Opening Note: **Written at 7 am.
Yesterday
First off, I did realize that the date on yesterday's newsletter was one day off after sending it and I have rolled my clocks forward 24 hours to time synch. with everyone else. Unfortunately, this may have been one of the more exciting things that happened yesterday. The morning's Personal Income number came and went without much deviation from expectations. The oversold bounce that carried over from Friday into Sunday night in the supportive markets reversed with the S&P 500 settling 19 points lower on the day with Crude Oil also falling back below its support line. The most notable move on the day did come in advance to President Obama's midday speech on the Economy as Equities sold off slightly, but other than this recurring Presidential sell-off it was pretty much just a sluggish grind lower.
Today
This morning the macro market is again weaker with Equities trading modestly lower along with nearly every other supportive market to some degree. The Grain markets are moderately lower as the crop progress report came in unchanged for both Soybeans and Corn while the market was expecting a decline in the good/excellent condition percentage of the crop. The Bond and Japanese Yen markets have continued their impressive 2 day recovery since Friday's sell off to now trade back near the recent highs on the move. And finally, Copper as a strength market over the last several weeks has rejected an attempted breakout to new highs from yesterday's close that could signal continued weakness throughout the market as a leading market has failed.
With the quick dismantling of the oversold bounce and Bullish enthusiasm from Friday and the retracement back to the recent lows in Stocks yesterday I can not help but take a look at the weekly chart for the S&P 500 and realize how close the market is to setting off the ominous head and shoulders topping pattern. The market correlation web is pointing more towards this large Bearish move actually happening now as many of the constructive Currencies for the Equities now also appear to be topping and the risk aversion markets continue to carry steam on their trek higher. I go into more detail later in the Radar and Notes section of the letter to describe these distress signals, but even more so than yesterday I recommend looking to sell rallies in the supportive markets
Tomorrow is the first day of September and over the last decade there is a large statistical anomaly that greatly favors the 1st day of the month as a larger overall gainer than all of the other days in the month combined. Although I have a Bearish opinion of the market going forward it may be wise to take home a small long position into tomorrow and look to take profits near Wednesday's close.
Late Late Note (9:30): It is pretty clear today that much of the action over the last week and possibly heading into the beginning of this month is strictly volatility for the sake of volatility. Since I first began writing the letter this morning the swings in the market have made little to no sense when taking into account relationships, momentum, support/resistance, and magnitude of the moves. Some of this is due to bookkeeping for the end of the month, but today is not an isolated instance over the last couple months. August and early September are notorious for the low volume across the market, but with the emergence of more high frequency programs than ever the swings in the market have been more erratic and nonsensical on a day to day basis than over a time period I can recall since I began studying and trading the markets 5+ years ago. There are thousands of strategies that these programs use, but I have noticed that the market sweeping programs are becoming larger and more successful at causing liquidation and short covering rallies. This makes not only short term trading, but position trading much more difficult right now. Be careful, Be more picky, and Good Luck.
Buys to Watch:
Dollar Index- When I was doing my analysis this morning the Dollar Index was actually marginally higher on the day, but a rally in the Euro and Swiss Franc have pushed the Dollar back to new lows and actually into a decent zone now for long entry again on the trade. The Dollar has been in the Buy section for the last few days with the low volume zone from 82.70 - 82.84 targeted for long entry, but with the modest gains in the Dollar over the last few sessions I am actually moving the stop loss level on the trade up to just below 82.89. This leaves a small lower volume zone from 83.00 - 83.08 as the optimal level for new long entry on the trade with a very high risk reward. The Dollar Index formed a Bullish Morning Star candlestick pattern over the last 3 sessions and Stochastics is now nearing a fresh buy signal despite holding some negative momentum still. The long term 2nd leg move still maintains the objective of 94 with a target of 84.50 - 85 on this individual trade for an area to look at taking profits.
Sells to Watch:
Euro- Like the Dollar, when I was doing my analysis this morning the Euro was about unchanged on the morning, but has exploded since this time to encounter the high volume resistance between 1.2700 - 1.2750. The low volume zone for short entry sat between 1.2732 - 1.2790 on this initial trade, but I now would like to move my stop loss recommendation on the trade to just above this higher volume 1.2750 level. The Euro does have positive momentum right now according to the daily Stochastics, but like the dollar is nearing a possible crossover that would provide a fresh sell signal for momentum. If the Euro does in fact trade above this higher volume resistance it is time to take a fresh look at the market.
Put on the Radar:
S&P 500- The S&P 500 has now found support at 1037 three times in the last five days, which has produced a spike rally in the market each time it has been encountered. The rallies off of this base have continually failed, but this is obviously a significant support level over the short term. Below this the next moderate support falls from 1020 - 1023.
Looking now at the weekly chart there is the obvious large head and shoulders topping pattern that is forming in the market. For this week the breakout value sits at 988 and with a 196 point magnitude on the pattern the objective for the market would fall below 800. It is very unlikely that the pattern sets off this week, but it is now worth noting as the S&P 500 is now closer to this level than the 1130 high on the summer range.
Canadian Dollar- Along with the Australian Dollar the Canadian has the highest correlation to the U.S. Equity markets and the chart is now beginning to look concerning. The weekly chart for the Canadian shows a similar large consolidation range like the S&P 500 that could be forming a top. In comparison to the S&P the Canadian is actually sitting even lower in this consolidation range with a move below the support at .9360 looking like it may deal a devastating blow to the market to set off a Bearish collapse.
British Pound (also vs. Franc & Euro)- The Swiss Franc and Euro are much higher on the day now, but the Pound has maintained its weakness despite this European strength. With the possibility of another round of liquidation on the horizon for the macro market I think it is important to keep an eye on the Pound, especially in relation to the Euro and Swiss Franc. During the '08 market collapse the Pound actually ended up peforming weaker pound for pound (pun intended) versus both the Euro and the Franc. Much has been made about the situation in the EU, but the flow over into the much smaller British Economy that does not have Germany to support it could actually make the Pound the better market to short going forward if global de-leveraging emerges. The recent lows for the Pound sit at 1.5369, which the market has flirted with today that could also accelerate current weakness in the market as the uptrend for the market has clearly been negated.
Notes:
Corn and Soybeans- The Soybean market fell apart prior to yesterday's close below the $10.25 support that I was looking to hold, so the Soybeans are no longer on the Radar as a buy. Corn meanwhile traded lower overnight on a Bullish crop progress report that kept the Good/Excellent condition percentage for the crop at unchanged when the trade was expecting these numbers to be downgraded yesterday afternoon. Although I still think that the Corn market has a good chance to reach the $4.70 objective on the 3rd leg rally I recommend taking profits on longs for the time being as the $4.38 stop level was triggered on the trade. The July '11 - Dec '11 Corn Spread also traded below the 20 cent support line overnight meaning that I also believe that it is time to take profits on the trade and re-evaluate the market.
Tuesday, August 31, 2010
Monday, August 30, 2010
Monday 8/30/10 Commodity Ideas
Opening Note:
Yesterday
In the closing sentence of Friday's Opening Note I stated that I saw the possibility for both market liquidation and oversold buying. Because I meant this more in the sense of one or the either I was rather surprised when we saw both happen violently after the morning announcements. The GDP revisions were fairly uneventful on Friday, but the notes from Bernacke's speech at 9 am sent the market into a whirlwind with gut reaction selling followed by strong buying that emerged just 7 minutes later. The Supportive Commodity markets made spike lows with the Equities, Crude Oil, and Copper leading the buying spree that occurred thereafter through the weekly close. Meanwhile the risk aversion markets sold off sharply with Bonds falling nearly 2 1/2 handles off their morning highs and the Yen breaking more than a full point itself.
It is apparent that one could take away either a Bullish or Bearish spin from the Bernacke speech. Bullish being that the Fed is willing to enact more quantitative easing should the Economy worsen, but Bearish because the Economic outlook is not great and the effectiveness of the Fed's current tools is questionable. Personally I have a difficult time taking anything worth investing shorter or longer term capital from these notes and I believe that what we saw was a more technical oversold bounce in the market as opportunistic longs pushed the market and shorts covered into the weekend.
Today
The Supportive markets started out rather strong yesterday evening, but since then have reversed direction with the S&P 500 now 10 points off session highs and a few ticks lower on the day as of 7 am. The Grains are notably higher along with the Fixed Income markets, but other than that the trade is rather mixed around the rest of the market. This is an unimpressive follow through thus far after strong gains in the face of adversity on Friday and I believe that the markets are going to have to step it up today if they are going to keep the positive momentum into the beginning of September.
A number of the supportive market Sectors like the Foreign Currencies (except the Yen), Energies, and Equities all have rather fresh buy signals on their daily Stochastics indicators, with some from oversold territory. This means short term that the market may still have some more short covering to take care of, but when I look at the market correlation web it still looks like the macro market is generally melting lower towards another test on the large topping pattern in the Equity Indices that could exacerbate the negative momentum and losses in the market. We have at least a notable piece of Economic information each day this week with the Unemployment Report finale on Friday, so I rollover my tread lightly opinion from Friday into this week as I do not feel the market is convincingly heading one direction this week. However, I still feel that selling rallies in the weaker supportive markets is still the trade going forward as I expect the oversold bounce will run out of momentum sooner rather than later. Finally, keep in mind that Wednesday is the 1st of September, and the statistics say that the first day of each month is the strongest gainer in the Equities so plan accordingly to take home a long position tomorrow.
Buys to Watch:
December Corn- The Dec. Corn was not able to make a new daily high close Friday after falling below $4.38 3/4 later in the day. However, the market is again stronger this morning with higher volume support holding to create a nice base on Corn's march higher. The former resistance from $4.36 1/2 - $4.38 3/4 now becomes support fro the the market with new higher volume support from Friday's trade being left from $4.38 1/2 - $4.40 as a new spot to possibly add to the trade. A settlement today below $4.38 1/2 would be a negative signal for me and would suggest that taking profits and re-examining the trade would be a good idea at that point. But, with a fresh Stochastics buy signal on the daily chart I believe that Corn continues higher towards the $4.70 objective with a close above $4.40 being an indicator to add to the trade.
The July '11 - December '11 Corn Spread also continued higher overnight to new highs on the recent rally. 32 - 37 cents premium the July '11 contract is the objective for this 3rd leg of the spread with new higher volume support now left from 21/ 1/2 - 22 cents as a level to possibly add to the spread against. A move below 20 cents would signal that it is time to get out of the trade and re-examine, but like the Dec. Corn outright I feel strongly that the spread is on its way to the 3rd Leg target.
Dollar Index- The swings in the Yen over the last few days to not aid the Dollar's stability, but with the pretty trade setup still holding to form a base I believe the Dollar is now ready to build some gains. Although it has been traded into a number of times now, the former low volume zone from 82.70 - 82.84 still is the area to enter a long position with higher volume support down to 82.52 for stop placement below. The long term objective for the Dollar Index is 94 on the large 2nd leg higher, but I recommend looking for a move to 84.50 - 85 to look to take profits on this particular trade setup and then re-examining to enter a new long later. The Stochastics for the daily chart does have a negative momentum sell signal from a couple days ago, but RSI for the chart has set up a base in the Bull market trend zone that could provide fresh positive momentum with a day or two of gains. Finally, Friday's trade left a Doji candlestick (market closes basically at unchanged) that often signals a reversal with a higher close today providing a Bullish candlestick pattern.
Sells to Watch:
Euro- It has now been 3 days in and out of the trade entry zone for the Euro, but I feel as good about this Euro sale as ever this morning. On Friday the Euro finally traded convincingly above the 1.2750 level that had acted as a market top recently, but struggled to hold any sort of positive momentum anytime it has moved above this level. The daily chart for the Euro does still have positive momentum from a daily Stochastics buy signal crossover like many of the other comparable markets, but the Euro is again the weakest foreign Currency this morning with a close below 1.2714 today producing an Engulfing Bearish candlestick pattern. Between 1.2732 - 1.2790 remains the lower volume zone for short entry in the market with higher volume trade to 1.2838 providing resistance for stop placement above. The longer term 2nd leg for the market has an objective of 1.10, but a move below 1.25 is a good test to look to begin taking profits on this leg of the move.
Put on the Radar:
November Soybeans- Corn is the clear leader among the Grain sector, but Soybeans are following on a similar path. The 3rd leg on the Bullish move for Beans now has an objective of $10.83. I still recommend looking to buy Corn rather than Beans as the chart is stronger, but this is another encouraging piece of evidence for the Corn story and could be a good buy if you only trade Soybeans. There was some higher volume support left in the market from Friday's trade from $10.22 1/2 - $10.25, so looking for long entry on a pullback between $10.25 1/2 - $10.27 provides good risk/reward for long entry. On Friday I had the Soybean Meal on the radar as a possible sale, but with higher volume resistance above $301 now traded above the Meal is no longer a potential short for the time being.
Notes:
Crude Oil- Crude Oil was a frustrating trade to hold a short position in last week as the oversold bounce in the market continued for over $3.50 after the 9 am lows on Friday. This rally carried Crude back above the low trendline from the previous consolidation zone sitting at $74.49 today. Crude now has a confirmed Stochastics buy signal from oversold territory while open interest has also climbed in the market along with volume on this 3 day rally leg. Although the market does not have good follow through today and has already tested the $74.49 support line I think there are too many Bullish indicators to be looking for a short position in the market for the time being. Higher volume trade from $75.50 - $75.72 provided some strong resistance in the market so far on the subsequent rally attempts, so I actually remain neutral on Crude for the time being as continuation higher also does not look great right now. The 2nd leg objective of $61.50 on the longer term move still remains for Crude, so I will be waiting for some fresh Bearish signals in the future for short initiation.
Bonds- The Bonds fell over 2 handles off their early morning highs on Friday, but I am still not excited about trying to sell it or the other Fixed Income markets yet. The Bullish trend still remains strong despite the set back, so I still think that you should look at buying dips rather than selling rallies.
Yesterday
In the closing sentence of Friday's Opening Note I stated that I saw the possibility for both market liquidation and oversold buying. Because I meant this more in the sense of one or the either I was rather surprised when we saw both happen violently after the morning announcements. The GDP revisions were fairly uneventful on Friday, but the notes from Bernacke's speech at 9 am sent the market into a whirlwind with gut reaction selling followed by strong buying that emerged just 7 minutes later. The Supportive Commodity markets made spike lows with the Equities, Crude Oil, and Copper leading the buying spree that occurred thereafter through the weekly close. Meanwhile the risk aversion markets sold off sharply with Bonds falling nearly 2 1/2 handles off their morning highs and the Yen breaking more than a full point itself.
It is apparent that one could take away either a Bullish or Bearish spin from the Bernacke speech. Bullish being that the Fed is willing to enact more quantitative easing should the Economy worsen, but Bearish because the Economic outlook is not great and the effectiveness of the Fed's current tools is questionable. Personally I have a difficult time taking anything worth investing shorter or longer term capital from these notes and I believe that what we saw was a more technical oversold bounce in the market as opportunistic longs pushed the market and shorts covered into the weekend.
Today
The Supportive markets started out rather strong yesterday evening, but since then have reversed direction with the S&P 500 now 10 points off session highs and a few ticks lower on the day as of 7 am. The Grains are notably higher along with the Fixed Income markets, but other than that the trade is rather mixed around the rest of the market. This is an unimpressive follow through thus far after strong gains in the face of adversity on Friday and I believe that the markets are going to have to step it up today if they are going to keep the positive momentum into the beginning of September.
A number of the supportive market Sectors like the Foreign Currencies (except the Yen), Energies, and Equities all have rather fresh buy signals on their daily Stochastics indicators, with some from oversold territory. This means short term that the market may still have some more short covering to take care of, but when I look at the market correlation web it still looks like the macro market is generally melting lower towards another test on the large topping pattern in the Equity Indices that could exacerbate the negative momentum and losses in the market. We have at least a notable piece of Economic information each day this week with the Unemployment Report finale on Friday, so I rollover my tread lightly opinion from Friday into this week as I do not feel the market is convincingly heading one direction this week. However, I still feel that selling rallies in the weaker supportive markets is still the trade going forward as I expect the oversold bounce will run out of momentum sooner rather than later. Finally, keep in mind that Wednesday is the 1st of September, and the statistics say that the first day of each month is the strongest gainer in the Equities so plan accordingly to take home a long position tomorrow.
Buys to Watch:
December Corn- The Dec. Corn was not able to make a new daily high close Friday after falling below $4.38 3/4 later in the day. However, the market is again stronger this morning with higher volume support holding to create a nice base on Corn's march higher. The former resistance from $4.36 1/2 - $4.38 3/4 now becomes support fro the the market with new higher volume support from Friday's trade being left from $4.38 1/2 - $4.40 as a new spot to possibly add to the trade. A settlement today below $4.38 1/2 would be a negative signal for me and would suggest that taking profits and re-examining the trade would be a good idea at that point. But, with a fresh Stochastics buy signal on the daily chart I believe that Corn continues higher towards the $4.70 objective with a close above $4.40 being an indicator to add to the trade.
The July '11 - December '11 Corn Spread also continued higher overnight to new highs on the recent rally. 32 - 37 cents premium the July '11 contract is the objective for this 3rd leg of the spread with new higher volume support now left from 21/ 1/2 - 22 cents as a level to possibly add to the spread against. A move below 20 cents would signal that it is time to get out of the trade and re-examine, but like the Dec. Corn outright I feel strongly that the spread is on its way to the 3rd Leg target.
Dollar Index- The swings in the Yen over the last few days to not aid the Dollar's stability, but with the pretty trade setup still holding to form a base I believe the Dollar is now ready to build some gains. Although it has been traded into a number of times now, the former low volume zone from 82.70 - 82.84 still is the area to enter a long position with higher volume support down to 82.52 for stop placement below. The long term objective for the Dollar Index is 94 on the large 2nd leg higher, but I recommend looking for a move to 84.50 - 85 to look to take profits on this particular trade setup and then re-examining to enter a new long later. The Stochastics for the daily chart does have a negative momentum sell signal from a couple days ago, but RSI for the chart has set up a base in the Bull market trend zone that could provide fresh positive momentum with a day or two of gains. Finally, Friday's trade left a Doji candlestick (market closes basically at unchanged) that often signals a reversal with a higher close today providing a Bullish candlestick pattern.
Sells to Watch:
Euro- It has now been 3 days in and out of the trade entry zone for the Euro, but I feel as good about this Euro sale as ever this morning. On Friday the Euro finally traded convincingly above the 1.2750 level that had acted as a market top recently, but struggled to hold any sort of positive momentum anytime it has moved above this level. The daily chart for the Euro does still have positive momentum from a daily Stochastics buy signal crossover like many of the other comparable markets, but the Euro is again the weakest foreign Currency this morning with a close below 1.2714 today producing an Engulfing Bearish candlestick pattern. Between 1.2732 - 1.2790 remains the lower volume zone for short entry in the market with higher volume trade to 1.2838 providing resistance for stop placement above. The longer term 2nd leg for the market has an objective of 1.10, but a move below 1.25 is a good test to look to begin taking profits on this leg of the move.
Put on the Radar:
November Soybeans- Corn is the clear leader among the Grain sector, but Soybeans are following on a similar path. The 3rd leg on the Bullish move for Beans now has an objective of $10.83. I still recommend looking to buy Corn rather than Beans as the chart is stronger, but this is another encouraging piece of evidence for the Corn story and could be a good buy if you only trade Soybeans. There was some higher volume support left in the market from Friday's trade from $10.22 1/2 - $10.25, so looking for long entry on a pullback between $10.25 1/2 - $10.27 provides good risk/reward for long entry. On Friday I had the Soybean Meal on the radar as a possible sale, but with higher volume resistance above $301 now traded above the Meal is no longer a potential short for the time being.
Notes:
Crude Oil- Crude Oil was a frustrating trade to hold a short position in last week as the oversold bounce in the market continued for over $3.50 after the 9 am lows on Friday. This rally carried Crude back above the low trendline from the previous consolidation zone sitting at $74.49 today. Crude now has a confirmed Stochastics buy signal from oversold territory while open interest has also climbed in the market along with volume on this 3 day rally leg. Although the market does not have good follow through today and has already tested the $74.49 support line I think there are too many Bullish indicators to be looking for a short position in the market for the time being. Higher volume trade from $75.50 - $75.72 provided some strong resistance in the market so far on the subsequent rally attempts, so I actually remain neutral on Crude for the time being as continuation higher also does not look great right now. The 2nd leg objective of $61.50 on the longer term move still remains for Crude, so I will be waiting for some fresh Bearish signals in the future for short initiation.
Bonds- The Bonds fell over 2 handles off their early morning highs on Friday, but I am still not excited about trying to sell it or the other Fixed Income markets yet. The Bullish trend still remains strong despite the set back, so I still think that you should look at buying dips rather than selling rallies.
Thursday, August 26, 2010
Thursday 8/26/10 Commodity Ideas
Opening Note:
Yesterday
While my prediction that the Economic numbers would continue to disappoint was correct the market reaction to these numbers came as a surprise yesterday. Durable Goods and New Home Sales fell well below expectations, but with the Equity market and a number of Commodities already moderately lower on the day it was in fact buying that entered the market after the initial reactionary price break. The Fixed Income markets and Japanese Yen followed in line as well with Bond prices falling 2 full handles off their morning highs. The EIA Crude Inventory number came in well above expectations (highly Bearish), but an explosion in price followed after Crude dipped below $71 on a test near October contract lows. Finally, the Metal Sector appears to be the allocation of choice right now as money continued to flow into both Gold and Silver (another 55 cents up in Silver..wtf?) as well as the base metals like Copper and Palladium, which appear to have flow over from the precious metals and have acted stronger lately than other correlated markets.
A Little Analysis
Although you could put a Bullish spin on these price advances, I believe that yesterday was just a case of oversold markets bouncing. Throughout the Summer trading range we have seen violent price reversals like yesterday and it is usually when the Bull or Bear opinion becomes too widespread. Granted the talk of a double dip recession is now at the forefront of media discussions, but we are actually now beginning to see some of the hard data to back up this conclusion. It's one thing to have swings in opinion based on price action, but another when the evidence of a slower Economy is actually being presented While the dip buyers in the market got away with one yesterday I believe that this actually provides a good opportunity to finally enter some decent sales in the weaker markets as the Bearish data should continue for another 7 days.
Today
Overnight the Equity markets traded higher, but have fallen to new lows as I am writing at 7:10 am. Crude Oil and Copper lead the gainers of Commodities for right now, but the Fixed Income markets are trading moderately higher with the Yen rallying stronger this morning. The Jobless Claims number will have an impact this morning at 7:30 am., but I believe that it is likely that we now have a top on the Equity and Commodity markets for the day with lower trade to follow. 1059 - 1061 in the S&P 500 is a lower volume zone that has provided resistance overnight, but if the market is able to make new highs then the strong resistance at 1069 should provide a stiff top on any further gains. Crude Oil and the Euro rallied into some good low volume zones for short entry overnight, with the Yen falling into a good buy zone as well, so if these markets trade back into them there will be good opportunities today.
***Late Note- The Jobless Claims slightly beat the awful expectations, but the number was still pretty brutal on its own. There was an initial rally after the number, but Crude Oil has fallen $1 since with Equities slowly winding lower as well. There was selling on the Crude open, so I believe that we will see lower trade today with low potential for any buying to enter on the stock market open.
Buys to Watch:
December Corn- I would not call the Corn trade yesterday pretty, but the moderate support for the market at $4.15 held and provided a base for the market to rally off of into this morning. The Wheat market suffered a serious price break throughout the first hour of trade yesterday leading the Corn lower back into the low volume zone between $4.17 - $4.19, which provided a good level for new long entry. It is clear that the Wheat is the laggard of the Grain Sector for right now, so it is imperative to keep an eye on the December Wheat contract if you are trading Corn as a move below $6.77 1/2 could accelerate losses and drag Corn along with it. However, with Corn settling near $4.25 this morning there is a potential Bullish Morning Doji Star candlestick pattern forming and RSI has now ticked back higher to show a reemergence of positive momentum. $4.20 now provides stronger support for the December contract that I believe will not be violated for today, but I still recommend maintaining a stop loss on the trade below $4.15 for the time being. And remember the objective of $4.70 on this 3rd leg.
The July '11 - December '11 Corn Spread also held its support level at 15 cents and is higher this morning trading above 17 cents. I believe that you can still look for entry on this trade today if the market pulls back to 16 /12 cents this morning with the 3rd leg objective on the trade still between 32 - 37 cents.
Finally, although the Grain markets have been relatively uncorrelated to the macro picture I have noticed a higher correlation over the last 2 weeks on the macro weakness. Keep an eye on Crude Oil and the S&P 500 because a substantial break in these markets could actually cause Fund liquidation out of all Commodities including the Grains. I believe that this may have led the price break on Tuesday, which is the first time in a number of months that there has been this relationship.
Japanese Yen- This is strictly a shorter term day trade without a specific objective other than a rally test back near the recent highs. The Yen suffered a serious correction yesterday as the risk aversion trade weakened just a day after making new highs on the move. This morning the Yen pulled back into a lower volume zone from 117.86 - 118.10 that does not have great higher volume support below it, but has found support near the low end of this range on several tests. I recommend using smaller size than normal on this trade, but with the Fixed Income markets finding strength off of a similar support level and the Equity and other Foreign Currencies possibly finding a top for the day I believe that this is a low risk day trade worth taking.
Sells to Watch:
Crude Oil- Crude Oil has the longer term 2nd leg objective of $61.50 and yesterday's rally into today provides a nice setup for new short entry into the market. Crude Oil has been the absolute strength among the entire market over the last 24 hours, but it is running into a strong wall this morning that not even the high frequency programs have been able to break through. Between $73.24 - $73.52 there is a low volume zone with higher volume resistance from $73.60 - $74.12. I had a resting "hope and pray" order at $73.42 that I got hit on while I was in the shower this morning, but a rally after the Jobless report this morning also sent the market into this resistance this morning. I recommend using a stop just above the higher volume resistance and looking for another test near the $70.35 swing lows before taking profits.
Euro- The Euro has the longer term objective of 1.10 on the 2nd leg move. Overnight the Euro made new highs on the recent trade on another test of 1.2750. There is a larger low volume zone from 1.2732 - 1.2790 with higher volume resistance above to 1.2838. However, this 1.2750 level continues to act like a wall for the market so I do not believe it is likely that the market travels into the higher end of this range. I recommend looking for at least a test of 1.25 on the 2 - 3 day trade before taking profits.
Put on the Radar:
Buy Dollar Index- The Dollar Index has weakened slightly over the last 3 days, but is finally finding a decent spot for long entry. There is a lower volume zone between 82.70 - 82.84 with higher volume support to 82.52 for stop placement on the long entry. This zone was dipped into overnight, but only slightly and briefly. A break back into this zone should be bought with an eye on a test of 85 for profit taking on the trade. The longer term objective on the 2nd leg rally for the Dollar remains at 94.
Notes:
A Tip For Equity Trading- I always watch all of the main domestic Equity Indexes throughout the day and a new trend has emerged that I believe is helpful. While the leader/laggard of the Sector has been a revolving door over much of the last few months the Nasdaq Index has emerged as the volatility and direction indicator among the Sector no matter what the direction. This was evident yesterday as although the Equity markets were weaker the Nasdaq was the leader among the Sector and what followed was a sizable rally off of the base. Conversely, on days that the Equity markets have suffered the Nasdaq has been the weakest performer in the Sector as liquidation out of this leader over the recovery (and out of Apple...which looks really ugly right now) leads the market lower. If you see a weaker market with the Nasdaq the best performer then watch out on your shorts and if you see a stronger market with the Nasdaq the weakest then watch out on your longs.
Copper- What a crappy swing in the market on my short opinion. Copper was a laggard market on Tuesday and coming into Wednesday as well, but when the macro market bounced so did the Copper...and violently. The market rallied nearly 13 cents over a 24 hour period taking out my $3.2310 stop level by yesterday afternoon. Copper is definitely no longer a short, but rather a neutral for the time being as I believe that some of the Metal excitement has spilled over into these industrial metals.
Yesterday
While my prediction that the Economic numbers would continue to disappoint was correct the market reaction to these numbers came as a surprise yesterday. Durable Goods and New Home Sales fell well below expectations, but with the Equity market and a number of Commodities already moderately lower on the day it was in fact buying that entered the market after the initial reactionary price break. The Fixed Income markets and Japanese Yen followed in line as well with Bond prices falling 2 full handles off their morning highs. The EIA Crude Inventory number came in well above expectations (highly Bearish), but an explosion in price followed after Crude dipped below $71 on a test near October contract lows. Finally, the Metal Sector appears to be the allocation of choice right now as money continued to flow into both Gold and Silver (another 55 cents up in Silver..wtf?) as well as the base metals like Copper and Palladium, which appear to have flow over from the precious metals and have acted stronger lately than other correlated markets.
A Little Analysis
Although you could put a Bullish spin on these price advances, I believe that yesterday was just a case of oversold markets bouncing. Throughout the Summer trading range we have seen violent price reversals like yesterday and it is usually when the Bull or Bear opinion becomes too widespread. Granted the talk of a double dip recession is now at the forefront of media discussions, but we are actually now beginning to see some of the hard data to back up this conclusion. It's one thing to have swings in opinion based on price action, but another when the evidence of a slower Economy is actually being presented While the dip buyers in the market got away with one yesterday I believe that this actually provides a good opportunity to finally enter some decent sales in the weaker markets as the Bearish data should continue for another 7 days.
Today
Overnight the Equity markets traded higher, but have fallen to new lows as I am writing at 7:10 am. Crude Oil and Copper lead the gainers of Commodities for right now, but the Fixed Income markets are trading moderately higher with the Yen rallying stronger this morning. The Jobless Claims number will have an impact this morning at 7:30 am., but I believe that it is likely that we now have a top on the Equity and Commodity markets for the day with lower trade to follow. 1059 - 1061 in the S&P 500 is a lower volume zone that has provided resistance overnight, but if the market is able to make new highs then the strong resistance at 1069 should provide a stiff top on any further gains. Crude Oil and the Euro rallied into some good low volume zones for short entry overnight, with the Yen falling into a good buy zone as well, so if these markets trade back into them there will be good opportunities today.
***Late Note- The Jobless Claims slightly beat the awful expectations, but the number was still pretty brutal on its own. There was an initial rally after the number, but Crude Oil has fallen $1 since with Equities slowly winding lower as well. There was selling on the Crude open, so I believe that we will see lower trade today with low potential for any buying to enter on the stock market open.
Buys to Watch:
December Corn- I would not call the Corn trade yesterday pretty, but the moderate support for the market at $4.15 held and provided a base for the market to rally off of into this morning. The Wheat market suffered a serious price break throughout the first hour of trade yesterday leading the Corn lower back into the low volume zone between $4.17 - $4.19, which provided a good level for new long entry. It is clear that the Wheat is the laggard of the Grain Sector for right now, so it is imperative to keep an eye on the December Wheat contract if you are trading Corn as a move below $6.77 1/2 could accelerate losses and drag Corn along with it. However, with Corn settling near $4.25 this morning there is a potential Bullish Morning Doji Star candlestick pattern forming and RSI has now ticked back higher to show a reemergence of positive momentum. $4.20 now provides stronger support for the December contract that I believe will not be violated for today, but I still recommend maintaining a stop loss on the trade below $4.15 for the time being. And remember the objective of $4.70 on this 3rd leg.
The July '11 - December '11 Corn Spread also held its support level at 15 cents and is higher this morning trading above 17 cents. I believe that you can still look for entry on this trade today if the market pulls back to 16 /12 cents this morning with the 3rd leg objective on the trade still between 32 - 37 cents.
Finally, although the Grain markets have been relatively uncorrelated to the macro picture I have noticed a higher correlation over the last 2 weeks on the macro weakness. Keep an eye on Crude Oil and the S&P 500 because a substantial break in these markets could actually cause Fund liquidation out of all Commodities including the Grains. I believe that this may have led the price break on Tuesday, which is the first time in a number of months that there has been this relationship.
Japanese Yen- This is strictly a shorter term day trade without a specific objective other than a rally test back near the recent highs. The Yen suffered a serious correction yesterday as the risk aversion trade weakened just a day after making new highs on the move. This morning the Yen pulled back into a lower volume zone from 117.86 - 118.10 that does not have great higher volume support below it, but has found support near the low end of this range on several tests. I recommend using smaller size than normal on this trade, but with the Fixed Income markets finding strength off of a similar support level and the Equity and other Foreign Currencies possibly finding a top for the day I believe that this is a low risk day trade worth taking.
Sells to Watch:
Crude Oil- Crude Oil has the longer term 2nd leg objective of $61.50 and yesterday's rally into today provides a nice setup for new short entry into the market. Crude Oil has been the absolute strength among the entire market over the last 24 hours, but it is running into a strong wall this morning that not even the high frequency programs have been able to break through. Between $73.24 - $73.52 there is a low volume zone with higher volume resistance from $73.60 - $74.12. I had a resting "hope and pray" order at $73.42 that I got hit on while I was in the shower this morning, but a rally after the Jobless report this morning also sent the market into this resistance this morning. I recommend using a stop just above the higher volume resistance and looking for another test near the $70.35 swing lows before taking profits.
Euro- The Euro has the longer term objective of 1.10 on the 2nd leg move. Overnight the Euro made new highs on the recent trade on another test of 1.2750. There is a larger low volume zone from 1.2732 - 1.2790 with higher volume resistance above to 1.2838. However, this 1.2750 level continues to act like a wall for the market so I do not believe it is likely that the market travels into the higher end of this range. I recommend looking for at least a test of 1.25 on the 2 - 3 day trade before taking profits.
Put on the Radar:
Buy Dollar Index- The Dollar Index has weakened slightly over the last 3 days, but is finally finding a decent spot for long entry. There is a lower volume zone between 82.70 - 82.84 with higher volume support to 82.52 for stop placement on the long entry. This zone was dipped into overnight, but only slightly and briefly. A break back into this zone should be bought with an eye on a test of 85 for profit taking on the trade. The longer term objective on the 2nd leg rally for the Dollar remains at 94.
Notes:
A Tip For Equity Trading- I always watch all of the main domestic Equity Indexes throughout the day and a new trend has emerged that I believe is helpful. While the leader/laggard of the Sector has been a revolving door over much of the last few months the Nasdaq Index has emerged as the volatility and direction indicator among the Sector no matter what the direction. This was evident yesterday as although the Equity markets were weaker the Nasdaq was the leader among the Sector and what followed was a sizable rally off of the base. Conversely, on days that the Equity markets have suffered the Nasdaq has been the weakest performer in the Sector as liquidation out of this leader over the recovery (and out of Apple...which looks really ugly right now) leads the market lower. If you see a weaker market with the Nasdaq the best performer then watch out on your shorts and if you see a stronger market with the Nasdaq the weakest then watch out on your longs.
Copper- What a crappy swing in the market on my short opinion. Copper was a laggard market on Tuesday and coming into Wednesday as well, but when the macro market bounced so did the Copper...and violently. The market rallied nearly 13 cents over a 24 hour period taking out my $3.2310 stop level by yesterday afternoon. Copper is definitely no longer a short, but rather a neutral for the time being as I believe that some of the Metal excitement has spilled over into these industrial metals.
Wednesday, August 25, 2010
Wednesday 8/25/10 Commodity Ideas
Opening Note:
Well...I'm back, feeling well rested, and ready to get back to the market commentary. Everybody needs a break from time to time and I am afraid the lack of vacation, undertaking of new work opportunities, and overall lack of sleep was turning me into more of a market zombie than any sort of market analyst. However, I can say that I truly missed writing about the markets and with some new changes in my schedule I am full on the newsletter train once again. I am working on some new updates to the newsletter to hopefully include charts (with my lines, projections, and patterns) and possibly some changes in the schedule and timing of the letter, so I will send an update once I reach some conclusions.
Since Last Time
The last letter I wrote was my essay on allocation that I believed would lead the macro market back to its highs for the year, but since then a lot has changed. The Fixed Income markets have continued on their torrid rally, the S&P 500 ran into a wall when it encountered the "right shoulder highs" around the 1130 level, the Grain market found some serious demand and global weather issues, and the Currency markets have now reversed from the "beat up the Dollar trade". If you have kept up with my letters since when I began back in January you probably noticed that I have been pretty bearish on the general market direction and almost bordering on "perma-bear" status (not the actual truth...I bought the crap out of everything the 1st half of '08). The market finally looks like it has a high probability of finally setting off the large Bear move that I have waited on for months...and months.
**I will write an update to piece together the overall picture because I have a lot to say, but a lack of time this morning. Just know I'm a full on Yogi Bear right now.
Yesterday
Yesterday the macro market was weaker, but not as bad as it could have been. Equities slid lower off weaker global markets and the poor Existing Home Sales numbers released at 9 am (CT), leading the rest of the market along with them. However, the market did make a strong bounce off of its lows early in the day to trade sideways for much of the day until the close (thus the not as bad as it could have been). Both the Fixed Income markets and the Japanese Yen skyrocketed yesterday to new highs as the risk aversion trade continued its run higher, while the supportive Commodity markets like Copper, Crude Oil, and the Canadian Dollar stood out among the losers. On a very odd note though, both the Gold and Silver markets started out much weaker after their opens, but exploded higher basically out of nowhere with Silver rallying 60+ cents in an hour. I do not comprehend the real story in these Metals right now, so I recommend just flat out avoiding them for the time being.
Today
Although Equities, Foreign Currencies, and the other Supportive Commodity markets traded moderately higher overnight they are sitting back near their lows as of 7:15 am with Copper, the Canadian Dollar and a correction in the Yen the weakest markets this morning. Of moderate importance there is the New Home Sales number this morning that I expect will not have "an upside surprise" to lead the market higher today. There also are a number of Economic numbers to be released over the next week and a half that continue to beat up the Equity markets without Earnings to beat the Doctored Expectations. I expect the macro market to continue to move lower over the next week and a half as these number are released. I am flat out selling any rallies in the Euro, Crude Oil, Canadian Dollar and the Nasdaq for right now and I recommend looking to sell rallies in the supportive markets for the next 8 days.
Buys to Watch:
December '10 Corn- It feels like the entire world is on the Corn/Grain trade right now, but after yesterday's sizable price break I feel more confident stepping into some new longs in Corn. Right now Corn is on the 3rd leg of its rally with a target now of roughly $4.70 on the rally from the $4.05 base level. For this target to hold true the major support from $4.05 to $4.11 needs to hold strong though. For long entry there is a very attractive low volume zone between $4.17 - $4.19 with moderate support at $4.15, but with more major support below this level from $4.05 - $4.11. I personally already purchased some yesterday at $4.17 with risk now to just below $4.15 and will look at entry again near $4.11 if this level is reached.
**In addition I also like the July '11 - Dec '11 Corn spread still. I believe that this spread is also setting up a 3rd leg higher currently with a target area between 32 - 37 cents premium July. This spread takes advantage of the acreage battle over Wheat & Beans versus Corn planting acres next year as well as the growing demand story for Corn worldwide for a brief fundamental summary. There is strong support between 15 - 15 3/4 cents for the spread, so with the open this morning likely around 16 - 16 1/2 cents this is a good low risk play on the Bullish Corn story as well.
Sells to Watch:
Copper- The Bearish pattern in Copper was set off yesterday, negated overnight, but yet again set off with more conviction this morning. Below $3.2310 Copper has set off a Bearish topping pattern with a projection of $3.0720 on the smaller move. Copper has held up as one of the stronger Commodities in the face of weaker Equities over the last couple weeks, but the market can have great momentum once it commits to a move and catches traders off guard. Overnight the market had a small bounce off of the $3.2310 level and without a definitive resistance level I am using a price just above this breakout as a stop loss for the trade.
Put on the Radar:
Longer Term Moves That You Look Great-
Euro- The uptrend for the Euro has now been broken and I believe that the Currency is now embarking on its 2nd Leg lower on the large move below parity with the U.S. Dollar. This 2nd leg has the longer term objective of 1.10. I covered my short Euro position yesterday morning just after the Existing Home Sales number and am looking for short entry again as well. Optimally I would love to sell the Euro in the low volume area between 1.2730 - 1.2800 with resistance above to 1.2825, but the 1.2750 level appears to be acting like a strong top. Right now the trend in the market is to buy the Euro on weak U.S. economic data (not sure why...and I think these guys are off their rockers), which is working out as a terrific sale if you have the patience to wait an hour after a weak number. I took advantage of this at least 3 times over the last month, so look for a rally after Home Sales today or any of the other Economic numbers this week to jump on the short Euro.
Crude Oil- Like the Euro I believe Crude Oil is embarking on its own 2nd leg lower with an objective of $61.50 for this leg. Crude Oil has acted the weakest of any Commodity over the last couple weeks with the rally bounces minimal to non-existent. Finding a rally in Crude Oil has been extremely difficult and I really do not have a great level to sell for today. I personally gave up trying to find a rally last week and bought some Sep. $71 puts, but with volatility rather high already for Oil it is difficult to jump into the options market right now. If you get a decent rally sell it.
Dollar Index- As the inverse of the Euro trade, I am strictly looking to buy the U.S. Dollar now as the Bear trend has now reversed Bullish. The 2nd leg higher for the Dollar Index has a longer term objective of 94 now. I have a bullish trendline from the recent base that sits at 83.16 today, which I am looking for as an entry level if the Dollar breaks this morning.
**I have basically been trading in and out of all of these markets while only looking to sell Crude and the Euro and Buy the Dollar Index. Options provide a way to keep an initial position for the move, but I am focusing on catching 2- 3 day moves in each of these markets on the moves. It may be tempting to look at the move in Crude and say "This can't go any further without a pullback", but I seriously encourage only looking at these markets as strictly one direction trades
Notes:
Bonds- I am out of time, but just do not try and pick a top on the Bonds. The market is on a crazy rally higher that does not seem to have an end. I continue to look at buying the dips for a 1-2 day profit. Yes, the Fixed Income markets are likely a bubble, but this is a longer term Bubble that shows no signs of stopping anytime soon and will likely take away all of the top-pickers money before they are right on the trade.
Well...I'm back, feeling well rested, and ready to get back to the market commentary. Everybody needs a break from time to time and I am afraid the lack of vacation, undertaking of new work opportunities, and overall lack of sleep was turning me into more of a market zombie than any sort of market analyst. However, I can say that I truly missed writing about the markets and with some new changes in my schedule I am full on the newsletter train once again. I am working on some new updates to the newsletter to hopefully include charts (with my lines, projections, and patterns) and possibly some changes in the schedule and timing of the letter, so I will send an update once I reach some conclusions.
Since Last Time
The last letter I wrote was my essay on allocation that I believed would lead the macro market back to its highs for the year, but since then a lot has changed. The Fixed Income markets have continued on their torrid rally, the S&P 500 ran into a wall when it encountered the "right shoulder highs" around the 1130 level, the Grain market found some serious demand and global weather issues, and the Currency markets have now reversed from the "beat up the Dollar trade". If you have kept up with my letters since when I began back in January you probably noticed that I have been pretty bearish on the general market direction and almost bordering on "perma-bear" status (not the actual truth...I bought the crap out of everything the 1st half of '08). The market finally looks like it has a high probability of finally setting off the large Bear move that I have waited on for months...and months.
**I will write an update to piece together the overall picture because I have a lot to say, but a lack of time this morning. Just know I'm a full on Yogi Bear right now.
Yesterday
Yesterday the macro market was weaker, but not as bad as it could have been. Equities slid lower off weaker global markets and the poor Existing Home Sales numbers released at 9 am (CT), leading the rest of the market along with them. However, the market did make a strong bounce off of its lows early in the day to trade sideways for much of the day until the close (thus the not as bad as it could have been). Both the Fixed Income markets and the Japanese Yen skyrocketed yesterday to new highs as the risk aversion trade continued its run higher, while the supportive Commodity markets like Copper, Crude Oil, and the Canadian Dollar stood out among the losers. On a very odd note though, both the Gold and Silver markets started out much weaker after their opens, but exploded higher basically out of nowhere with Silver rallying 60+ cents in an hour. I do not comprehend the real story in these Metals right now, so I recommend just flat out avoiding them for the time being.
Today
Although Equities, Foreign Currencies, and the other Supportive Commodity markets traded moderately higher overnight they are sitting back near their lows as of 7:15 am with Copper, the Canadian Dollar and a correction in the Yen the weakest markets this morning. Of moderate importance there is the New Home Sales number this morning that I expect will not have "an upside surprise" to lead the market higher today. There also are a number of Economic numbers to be released over the next week and a half that continue to beat up the Equity markets without Earnings to beat the Doctored Expectations. I expect the macro market to continue to move lower over the next week and a half as these number are released. I am flat out selling any rallies in the Euro, Crude Oil, Canadian Dollar and the Nasdaq for right now and I recommend looking to sell rallies in the supportive markets for the next 8 days.
Buys to Watch:
December '10 Corn- It feels like the entire world is on the Corn/Grain trade right now, but after yesterday's sizable price break I feel more confident stepping into some new longs in Corn. Right now Corn is on the 3rd leg of its rally with a target now of roughly $4.70 on the rally from the $4.05 base level. For this target to hold true the major support from $4.05 to $4.11 needs to hold strong though. For long entry there is a very attractive low volume zone between $4.17 - $4.19 with moderate support at $4.15, but with more major support below this level from $4.05 - $4.11. I personally already purchased some yesterday at $4.17 with risk now to just below $4.15 and will look at entry again near $4.11 if this level is reached.
**In addition I also like the July '11 - Dec '11 Corn spread still. I believe that this spread is also setting up a 3rd leg higher currently with a target area between 32 - 37 cents premium July. This spread takes advantage of the acreage battle over Wheat & Beans versus Corn planting acres next year as well as the growing demand story for Corn worldwide for a brief fundamental summary. There is strong support between 15 - 15 3/4 cents for the spread, so with the open this morning likely around 16 - 16 1/2 cents this is a good low risk play on the Bullish Corn story as well.
Sells to Watch:
Copper- The Bearish pattern in Copper was set off yesterday, negated overnight, but yet again set off with more conviction this morning. Below $3.2310 Copper has set off a Bearish topping pattern with a projection of $3.0720 on the smaller move. Copper has held up as one of the stronger Commodities in the face of weaker Equities over the last couple weeks, but the market can have great momentum once it commits to a move and catches traders off guard. Overnight the market had a small bounce off of the $3.2310 level and without a definitive resistance level I am using a price just above this breakout as a stop loss for the trade.
Put on the Radar:
Longer Term Moves That You Look Great-
Euro- The uptrend for the Euro has now been broken and I believe that the Currency is now embarking on its 2nd Leg lower on the large move below parity with the U.S. Dollar. This 2nd leg has the longer term objective of 1.10. I covered my short Euro position yesterday morning just after the Existing Home Sales number and am looking for short entry again as well. Optimally I would love to sell the Euro in the low volume area between 1.2730 - 1.2800 with resistance above to 1.2825, but the 1.2750 level appears to be acting like a strong top. Right now the trend in the market is to buy the Euro on weak U.S. economic data (not sure why...and I think these guys are off their rockers), which is working out as a terrific sale if you have the patience to wait an hour after a weak number. I took advantage of this at least 3 times over the last month, so look for a rally after Home Sales today or any of the other Economic numbers this week to jump on the short Euro.
Crude Oil- Like the Euro I believe Crude Oil is embarking on its own 2nd leg lower with an objective of $61.50 for this leg. Crude Oil has acted the weakest of any Commodity over the last couple weeks with the rally bounces minimal to non-existent. Finding a rally in Crude Oil has been extremely difficult and I really do not have a great level to sell for today. I personally gave up trying to find a rally last week and bought some Sep. $71 puts, but with volatility rather high already for Oil it is difficult to jump into the options market right now. If you get a decent rally sell it.
Dollar Index- As the inverse of the Euro trade, I am strictly looking to buy the U.S. Dollar now as the Bear trend has now reversed Bullish. The 2nd leg higher for the Dollar Index has a longer term objective of 94 now. I have a bullish trendline from the recent base that sits at 83.16 today, which I am looking for as an entry level if the Dollar breaks this morning.
**I have basically been trading in and out of all of these markets while only looking to sell Crude and the Euro and Buy the Dollar Index. Options provide a way to keep an initial position for the move, but I am focusing on catching 2- 3 day moves in each of these markets on the moves. It may be tempting to look at the move in Crude and say "This can't go any further without a pullback", but I seriously encourage only looking at these markets as strictly one direction trades
Notes:
Bonds- I am out of time, but just do not try and pick a top on the Bonds. The market is on a crazy rally higher that does not seem to have an end. I continue to look at buying the dips for a 1-2 day profit. Yes, the Fixed Income markets are likely a bubble, but this is a longer term Bubble that shows no signs of stopping anytime soon and will likely take away all of the top-pickers money before they are right on the trade.
Monday, August 2, 2010
Temporary Break Until 8/12/10
I am in the process of taking a 2 week break from the normal morning newsletter to focus on some new things and to make some decisions. I will still post some letters and notes, but they will likely be either mid-day or in the afternoon. I will be back on August 12th to continue the daily morning perspective.
-Mike Mondi
-Mike Mondi
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