. This means that the institutional money is again looking to borrow cheap and buy assets (and risky ones) with this money yet again. Furthermore, you have a lower volume summer period, investor concern about the economic future, stubborn bears still trying to short the market, and low participation in the recent rally thus far. This bakes a cake that should look something like a cross between last July's failed head and shoulders pattern and subsequent rally in the S&P 500 and the rally in this same market that began February 5th of this year. The mix of short covering, low participation and volume, and late party-goers jumping on the conga line should continue to hold momentum on the move like last summer's rally. However, one must still keep in mind that the Economic circumstances are much different than this same time frame a year ago and I think that the big money is likely crazy if this is their long term plan. For right now I project that we will see these supportive markets continue back near the highs for this year, but after this technical objective is met I still feel that Economic concerns will regain the center stage.

This morning the macro market is much firmer, with nearly every supportive Commodity market higher already and without much of a break since the European open. If you recall in my Thursday Afternoon Update I detailed a small checklist of things to watch to see if there will be long allocation entering the market in the morning and so far we have one strong signal with this European buying. Although there was not buying in the Metals this morning it looks like there is a strong possibility of some coming into the Crude market on the open, which is all you should need to confirm that there will likely be more on the 8:30 am stock market open.

**I was fairly active trading this morning and have a lot of markets to cover, so in the interest of time I will be briefer than normal this morning. I have my email open all day though, so if there's questions, comments, discussion, ideas you can always shoot me an email.

Buys to Watch:

Nasdaq- The Nasdaq now has confirmation on its projection of 1950 with two consecutive closes above 1866.25 and as I noted in the Opening, it is likely that there will be continued buying on the stock market open this morning. If the market does provide a pullback to lower volume overnight trade from 1888.50 - 1891.50 this would be good level for entry today with the higher volume trade from 1878 - 1880 yesterday providing support. Keep an eye on the S&P 500 as well because resistance in the market at 1130 could provide a temporary stall on an Equity rally. Side Note: Above 10,536 the Dow has a projection of 11,462 on a less reliable pattern projection that would take the market back to new highs for the year.

Euro/Yen Cross (Euro/Yen to chart)- The Euro/Yen Cross has a strong Bullish head and shoulders pattern breakout this morning with a move above 113.27 projecting a move to 119.34. The Euro/Yen Cross is also a key gauge on the risk trade and this breakout rally in the cross also projects gains in the supportive Equity and Commodity markets.

Australian Dollar, Canadian Dollar, Mexican Peso- I personally am focusing on doing a blend of these three markets with the Australian Dollar obviously the strongest of the three recently, but with the Canadian and Peso on the verge of Bullish rally breakouts. The Australian Dollar still has an objective of .9297 on the already confirmed pattern. The Canadian Dollar is on the verge of rallying above the .9726 breakout level for the market that would provide an objective of 1.013. Finally, the Peso has a rally breakout this morning above .078575 that projects a move to .080550. No I have not ever traded the Peso, but yes I did buy some for the first time this morning because the chart does look slightly better than the Canadian. I do not have time to provide specific levels for each entry, but the markets have pulled back slightly from their highs already this morning, which could provide some opportunity for entry today.

Sells to Watch:

Corn- This is strictly a technical trade for right now as the growing season is still under way and can fundamentally drive the market. However, after yesterday's break the Corn market now has a confirmed bearish head and shoulders pattern with the breakout below $3.86 1/2 on Friday now providing an objective of $3.62 1/2. There is some higher volume resistance from 3.86 1/4 - 3.89 that would be a good level to sell against.

Put on the Radar:

Copper and Crude Oil- Copper has the projection to $3.3210 and Crude Oil the projection to $81.48. However, both markets appear rather tired this morning, with Crude actually selling off on its open this morning despite stronger Equities and Commodities markets. I recommend only using small size for long entry on pullbacks in these markets for today.

Bonds- Bonds now have negated their strong uptrend from early April and with negative momentum and liquidation in other risk aversion markets like the Yen I believe that Bonds will decline. Looking for a move to the 123 handle should be an initial objective with a possible downside to the 121 handle on a larger move. I recommend looking at the September Puts for the market with 31 days till expiration as another option for short entry in the Bond market.

Notes: