Opening Note:
Yesterday
Most of the market sat in a rangy sideways pattern that accomplished very little, but the Energy markets and Grains were rocking. Crude Oil began to sag after its 8 am open as it has consistently shown weakness in relation to the Equity and other Commodity Sectors. This trend reversed hard though as a surprising 9:30 am EIA stocks number showed a decrease in stocks while the consensus expected a net increase. This number was significantly Bullish in relation to expectations as the market proceeded to close $2.26 above its low morning trade. I break down Crude more on the Radar, but it is noteworthy that the Crude rally was accomplished without any help from the other correlated Commodity Sectors and may mark a shift in the Energy markets.
I found myself caught completely off guard by the Grain market action yesterday as a putrid looking overnight sell off was followed by strong buying from the 9:30 morning open. Overnight both the Corn and Wheat markets violated critical nearby support levels that could have triggered further pressure on prices. However, the markets found fresh buying come in both early and late with Corn rallying from 14 cents lower to settle 5 cents higher and Wheat 21 cents lower to only 1 1/2 cents lower on settlement. Both markets recovered above their critical pivot points, but the Corn market has definitely stepped up the daily volatility and directional indecision over the last week and a half. The fundamental analysts almost unanimously agree that Corn prices will continue to rally based on USDA yield over-estimates and foreign demand. The speculative funds all seem to agree as well because the dips continue to be bought with strength and the long positions continue to hold steady without much profit taking and liquidation. Corn should lead the Grains for the rest of the year and the path of least resistance will be to follow the open interest and allocation.
Today
There is Q2 GDP revisions and Jobless Claims at 7:30 this morning that will effect the market as well as the Grain Stocks Report at 7:30 that will effect the Grains on their 9:30 open. Most of the macro market is slightly stronger today with Equities lagging a bit and the Energy Sector leading the gainers as of 7 am. It is the last day of the 3rd Quarter, there is some moderately important Economic data that will move the market, and we have seem some isolated violent volatility episodes across the market over the last week. Because of this I expect some erratic trade and do not have a good feel for today just yet. I think it may be wise to watch more today and get ready for re-positioning and allocation tomorrow.
It is important to also note that tomorrow is not only the first day of the month but the first day of the 4th Quarter. The stock market statistically performs much better on these first days of the month than any other over the last decade, so looking to take home a long position rather than a short is advised.
Late Note- Stock market rally of 5 points in S&P 500 on Jobless Claims that beat expectations slightly and slight upward revision to Q2 GDP. Standing alone neither report was very Bullish, but they beat the awful expectations to give the market a rally. Nothing new here and I again do not have a great feel for this morning, but I am leaning towards Bullish continuation. The S&P 500 will run into strong resistance near 1150, which should be a battle. The Corn USDA Corn stocks number today is 1.708 Billion Bushels with the average trade guess coming in at 1.407 and a range of expectations from 1.350 - 1.489. This is very Bearish for Corn today and I expect a disastrous open this morning. Beans fell right in line with expectations while Wheat was the slightest bit Bearish. Corn will likely lead all of the Grain Sector lower today.
Buys to Watch:
Buy Bean Oil vs. Sell Soy Meal (December Bean Oil - December Soy Meal to chart)- The Bullish cup and handle pattern for the differentials daily chart was confirmed by yesterday's close and is now in play. Above 1359 the differential has a projection of 1693. Higher volume support falls from 1360 - 1375 with some moderate support up to 1400 from this area as well. It may be prudent to wait for the initial move on the Grain open, but if the spread does not take a Bearish dive within the first 5 minutes I believe you should be safe. Beans could be dragged lower despite their stocks number falling in line with expectations by the Corn market that could have an awful open. If this is the case then you can also leg into the trade by Selling the Soy Meal first and waiting on the Bean Oil Long. Remember that the execution ratio is 5 Bean Oil : 3 Soy Meal.
Sells to Watch:
Dollar Index- The moderate resistance from 79.09 - 79.19 has now held on back to back daily tests as the Dollar Index has established new lows on the move this morning. While this level is a good short term fade I still have my eye on better entry on a rally above this resistance. From 79.30 - 79.45 there is the low volume zone for short entry with higher volume resistance from 79.50 - 79.65 for stop placement above. This setup looks great so for right now I am waiting for this level before entering a longer term position. The longer term objective for the Dollar Index is 75.00 or 1.4050 for the Euro, whichever hits first. I am Bullish the Euro to this level, but as I am at least slightly Bullish almost all the other Currencies the Dollar Index should continue to garner further losses in relation to the Euro gains.
Put on the Radar:
Buy Crude Oil- I took Crude Oil off my Bearish watch list several days ago when the short term Bearish trendline on the daily chart was violated. Since then Crude Oil has actually turned rather Bullish looking, especially after yesterday's strong rally. Today the market has rallied above the $78.86 nearby breakout level that provides a short term objective of $84.14 for the November contract. I do recommend waiting for a settlement today above this breakout prior to entering the trade.
The next important level for Crude is $83.91, with a rally above this level projecting a move to new yearly highs for the market. As the nearby spreads have continued to move in it appears that the fundamental supply story has turned less Bearish, with yesterday's stocks number being the catalyst the market needed to get the rally rolling. It is also a good idea to check out the Heating Oil chart as it is more Bullish in comparison to Crude and likely the better buy on this Energy trade both seasonally and technically.
While this market move is convincingly Bullish I still am keeping a very close eye on the open interest gains for the market in relation to the price gains. Although the Longs look like they are off the hook for right now there still is 100,000 holding positions from $73 - $78.86. If we see a large amount of new longs enter the market we could still have a situation where too many longs enter the market without a price rally, with an ensuing liquidation run. The Quantitative Easing story should continue to support Crude Oil though for the next several weeks so ride the rally and watch the OI for later.
Buy Nasdaq- The objective remains 2080 - 2135, but for right now there is not a good setup to re-enter a long Nasdaq position for right now. The market has ripped higher since the 7:30 am data this morning, but will encounter strong resistance when the S&P 500 comes up against the 1150 level. As the market has been choppy over this week and the end of the quarter today could cause erratic action I recommend holding off on longer term entry for today. I still encourage a strategy of buying the dips though and I will provide entry levels as they emerge. Remember that tomorrow is the first day of the 4th Quarter and month so taking home a long position from today's close is statistically profitable.
Notes:
Thursday, September 30, 2010
Wednesday, September 29, 2010
Wednesday 9/29/10 Commodity Ideas
Opening Note:
Yesterday
Early morning buying in the Energies and Metals did not translate into early gains for the Equity markets. Proof that one rotten Apple can spoil it for the whole group was evident on the stock market open, as rumors swirled that Apple's likely CEO in waiting was leaving the company. Because Apple makes up nearly 20% of the Nasdaq composite the Index went on a wild early morning ride with a very negative Consumer Confidence number also adding to the turmoil. The rumors eventually proved to be false and the Equity markets actually recovered quite nicely despite the poor Consumer Confidence number, but it was pretty clear that all systems were not on the buying auto-pilot like they were over the previous week.
The Grain markets came under pressure yesterday as liquidation in the Corn and Wheat markets led the Sector lower. With the Grain Stocks report tomorrow as well as the end of the quarter it appears that Bullish enthusiasm may have over-allocated itself. December Corn settled at the psychological $5.00 level and Wheat looks like it could actually be a decent short position.
For the most part the rest of the macro relationships fell into line with no real red flags. The Fixed Income Sector was strong while the Equities settled higher and the Dollar lower, but the relationship among these Sectors is much looser now. Interest rates should continue to come under pressure as people front-run possible Fed stimulus, the Dollar will move lower as it is expected money will be printed, and the Equity markets benefit from the stimulus and the comparative value versus low interest rates in some of these fixed income vehicles. On a day to day basis all three of these can move on their own for the time being with only a significant move in one without the others setting off an out-of-line alert.
Today
The macro market is slightly stronger with Equities, Energies, Metals, and Foreign Currencies higher. I say slightly though because many of these markets are trading back near the middle of their overnight range after falling back in the evening. The Grain markets are a disaster as Corn and Wheat have fallen under further selling pressure that could cause another wave of liquidation today in advance of tomorrow's report. The rest of the "Things That Grow" trade also is coming under pressure with Cotton over 2 1/2 cents lower and Sugar, Coffee, and Hogs weaker.
I was actually very impressed with the stock market's reaction to yesterday's Consumer Confidence number. The number continues to trend lower and fell well below expectations, but the Nasdaq was still able to find the strength to settle nearly unchanged on the day 30 points above its low. That being said, it definitely feels like the allocation wheels are slowing on the QE trade for right now. The Dollar Index looks the most consistent for the time being, but the Physical Commodities and Equities may need a break as the 3rd Quarter comes to an end. While it was time to jump on the push higher over the last week I think we may need to hold off until Friday when beginning of the month and 4th Quarter re-positioning takes over some of the profit taking that appears to be happening now.
Buys to Watch: (Nasdaq moved to Radar)
Sells to Watch:
Dollar Index- The Dollar Index is the only trade in play for right now because it is the most consistent since the Fed meeting last Tuesday. The 5 word fundamental summary is "more money equals lower dollar", which is the direct effect of Quantitative Easing in the future. Moderate volume resistance from yesterday's trade was left from 79.09 - 79.19 that has produced the highs for the current market session. You may choose to place your stop around this level to lock in better profits. However, there is a low volume zone from 79.30 - 79.45 for short entry with higher volume resistance from 79.50 - 79.65 to place your stop above. I believe this a good setup for new short entry that I recommend either adding to a short position or initiating a new short position at. The longer term objective for the Dollar is 75.00 with the caveate that if the Euro reaches 140.50 that it is time to re-evaluate a Dollar short position. Keep selling the rallies.
Put on the Radar:
Nasdaq- I pretty much did most of my Apple and Equity market discussion in the opening note, but I have a few more reasons I want to hold off on the Nasdaq for now. Technically, Stochastics for the daily chart has confirmed the sell signal crossover that shows shorter term momentum has turned negative for the market. In addition, the 1150 level in the S&P 500 appears to be stronger resistance than I initially though it would be, as the stock market continues to fail each time it smells this level. Finally, while the market did recover nicely after a poor Consumer Confidence number it was still an awful number. The market has blown through all of the troubling Economic data over the last month, but with 3rd Quarter profit taking and Bullish enthusiasm feeling over-extended it seems like the time to sit back. I still feel very confident in the 2080 - 2135 longer term objective for the Nasdaq, but the market may need a consolidation pullback for the time being. Still keep your mind set on looking to buy the dips going forward.
Grains- The Grain markets are falling apart in front of tomorrow's stocks report. With the markets much lower already this morning I would not be surprised if there was an initial panic on the open because the big money does not do most of its trading overnight. While yesterday's session could be viewed as the 2nd day on a moderate 2 - 3 day pullback, this morning's price break looks more like capitulation. This is not a confidence booster for any newer longs in these markets.
Remember that tomorrow is the Stocks Report and I highly recommend liquidating positions and staying flat for the time being. It looks like there is a good chance of volatility on tomorrow's open, which could provide good opportunity on its own if you come in flat. The Report will guide the markets regardless of technicals, but right now for December Corn I see a pullback to $4.65 and in December Wheat I have a pullback objective range from $6.00 - $6.10. Finally, the July '11 - December '11 Corn Spread is broken out this morning on its Bearish reversal pattern that provides and objective of 31 1/4 cents premium the July.
Buy Bean Oil vs. Sell Soy Meal (December Bean Oil - December Meal to chart)- With the report tomorrow I think it is best to wait until tomorrow to look for entry on the trade. Yesterdays settlement of 1408 initiated the Bullish cup and handle pattern above the 1359 breakout with a target of 1693 now. The differential though has not produced good follow through this morning as Bean Oil has taken the Bean Complex break harder than the Meal. The execution ratio is 5 Bean Oil: 3 Soy Meal. If the differential settles higher today and is not damaged on tomorrow's open then I believe you can look for execution on the strong technical trade tomorrow morning.
Notes:
Update on the Combination Trade From Last Wednesday's Letter-
Based on my fundamental opinions after last Tuesday's FOMC announcment I provided a combination trade as a trial run, but that was too tricky to recommend actual execution on. While it was based on fundamentals it also looked to have a fairly close hedge while taking advantage of the technical leaders and laggards within the correlated macro markets. The trade suggestion with execution at 8:30 am last Wednesday was as follows:
Long - 4 Nasdaq @ 1977.50, 2 Bonds @ 132.28, 1 Gold @ $12.965, 1 Silver @ $21.875
Short- 1 Copper @ $3.5415, 1 Crude Oil @ $75.61, 4 Dollar Index @ 79.93, 2 Canadian Dollar @ .9729
Although I did not provide an in depth description of my thinking for time purposes last week it follows along the lines of my post-FOMC analyis of "Bullish Fixed Income, Bullish Gold, Bearish Dollar, Neutral Equities and Physical Commodities". As Silver was stronger than Gold I executed 1/2 the Gold position in Silver. The Nasdaq was a market strength while Crude and Copper I believed were correlated weaknesses, so long the Equity and short the weaker physicals. The Canadian Dollar was the weakest of the Foreign Currencies so it seemed the most appropriate hedge on a Dolar position. And, overall the combo was rather hedged as it was directionally inconsistent based on the macro correlations.
Based on the market values at roughly 6:05 am today the trade is profitable by a total of $10,325. My original suggestion was for at least 2 weeks on the trade and I still feel comfortable having the trade on for 1 - 3 more weeks, so I will provide another update next Wednesday.
Yesterday
Early morning buying in the Energies and Metals did not translate into early gains for the Equity markets. Proof that one rotten Apple can spoil it for the whole group was evident on the stock market open, as rumors swirled that Apple's likely CEO in waiting was leaving the company. Because Apple makes up nearly 20% of the Nasdaq composite the Index went on a wild early morning ride with a very negative Consumer Confidence number also adding to the turmoil. The rumors eventually proved to be false and the Equity markets actually recovered quite nicely despite the poor Consumer Confidence number, but it was pretty clear that all systems were not on the buying auto-pilot like they were over the previous week.
The Grain markets came under pressure yesterday as liquidation in the Corn and Wheat markets led the Sector lower. With the Grain Stocks report tomorrow as well as the end of the quarter it appears that Bullish enthusiasm may have over-allocated itself. December Corn settled at the psychological $5.00 level and Wheat looks like it could actually be a decent short position.
For the most part the rest of the macro relationships fell into line with no real red flags. The Fixed Income Sector was strong while the Equities settled higher and the Dollar lower, but the relationship among these Sectors is much looser now. Interest rates should continue to come under pressure as people front-run possible Fed stimulus, the Dollar will move lower as it is expected money will be printed, and the Equity markets benefit from the stimulus and the comparative value versus low interest rates in some of these fixed income vehicles. On a day to day basis all three of these can move on their own for the time being with only a significant move in one without the others setting off an out-of-line alert.
Today
The macro market is slightly stronger with Equities, Energies, Metals, and Foreign Currencies higher. I say slightly though because many of these markets are trading back near the middle of their overnight range after falling back in the evening. The Grain markets are a disaster as Corn and Wheat have fallen under further selling pressure that could cause another wave of liquidation today in advance of tomorrow's report. The rest of the "Things That Grow" trade also is coming under pressure with Cotton over 2 1/2 cents lower and Sugar, Coffee, and Hogs weaker.
I was actually very impressed with the stock market's reaction to yesterday's Consumer Confidence number. The number continues to trend lower and fell well below expectations, but the Nasdaq was still able to find the strength to settle nearly unchanged on the day 30 points above its low. That being said, it definitely feels like the allocation wheels are slowing on the QE trade for right now. The Dollar Index looks the most consistent for the time being, but the Physical Commodities and Equities may need a break as the 3rd Quarter comes to an end. While it was time to jump on the push higher over the last week I think we may need to hold off until Friday when beginning of the month and 4th Quarter re-positioning takes over some of the profit taking that appears to be happening now.
Buys to Watch: (Nasdaq moved to Radar)
Sells to Watch:
Dollar Index- The Dollar Index is the only trade in play for right now because it is the most consistent since the Fed meeting last Tuesday. The 5 word fundamental summary is "more money equals lower dollar", which is the direct effect of Quantitative Easing in the future. Moderate volume resistance from yesterday's trade was left from 79.09 - 79.19 that has produced the highs for the current market session. You may choose to place your stop around this level to lock in better profits. However, there is a low volume zone from 79.30 - 79.45 for short entry with higher volume resistance from 79.50 - 79.65 to place your stop above. I believe this a good setup for new short entry that I recommend either adding to a short position or initiating a new short position at. The longer term objective for the Dollar is 75.00 with the caveate that if the Euro reaches 140.50 that it is time to re-evaluate a Dollar short position. Keep selling the rallies.
Put on the Radar:
Nasdaq- I pretty much did most of my Apple and Equity market discussion in the opening note, but I have a few more reasons I want to hold off on the Nasdaq for now. Technically, Stochastics for the daily chart has confirmed the sell signal crossover that shows shorter term momentum has turned negative for the market. In addition, the 1150 level in the S&P 500 appears to be stronger resistance than I initially though it would be, as the stock market continues to fail each time it smells this level. Finally, while the market did recover nicely after a poor Consumer Confidence number it was still an awful number. The market has blown through all of the troubling Economic data over the last month, but with 3rd Quarter profit taking and Bullish enthusiasm feeling over-extended it seems like the time to sit back. I still feel very confident in the 2080 - 2135 longer term objective for the Nasdaq, but the market may need a consolidation pullback for the time being. Still keep your mind set on looking to buy the dips going forward.
Grains- The Grain markets are falling apart in front of tomorrow's stocks report. With the markets much lower already this morning I would not be surprised if there was an initial panic on the open because the big money does not do most of its trading overnight. While yesterday's session could be viewed as the 2nd day on a moderate 2 - 3 day pullback, this morning's price break looks more like capitulation. This is not a confidence booster for any newer longs in these markets.
Remember that tomorrow is the Stocks Report and I highly recommend liquidating positions and staying flat for the time being. It looks like there is a good chance of volatility on tomorrow's open, which could provide good opportunity on its own if you come in flat. The Report will guide the markets regardless of technicals, but right now for December Corn I see a pullback to $4.65 and in December Wheat I have a pullback objective range from $6.00 - $6.10. Finally, the July '11 - December '11 Corn Spread is broken out this morning on its Bearish reversal pattern that provides and objective of 31 1/4 cents premium the July.
Buy Bean Oil vs. Sell Soy Meal (December Bean Oil - December Meal to chart)- With the report tomorrow I think it is best to wait until tomorrow to look for entry on the trade. Yesterdays settlement of 1408 initiated the Bullish cup and handle pattern above the 1359 breakout with a target of 1693 now. The differential though has not produced good follow through this morning as Bean Oil has taken the Bean Complex break harder than the Meal. The execution ratio is 5 Bean Oil: 3 Soy Meal. If the differential settles higher today and is not damaged on tomorrow's open then I believe you can look for execution on the strong technical trade tomorrow morning.
Notes:
Update on the Combination Trade From Last Wednesday's Letter-
Based on my fundamental opinions after last Tuesday's FOMC announcment I provided a combination trade as a trial run, but that was too tricky to recommend actual execution on. While it was based on fundamentals it also looked to have a fairly close hedge while taking advantage of the technical leaders and laggards within the correlated macro markets. The trade suggestion with execution at 8:30 am last Wednesday was as follows:
Long - 4 Nasdaq @ 1977.50, 2 Bonds @ 132.28, 1 Gold @ $12.965, 1 Silver @ $21.875
Short- 1 Copper @ $3.5415, 1 Crude Oil @ $75.61, 4 Dollar Index @ 79.93, 2 Canadian Dollar @ .9729
Although I did not provide an in depth description of my thinking for time purposes last week it follows along the lines of my post-FOMC analyis of "Bullish Fixed Income, Bullish Gold, Bearish Dollar, Neutral Equities and Physical Commodities". As Silver was stronger than Gold I executed 1/2 the Gold position in Silver. The Nasdaq was a market strength while Crude and Copper I believed were correlated weaknesses, so long the Equity and short the weaker physicals. The Canadian Dollar was the weakest of the Foreign Currencies so it seemed the most appropriate hedge on a Dolar position. And, overall the combo was rather hedged as it was directionally inconsistent based on the macro correlations.
Based on the market values at roughly 6:05 am today the trade is profitable by a total of $10,325. My original suggestion was for at least 2 weeks on the trade and I still feel comfortable having the trade on for 1 - 3 more weeks, so I will provide another update next Wednesday.
Tuesday, September 28, 2010
Tuesday 9/28/10 Commodity Ideas
Opening Note:
Yesterday
The stock market turned weaker on the morning open and settled lower on the day as I expected. The Grain Sector was surprisingly weak after Beans and Corn established new high closes on Friday, but selling pressure came into both Corn and Wheat from the morning open. The Fixed Income markets traded higher with Bonds leading the way to re-confirm my Bullish opinion on the sector. In most other markets (including some of the aformentioned markets) yesterday was quiet with low volatility range swings throughout the day. I believe the Corn sell off was the only development worth noting with nothing new established elsewhere.
Today
I am not sure whether I am more surprised the Bears are 3-0 or that Gold is actually trading $8 lower this morning. It seems like months (it actually has been) since Gold has consistently traded with prices more than $5 below the previous day's settlement. On nearly every dip since late July we have seen fast buying enter the market. We also had another "Wizard of Oz" moment overnight when a 2 am sell off triggered a stop run down to $1276. I can tell you that with the curtain pulled back there does not appear to be a strong bid in the market down to at least $1275...I wonder if we are going to trade there? (I think it is highly probable within the next couple days)
The Grain markets are weaker as Corn and Wheat continue their 2 day sell off this morning. The Soybeans are the strength over the last 36 hours, but I think you can attribute the Bean strength more to an unwinding of the Corn/Bean relationship trade than anything to get too excited about in the outright November Beans.
As of 7 am the rest of the macro picture is rather mixed as my quote board looks like Christmas (half red/half green). Most of the physical Commodity markets are weaker though with the Metals looking the worst this morning. I think it is likely that we see some pressure on the Equity and other supportive markets again today, but this should provide a good opportunity to buy pullbacks in the strength markets.
**Late Note- Since 7 am the Metals have recovered, Crude Oil had buying enter on the open, and the Equity markets are creeping higher. Consumer Confidence is at 9 am and this number may better set the market direction for today.
Buys to Watch:
Nasdaq- The Nasdaq traded through the nearby higher volume support at 2014.50 early yesterday triggering my tight stop loss suggestion on the long Nasdaq trade. However, I still believe that the Equity markets will continue higher both fundamentally and technically over the next several weeks. As the strength of the Sector this makes the Nasdaq one of the best buys of any market. The Bullish head and shoulders pattern retains its target range from 2080 - 2135. As noted yesterday, for new entry there is higher volume support from 1994 - 1997.50 to purchase against. This level provided a base overnight, but unless this morning's Consumer Confidence number beats expectations significantly I think we will see another test of this support. If this support does not hold the next higher volume level falls between 1981 - 1986.50. Note: Daily chart Stochastics produced a sell signal crossover in overbought territory, but the signal does not appear to be very strong right now. The Nasdaq already has produced similar crossovers on its 1 month rally so this is something to watch rather than be concerned about right now. Strong directional markets have a tendency to repeatedly do this in Stochastics.
Sells to Watch:
Dollar Index- The Dollar Index traded higher overnight, but created a high when it ran into the higher volume support from 79.89 - 80.14. The longer term objective for the 2nd leg lower in the market is 75.00, with this technical objective supported fundamentally with Quantative Easing possibly on the horizon. There is not new higher volume resistance in the market, so for the time being this resistance from 79.89 - 80.14 remains the level to sell against.
Put on the Radar:
Buy Bean Oil vs. Sell Soy Meal (December Oil - December Meal to chart)- Above 1359 the differential has a projection of 1693 on the technically strong daily chart cup and handle pattern. The differential has traded right around this breakout level for the last several sessions and is again trading higher this morning. The Grain Sector possibly coming under pressure soon after its extended rally could also help this trade as Meal tends to lead in Soybean Bull markets. Wait for a close above this 1359 breakout value prior to entering a position, but this trade could finally be in play tomorrow. For execution the ratio to equalize contract and tick size is 5 Bean Oil: 3 Soy Meal. Note: The daily chart is showing overbought status for Stochastics and RSI, but MACD, which does not have as restrictive parameters, is still showing a strong uptrend for the market. This is not overly concerning for now, but just take note.
Gold & Silver- Both markets are laggards this morning and could be signalling an end to the 2 month Bull market for the precious and industrial metals. Daily Stochastics for both markets have now produced sell signals in overbought territory, but the strength of these signals is debatable for right now without confirmation. Silver has now met its weekly chart objective of $21.48 with Gold finally reaching the destiny, psychological $1300 level at the same time. Both markets have traded sideways to lower since. As suggested in the Opening Note, I also believe that it is likely that Gold at least trades down to $1275 within the next few days. I am not ready to suggest entering a short position in the market, but I recommend holding off on new long entry for right now. I think we need to see the market's action over the next few days to get a better directional indication for the market whether Bullish, Bearish or sideways. Late Note: At 8:04 am the computer algorithms decided to run out all of the shorts (check out a 1 minute chart). No news here moving the market...just a perfect example of why I want to wait for the right time to enter the Gold market. If you are a shorter term trader you probably got taken out of the Gold market from both ends within the last 12 hours as holding a long or short in Gold is difficult.
Notes:
December Corn, July - Dec Corn Spread- With the sell off on yesterday's open my stop loss on the Long Corn trade was triggered below higher volume support at $5.19. If you were able to hold a long from the suggested entry on Thursday or Friday though this means a 13 - 23 cent profit despite the market not reaching the $5.50 target. Right now the Grain Sector is a jumble with the leader and laggard switching on a daily basis, but Soybeans have acted stronger than Corn over the last week. This makes me iffy on not only holding a Long Corn position, but a Long position in any of the outright Grain markets right now. As we head into Thursday's stocks report and the end of the 3rd quarter it now looks questionable whether the historic speculative long position in Corn will maintain its position or if there will be liquidation this week to pressure prices further. I still believe the Corn is a buy rather than a sell, but suggest staying flat for the time being.
The July '11 - Dec '11 Corn spread is also troublesome as it appears to be topping. A move below 43 3/4 cents provides and objective of 31 1/4 on the reversal pattern. With a settlement of 44 3/4 this morning the market will probably test the breakout this morning with a confirmation on the pattern providing a Bearish signal for the outright Corn market as well.
Yesterday
The stock market turned weaker on the morning open and settled lower on the day as I expected. The Grain Sector was surprisingly weak after Beans and Corn established new high closes on Friday, but selling pressure came into both Corn and Wheat from the morning open. The Fixed Income markets traded higher with Bonds leading the way to re-confirm my Bullish opinion on the sector. In most other markets (including some of the aformentioned markets) yesterday was quiet with low volatility range swings throughout the day. I believe the Corn sell off was the only development worth noting with nothing new established elsewhere.
Today
I am not sure whether I am more surprised the Bears are 3-0 or that Gold is actually trading $8 lower this morning. It seems like months (it actually has been) since Gold has consistently traded with prices more than $5 below the previous day's settlement. On nearly every dip since late July we have seen fast buying enter the market. We also had another "Wizard of Oz" moment overnight when a 2 am sell off triggered a stop run down to $1276. I can tell you that with the curtain pulled back there does not appear to be a strong bid in the market down to at least $1275...I wonder if we are going to trade there? (I think it is highly probable within the next couple days)
The Grain markets are weaker as Corn and Wheat continue their 2 day sell off this morning. The Soybeans are the strength over the last 36 hours, but I think you can attribute the Bean strength more to an unwinding of the Corn/Bean relationship trade than anything to get too excited about in the outright November Beans.
As of 7 am the rest of the macro picture is rather mixed as my quote board looks like Christmas (half red/half green). Most of the physical Commodity markets are weaker though with the Metals looking the worst this morning. I think it is likely that we see some pressure on the Equity and other supportive markets again today, but this should provide a good opportunity to buy pullbacks in the strength markets.
**Late Note- Since 7 am the Metals have recovered, Crude Oil had buying enter on the open, and the Equity markets are creeping higher. Consumer Confidence is at 9 am and this number may better set the market direction for today.
Buys to Watch:
Nasdaq- The Nasdaq traded through the nearby higher volume support at 2014.50 early yesterday triggering my tight stop loss suggestion on the long Nasdaq trade. However, I still believe that the Equity markets will continue higher both fundamentally and technically over the next several weeks. As the strength of the Sector this makes the Nasdaq one of the best buys of any market. The Bullish head and shoulders pattern retains its target range from 2080 - 2135. As noted yesterday, for new entry there is higher volume support from 1994 - 1997.50 to purchase against. This level provided a base overnight, but unless this morning's Consumer Confidence number beats expectations significantly I think we will see another test of this support. If this support does not hold the next higher volume level falls between 1981 - 1986.50. Note: Daily chart Stochastics produced a sell signal crossover in overbought territory, but the signal does not appear to be very strong right now. The Nasdaq already has produced similar crossovers on its 1 month rally so this is something to watch rather than be concerned about right now. Strong directional markets have a tendency to repeatedly do this in Stochastics.
Sells to Watch:
Dollar Index- The Dollar Index traded higher overnight, but created a high when it ran into the higher volume support from 79.89 - 80.14. The longer term objective for the 2nd leg lower in the market is 75.00, with this technical objective supported fundamentally with Quantative Easing possibly on the horizon. There is not new higher volume resistance in the market, so for the time being this resistance from 79.89 - 80.14 remains the level to sell against.
Put on the Radar:
Buy Bean Oil vs. Sell Soy Meal (December Oil - December Meal to chart)- Above 1359 the differential has a projection of 1693 on the technically strong daily chart cup and handle pattern. The differential has traded right around this breakout level for the last several sessions and is again trading higher this morning. The Grain Sector possibly coming under pressure soon after its extended rally could also help this trade as Meal tends to lead in Soybean Bull markets. Wait for a close above this 1359 breakout value prior to entering a position, but this trade could finally be in play tomorrow. For execution the ratio to equalize contract and tick size is 5 Bean Oil: 3 Soy Meal. Note: The daily chart is showing overbought status for Stochastics and RSI, but MACD, which does not have as restrictive parameters, is still showing a strong uptrend for the market. This is not overly concerning for now, but just take note.
Gold & Silver- Both markets are laggards this morning and could be signalling an end to the 2 month Bull market for the precious and industrial metals. Daily Stochastics for both markets have now produced sell signals in overbought territory, but the strength of these signals is debatable for right now without confirmation. Silver has now met its weekly chart objective of $21.48 with Gold finally reaching the destiny, psychological $1300 level at the same time. Both markets have traded sideways to lower since. As suggested in the Opening Note, I also believe that it is likely that Gold at least trades down to $1275 within the next few days. I am not ready to suggest entering a short position in the market, but I recommend holding off on new long entry for right now. I think we need to see the market's action over the next few days to get a better directional indication for the market whether Bullish, Bearish or sideways. Late Note: At 8:04 am the computer algorithms decided to run out all of the shorts (check out a 1 minute chart). No news here moving the market...just a perfect example of why I want to wait for the right time to enter the Gold market. If you are a shorter term trader you probably got taken out of the Gold market from both ends within the last 12 hours as holding a long or short in Gold is difficult.
Notes:
December Corn, July - Dec Corn Spread- With the sell off on yesterday's open my stop loss on the Long Corn trade was triggered below higher volume support at $5.19. If you were able to hold a long from the suggested entry on Thursday or Friday though this means a 13 - 23 cent profit despite the market not reaching the $5.50 target. Right now the Grain Sector is a jumble with the leader and laggard switching on a daily basis, but Soybeans have acted stronger than Corn over the last week. This makes me iffy on not only holding a Long Corn position, but a Long position in any of the outright Grain markets right now. As we head into Thursday's stocks report and the end of the 3rd quarter it now looks questionable whether the historic speculative long position in Corn will maintain its position or if there will be liquidation this week to pressure prices further. I still believe the Corn is a buy rather than a sell, but suggest staying flat for the time being.
The July '11 - Dec '11 Corn spread is also troublesome as it appears to be topping. A move below 43 3/4 cents provides and objective of 31 1/4 on the reversal pattern. With a settlement of 44 3/4 this morning the market will probably test the breakout this morning with a confirmation on the pattern providing a Bearish signal for the outright Corn market as well.
Monday, September 27, 2010
Monday 9/27/10 Commodity Ideas
Opening Note:
Yesterday
The early morning creep higher in the Equity markets correctly foreshadowed further buying in the Equity and Physical Commodity markets Friday. Nearly every supportive market settled higher on the day as the Euro, S&P 500, and the Grain Sector emerged as the strengths. The Fixed Income markets fell in price as one would imagine on a strong "risk-on" day, but not necessarily in line with the magnitude of the Equity rally as the Fixed Income continues to give Bullish signals.
Today
The market is firmer by the slightest amount as of 7 am. The Fixed Income sector is strong though, which may show that the Equity and other supportive Commodity markets are on borrowed time trading higher for the day. While Friday was filled with fresh buying, as the markets advanced in anticipation of the 8:30 stock market open, this is definitely not the case this morning. The Equity markets made their overnight highs within the first hour of trading yesterday evening and have sank lower on flat trade since. I think it is unlikely that we will see strong buying enter today with the possibility of a pullback in prices in the supportive markets today.
As today looks like it will be quiet without much fresh news I am giving everyone (including myself) a little break after some long letters last week. My writing tends to fall in line with the amount of news and movement in the market, so today may be a day to take your profits when you get them and expect less volatility. The overall theme for the markets remains speculation in front of another potential round of Quantitative Easing. Allocation into Stocks, Physical Commodities, Fixed Income, and out of the U. S. Dollar is a trend that I expect to continue for another 2 - 4 weeks at least. I recommend waiting for your technical spots, but continuing to go with this trend rather than fighting it.
This week there is the Tuesday's Consumer Confidence, Thursday's Grain Stocks, and Friday's trifecta of minor league numbers as notable Economic Data. The stock market is clearly more concerned with QE and the macro story right now than what the revisions are to 2nd Quarter GDP, so I am really only interested in the Grain Stocks number.
Buys to Watch:
Nasdaq- The Nasdaq continued with another strong day Friday, but for the first time since the beginning of September, actually settled as the slight laggard among the Equity sector for the day. This is not a big deal though as it was bound to happen eventually. The market still has the Bullish head and shoulders objective range from 2080 - 2135 as the Nasdaq is now nearing resistance from its April yearly highs just above 2050. The S&P 500 continues to act as a guiding partner with psychological resistance at 1150 providing the highs for Equities overnight.
I believe it is unlikely that we see strong buying emerge today with a decent possibility of a pullback in price, but I still think the Nasdaq is the best long position of any market. There is higher volume support for the market ranging from 2014.50 - 2020.50 that has provided support throughout today's session and is a good area to enter new longs against. Below this level though there is a large run of lower volume trade left from Friday's rally without higher volume support until all the way from 1994 - 1997.50. If you continue to hold a long position I recommend placing a stop just below the 2014.50 nearby support and looking to get back in towards 2000 if this support does not hold.
December Corn- After finding a base on higher volume support Thursday the Corn market took off Friday on a strong rally with a new high close for the move. The odd thing was that the rally was rather delayed though. The 9:30 am open delivered a couple cent rally, but it was actually after 10:30 and throughout the the middle of the day that Corn made the most progress. With the Grain Stocks report and the end of the 3rd Quarter on Thursday though it will be interesting to see how the Corn market acts for the next few days. I am still looking for Corn prices to improve over this week as the Funds have not given signs they will liquidate their large positions, meaning I believe it is still a buy this week.
The weekly chart objective for Corn remains at $5.50. For today there is some higher volume support for the market from $5.19 - $5.21. If you are holding a long position then I recommend placing the stop on the trade just below this $5.19 level as the market could easily break another 10 cents if this level is breached. From $5.21 1/4 - $5.23 there is a lower volume zone that the market has traded into on the 7:15 am close that provides a good level for new long entry above higher volume support. The momentum indicators remain in strongly overbought territory, but all remain positive.
Sells to Watch:
Dollar Index- The Dollar Index fell significantly on Friday as every foreign Currency traded higher on the day. The Dollar should continue to get punished on the prospect of further Quantitative Easing regardless of European or other global Economic news for right now. The longer term 2nd leg objective for the market remains at 75.00. Today there is higher volume resistance for the market from 79.89 - 80.14, but this is not too close to the current market price. If you are trading the market longer term then I recommend placing a stop above this 80.14 level. For new entry today there is a lower volume zone from 79.69 - 79.82 below the higher volume resistance for short entry on a rally pullback.
The Dollar Index tracks the Euro much closer than any other Currency so it is also important too keep in mind what the Euro chart is saying. Right now I have a rally objective of 140.50 for the Euro. Whether or not the Dollar Index reaches the 75.00 level I will re-evaluate a short Dollar Index position if the Euro reaches 140.50. I still fundamentally believe that we will see a much lower Euro as European Debt and Economic troubles re-emerge over the next year, but for now the QE story overrides any non-catastrophic European news.
Put on the Radar:
Buy Bean Oil vs. Sell Soy Meal (December Bean Oil- December Meal to chart)- Above 1359 the differential has an objective of 1693 on the Bullish cup and handle pattern on the daily chart. The brief fundamental story behind this move is an increase in export taxes on Indonesian Palm Oil (a substitute for Bean Oil) that may drive up U.S. Bean Oil exports along with the market price. On Friday the market traded above the 1359 level as Bean Oil got off to a strong start, but failed to settle above this breakout level. For now you have to wait for at least one settlement above the breakout prior to entry, so keep the trade on the radar until tomorrow at least.
Notes:
Gold & Silver- I have come to the conclusion that both markets have undergone fundamental shifts that make them different entities in today's world than their uses have been over the last century. That being said, I have not come to an exact conclusion of exactly what either Metal's exact purpose or correlation is as it looks to be an ebb and flow of a number of different factors. I completely missed the 40 day Gold rally and the now 24 day Silver rally as the technicals and fundamentals both have had me running in circles on each market.
However, right now it is beginning to look more convincing technically that a move lower in prices is on the horizon. Gold has now reached the psychological $1300 level and Silver has now reached the weekly chart objective of $21.48. I believe that in both markets you have to wait until the technicals deliver an easy to read message that liquidation is underway, so I urge extreme patience until the stars align before selling either. Fundamentally I can make the case that Quantitative Easing will boost both Gold and Silver prices, but with each market falling into almost a sleep walking pattern higher and technicals continuing to hang in overbought territory I can not find a signal to buy the market. If there is an overdue pullback in prices we could see an easy liquidation move with some momentum soon.
Yesterday
The early morning creep higher in the Equity markets correctly foreshadowed further buying in the Equity and Physical Commodity markets Friday. Nearly every supportive market settled higher on the day as the Euro, S&P 500, and the Grain Sector emerged as the strengths. The Fixed Income markets fell in price as one would imagine on a strong "risk-on" day, but not necessarily in line with the magnitude of the Equity rally as the Fixed Income continues to give Bullish signals.
Today
The market is firmer by the slightest amount as of 7 am. The Fixed Income sector is strong though, which may show that the Equity and other supportive Commodity markets are on borrowed time trading higher for the day. While Friday was filled with fresh buying, as the markets advanced in anticipation of the 8:30 stock market open, this is definitely not the case this morning. The Equity markets made their overnight highs within the first hour of trading yesterday evening and have sank lower on flat trade since. I think it is unlikely that we will see strong buying enter today with the possibility of a pullback in prices in the supportive markets today.
As today looks like it will be quiet without much fresh news I am giving everyone (including myself) a little break after some long letters last week. My writing tends to fall in line with the amount of news and movement in the market, so today may be a day to take your profits when you get them and expect less volatility. The overall theme for the markets remains speculation in front of another potential round of Quantitative Easing. Allocation into Stocks, Physical Commodities, Fixed Income, and out of the U. S. Dollar is a trend that I expect to continue for another 2 - 4 weeks at least. I recommend waiting for your technical spots, but continuing to go with this trend rather than fighting it.
This week there is the Tuesday's Consumer Confidence, Thursday's Grain Stocks, and Friday's trifecta of minor league numbers as notable Economic Data. The stock market is clearly more concerned with QE and the macro story right now than what the revisions are to 2nd Quarter GDP, so I am really only interested in the Grain Stocks number.
Buys to Watch:
Nasdaq- The Nasdaq continued with another strong day Friday, but for the first time since the beginning of September, actually settled as the slight laggard among the Equity sector for the day. This is not a big deal though as it was bound to happen eventually. The market still has the Bullish head and shoulders objective range from 2080 - 2135 as the Nasdaq is now nearing resistance from its April yearly highs just above 2050. The S&P 500 continues to act as a guiding partner with psychological resistance at 1150 providing the highs for Equities overnight.
I believe it is unlikely that we see strong buying emerge today with a decent possibility of a pullback in price, but I still think the Nasdaq is the best long position of any market. There is higher volume support for the market ranging from 2014.50 - 2020.50 that has provided support throughout today's session and is a good area to enter new longs against. Below this level though there is a large run of lower volume trade left from Friday's rally without higher volume support until all the way from 1994 - 1997.50. If you continue to hold a long position I recommend placing a stop just below the 2014.50 nearby support and looking to get back in towards 2000 if this support does not hold.
December Corn- After finding a base on higher volume support Thursday the Corn market took off Friday on a strong rally with a new high close for the move. The odd thing was that the rally was rather delayed though. The 9:30 am open delivered a couple cent rally, but it was actually after 10:30 and throughout the the middle of the day that Corn made the most progress. With the Grain Stocks report and the end of the 3rd Quarter on Thursday though it will be interesting to see how the Corn market acts for the next few days. I am still looking for Corn prices to improve over this week as the Funds have not given signs they will liquidate their large positions, meaning I believe it is still a buy this week.
The weekly chart objective for Corn remains at $5.50. For today there is some higher volume support for the market from $5.19 - $5.21. If you are holding a long position then I recommend placing the stop on the trade just below this $5.19 level as the market could easily break another 10 cents if this level is breached. From $5.21 1/4 - $5.23 there is a lower volume zone that the market has traded into on the 7:15 am close that provides a good level for new long entry above higher volume support. The momentum indicators remain in strongly overbought territory, but all remain positive.
Sells to Watch:
Dollar Index- The Dollar Index fell significantly on Friday as every foreign Currency traded higher on the day. The Dollar should continue to get punished on the prospect of further Quantitative Easing regardless of European or other global Economic news for right now. The longer term 2nd leg objective for the market remains at 75.00. Today there is higher volume resistance for the market from 79.89 - 80.14, but this is not too close to the current market price. If you are trading the market longer term then I recommend placing a stop above this 80.14 level. For new entry today there is a lower volume zone from 79.69 - 79.82 below the higher volume resistance for short entry on a rally pullback.
The Dollar Index tracks the Euro much closer than any other Currency so it is also important too keep in mind what the Euro chart is saying. Right now I have a rally objective of 140.50 for the Euro. Whether or not the Dollar Index reaches the 75.00 level I will re-evaluate a short Dollar Index position if the Euro reaches 140.50. I still fundamentally believe that we will see a much lower Euro as European Debt and Economic troubles re-emerge over the next year, but for now the QE story overrides any non-catastrophic European news.
Put on the Radar:
Buy Bean Oil vs. Sell Soy Meal (December Bean Oil- December Meal to chart)- Above 1359 the differential has an objective of 1693 on the Bullish cup and handle pattern on the daily chart. The brief fundamental story behind this move is an increase in export taxes on Indonesian Palm Oil (a substitute for Bean Oil) that may drive up U.S. Bean Oil exports along with the market price. On Friday the market traded above the 1359 level as Bean Oil got off to a strong start, but failed to settle above this breakout level. For now you have to wait for at least one settlement above the breakout prior to entry, so keep the trade on the radar until tomorrow at least.
Notes:
Gold & Silver- I have come to the conclusion that both markets have undergone fundamental shifts that make them different entities in today's world than their uses have been over the last century. That being said, I have not come to an exact conclusion of exactly what either Metal's exact purpose or correlation is as it looks to be an ebb and flow of a number of different factors. I completely missed the 40 day Gold rally and the now 24 day Silver rally as the technicals and fundamentals both have had me running in circles on each market.
However, right now it is beginning to look more convincing technically that a move lower in prices is on the horizon. Gold has now reached the psychological $1300 level and Silver has now reached the weekly chart objective of $21.48. I believe that in both markets you have to wait until the technicals deliver an easy to read message that liquidation is underway, so I urge extreme patience until the stars align before selling either. Fundamentally I can make the case that Quantitative Easing will boost both Gold and Silver prices, but with each market falling into almost a sleep walking pattern higher and technicals continuing to hang in overbought territory I can not find a signal to buy the market. If there is an overdue pullback in prices we could see an easy liquidation move with some momentum soon.
Friday, September 24, 2010
Friday 9/24/10 Commodity Ideas
Opening Note:
Yesterday
The macro market was choppy and mixed as early day buying turned into selling in the afternoon. After beginning the morning weaker, the Equity markets and many of the supportive Commodities were able to turn positive on the day temporarily, but once the S&P 500 reached the 1130 resistance wall it led a macro sell off. The important thing to note from yesterday is that on two separate tests the 1117 - 1121 support level in the S&P held as well as the $4.94 - $4.96 support level for December Corn. These pivot points will likely lead the individual Equity and Grain trade directionally and in both cases it still looks like the trend remains Bullish.
Today
The market is moderately stronger with a move lower in the Dollar Index supporting almost everything other than the Fixed Income Sector. Gold traded above $1300 overnight, but as CNBC will likely cover this development for 30 minutes of each hour I will leave Gold discussion alone for today and let them burn the story out. Other than Euro strength overnight after poor European Economic data yesterday there is not much that is noteworthy though with many of the markets sitting in no man's land in between support and resistance as of 7 am.
Unless otherwise noted, when I put trades in the Buys or Sells sections they usually are at least expected to be 2 day positions. While I only write once a day I could easily claim this morning that the letter (theoretically) and myself (in actuality) are holding a Long Nasdaq and Corn and Short Dollar Index position. However this would be false as I, like most other active traders would, covered my positions once I saw signs that the stock market was headed for a sizable sell off in the afternoon that would turn all day winning positions into losers. As the Equity and Grain trades sit near pivot points the markets are more likely to have violent swings until they decide upon a clear direction, making holding a position all day and especially overnight difficult right now. The moral of the story is taking your profits when you have them and getting out of the market when it begins to feel uncomfortable is probably the smart move right now even if the trade has not reached its objective. You can always get back in tomorrow.
This morning the Equity and Physical Commodity markets are doing the early morning creep higher in anticipation of the stock market open. Over the last 18 months this usually indicates that there will be continued early morning buying through at least 9:30 am. I believe that after yesterday's correction that we will see more Bullish market action today as the markets look for strong weekly closes and the Dollar weakens.
Late Note: Not a great Durable Goods number at 7:30, but a quick snap rally in the stock market followed. This is usually the high frequency programs attempting to stick it to the shorts. It is pretty clear that the algorithms are aiming higher today though adding to the Bullish case for this morning. It looks like this will be a push higher, so do not expect much in the way of pullbacks either.
Buys to Watch:
Nasdaq- I realize that yesterday's letter was sent a little late to take advantage of the low volume zone between 1964 - 1969 yesterday and I apologize. It is very clear that the Nasdaq strength trend continues as it settled higher on the day while both the S&P 500 and Dow settled lower. The longer term objective for the Nasdaq is from 2080 - 2135 on the Bullish cup and handle pattern. It appears that the market is trying to run out all the shorts and establish a strong weekly close, so I believe that we could see the market really run today. Previous resistance from 1995 - 1997.50 now is support for the market as a higher volume price level to purchase against and place a stop below on a pullback.
December Corn- I decided to liquidate my long position yesterday after the 10:30 am Informa report. The report showed an increase in planted Corn acres, but less than the market expectations (Meaning less Corn than expectations, Bullish for Price). While you would expect a rally the market had difficulty holding its price and sold off back towards the $4.94 - $4.96 as Soybeans led the Grain markets. This morning is a different story though as Corn is the strength among the sector after the high volume support level held again overnight. Corn has the most Bullish fundamental story among the Grains and the best chart technically. I believe that the Bean strength yesterday can be attributed more to an unwind in the popular Long Corn vs. Short Bean trade that has worked over the last couple months as profits were taken and positions liquidated yesterday.
Corn still has the weekly chart objective of $5.50 and may be establishing a new rally leg towards this level with a strong close today. With the Dollar much weaker this morning and the other physical Commodity markets rallying while the Corn market has been closed I expect that there will be fresh buying that enters on the open this morning. If the market is able to hold prices above $5.01 today I would take this as an additional sign of strength.
Sells to Watch:
Dollar Index- The Dollar Index looks like it finished a corrective rally overnight as it is much lower this morning while every Foreign Currency is trading higher. The market was a difficult short to hold yesterday as a late day rally emerged to re-test the moderate resistance level from 80.33 - 80.44 that I suggested yesterday. The longer term 2nd leg objective for the market remains at 75.00. On a pullback today you can look to enter shorts against higher volume resistance from 80.00 - 80.10.
Put on the Radar:
Buy December Bean Oil vs. Sell December Soy Meal (Oil - Meal to chart)- The daily chart has now built a technically strong Bullish cup and handle pattern that is nearing the breakout level. Above 1359 the spread has an objective of 1693. On the record I recommend waiting for two higher closes to confirm the pattern, but between you and me I will likely put on an initial position on the day the Oil share moves above 1359. The execution ratio is Long 5 Bean Oil vs. Short 3 Soy Meal to account for contract size. As I also believe that Grains will continue higher you could also use a ratio of 2:1 to produce a little more Long exposure on the trade.
Notes:
Bonds- If you used the late note suggestion of using a trailing stop on Bonds then you are probably out of the market with a good profit. For right now I suggest staying out of Bonds. I view this Bond move as one that should continue to be Bullish, but with the Equities and Physical Commodities strong this morning I do not think being Long Bonds is a good position for right today. I am looking for a pullback into the 131.12 - 131.26 lower volume zone with support from 130.30 - 131.07 before looking for re-entry.
Crude Oil- Crude Oil's intraday swings have made holding a position in the market difficult regardless of direction. The momentum on the Bullish moves also seems to be higher than on the Bearish swings. I suggested that passive traders look at establishing a short position with a stop above the highs Sept 14 - Sept 21 trendline, but I do not believe that this is a position you can hold any longer. Although Crude Oil remains a weakness among the macro market, Dollar weakness and Equity strength continue to encourage a rallies in Crude.
Yesterday
The macro market was choppy and mixed as early day buying turned into selling in the afternoon. After beginning the morning weaker, the Equity markets and many of the supportive Commodities were able to turn positive on the day temporarily, but once the S&P 500 reached the 1130 resistance wall it led a macro sell off. The important thing to note from yesterday is that on two separate tests the 1117 - 1121 support level in the S&P held as well as the $4.94 - $4.96 support level for December Corn. These pivot points will likely lead the individual Equity and Grain trade directionally and in both cases it still looks like the trend remains Bullish.
Today
The market is moderately stronger with a move lower in the Dollar Index supporting almost everything other than the Fixed Income Sector. Gold traded above $1300 overnight, but as CNBC will likely cover this development for 30 minutes of each hour I will leave Gold discussion alone for today and let them burn the story out. Other than Euro strength overnight after poor European Economic data yesterday there is not much that is noteworthy though with many of the markets sitting in no man's land in between support and resistance as of 7 am.
Unless otherwise noted, when I put trades in the Buys or Sells sections they usually are at least expected to be 2 day positions. While I only write once a day I could easily claim this morning that the letter (theoretically) and myself (in actuality) are holding a Long Nasdaq and Corn and Short Dollar Index position. However this would be false as I, like most other active traders would, covered my positions once I saw signs that the stock market was headed for a sizable sell off in the afternoon that would turn all day winning positions into losers. As the Equity and Grain trades sit near pivot points the markets are more likely to have violent swings until they decide upon a clear direction, making holding a position all day and especially overnight difficult right now. The moral of the story is taking your profits when you have them and getting out of the market when it begins to feel uncomfortable is probably the smart move right now even if the trade has not reached its objective. You can always get back in tomorrow.
This morning the Equity and Physical Commodity markets are doing the early morning creep higher in anticipation of the stock market open. Over the last 18 months this usually indicates that there will be continued early morning buying through at least 9:30 am. I believe that after yesterday's correction that we will see more Bullish market action today as the markets look for strong weekly closes and the Dollar weakens.
Late Note: Not a great Durable Goods number at 7:30, but a quick snap rally in the stock market followed. This is usually the high frequency programs attempting to stick it to the shorts. It is pretty clear that the algorithms are aiming higher today though adding to the Bullish case for this morning. It looks like this will be a push higher, so do not expect much in the way of pullbacks either.
Buys to Watch:
Nasdaq- I realize that yesterday's letter was sent a little late to take advantage of the low volume zone between 1964 - 1969 yesterday and I apologize. It is very clear that the Nasdaq strength trend continues as it settled higher on the day while both the S&P 500 and Dow settled lower. The longer term objective for the Nasdaq is from 2080 - 2135 on the Bullish cup and handle pattern. It appears that the market is trying to run out all the shorts and establish a strong weekly close, so I believe that we could see the market really run today. Previous resistance from 1995 - 1997.50 now is support for the market as a higher volume price level to purchase against and place a stop below on a pullback.
December Corn- I decided to liquidate my long position yesterday after the 10:30 am Informa report. The report showed an increase in planted Corn acres, but less than the market expectations (Meaning less Corn than expectations, Bullish for Price). While you would expect a rally the market had difficulty holding its price and sold off back towards the $4.94 - $4.96 as Soybeans led the Grain markets. This morning is a different story though as Corn is the strength among the sector after the high volume support level held again overnight. Corn has the most Bullish fundamental story among the Grains and the best chart technically. I believe that the Bean strength yesterday can be attributed more to an unwind in the popular Long Corn vs. Short Bean trade that has worked over the last couple months as profits were taken and positions liquidated yesterday.
Corn still has the weekly chart objective of $5.50 and may be establishing a new rally leg towards this level with a strong close today. With the Dollar much weaker this morning and the other physical Commodity markets rallying while the Corn market has been closed I expect that there will be fresh buying that enters on the open this morning. If the market is able to hold prices above $5.01 today I would take this as an additional sign of strength.
Sells to Watch:
Dollar Index- The Dollar Index looks like it finished a corrective rally overnight as it is much lower this morning while every Foreign Currency is trading higher. The market was a difficult short to hold yesterday as a late day rally emerged to re-test the moderate resistance level from 80.33 - 80.44 that I suggested yesterday. The longer term 2nd leg objective for the market remains at 75.00. On a pullback today you can look to enter shorts against higher volume resistance from 80.00 - 80.10.
Put on the Radar:
Buy December Bean Oil vs. Sell December Soy Meal (Oil - Meal to chart)- The daily chart has now built a technically strong Bullish cup and handle pattern that is nearing the breakout level. Above 1359 the spread has an objective of 1693. On the record I recommend waiting for two higher closes to confirm the pattern, but between you and me I will likely put on an initial position on the day the Oil share moves above 1359. The execution ratio is Long 5 Bean Oil vs. Short 3 Soy Meal to account for contract size. As I also believe that Grains will continue higher you could also use a ratio of 2:1 to produce a little more Long exposure on the trade.
Notes:
Bonds- If you used the late note suggestion of using a trailing stop on Bonds then you are probably out of the market with a good profit. For right now I suggest staying out of Bonds. I view this Bond move as one that should continue to be Bullish, but with the Equities and Physical Commodities strong this morning I do not think being Long Bonds is a good position for right today. I am looking for a pullback into the 131.12 - 131.26 lower volume zone with support from 130.30 - 131.07 before looking for re-entry.
Crude Oil- Crude Oil's intraday swings have made holding a position in the market difficult regardless of direction. The momentum on the Bullish moves also seems to be higher than on the Bearish swings. I suggested that passive traders look at establishing a short position with a stop above the highs Sept 14 - Sept 21 trendline, but I do not believe that this is a position you can hold any longer. Although Crude Oil remains a weakness among the macro market, Dollar weakness and Equity strength continue to encourage a rallies in Crude.
Thursday, September 23, 2010
Thursday 9/23/10 Commodity Ideas
Opening Note:
Yesterday
Early morning buying entered the market in Equities and Physical Commodities as carryover from the FOMC announcement Tuesday afternoon. The Dollar Index got absolutely pummelled over the 18 hour period after the announcement as Quantitative Easing appears to be on the horizon, which fueled this inflow of new money into the market mostly off the weaker Dollar stronger Commodity notion. This early morning buying however failed to sustain throughout the day as these supportive markets began to fall after the morning allocation. It appeared that we may have a downtrend day in the markets as the Dollar began to rally, the Nasdaq led Equities lower, and Crude Oil broke over $2 off its highs, but moderate support in the S&P 500 held steady on numerous tests to provide at least a plug on liquidation and a temporary base for a mild rally for the rest of the afternoon.
Today
This morning the macro market is moderately weaker, but the real story today will be a battle in the stock market at a high volume pivot point that could decide where the market heads into October. The S&P 500 has high volume support between 1117 - 1121 leftover from the 3 day battle at this breakout level on the Bullish head and shoulders pattern that is already being tested this morning. If this level holds then I can say the 1218 - 1245 objective for the market is on with a whole lot more certainty. In contrast though, a close below this support signals a move back into the range and directional uncertainty. If you ask any two analysts right now their opinion on Equities you are bound to get dissenting predictions as some steadfastly claim we are still stuck in the range while others (including yours truly...at least for right now) believe that we are breaking out on an extended rally to new highs for the year.
Both Corn and Cotton (and therefore the entire Food and things that grow trade) is also encountering a pivot point this morning that will either produce another Bullish rally leg or fuel a liquidation melt lower over the next several weeks. Corn and Cotton as the leaders on the trade have finally encountered a rough patch over the last several trading sessions that has caused prices to move significantly lower on consecutive days for the first time in months. As the story has morphed from a demand to a supply driven market the daily charts have moved parabolic without much more than short intraday pullbacks. Bullish Supply markets usually do not allow for pullbacks on long entry or allow the shorts a breath of fresh air, so I believe it is crucial that the market's hold if they are going to be viewed as Buys going forward. There is a low volume zone in December Corn from $4.96 1/2 - $4.98 1/2 with higher volume support from $4.94 - $4.96 that I have had my eye on for several sessions and is the pivot point I am watching for direction. A close below $4.94 would tell me it is time to liquidate the longs and re-evaluate the trade to decide if this is a Bullish story that will re-emerge or is over.
With several markets and stories at pivot points I think that the next two days may be ones to place minor bets on, but to pick your spots and be flexible on your directional opinion. Not that I own a houseboat, but I definitely would not be putting it on the stock market continuing its rally. Because these are pivot points there should be plenty of opportunity to get on the longer term trade objectives if they prove their strength. Even with my own directional convictions I am also finding lately that catching a chunk of the move and getting back in the next day is delivering better profits and better sleep. As the shorter term trades continue to work better than the longer term trends I suggest keeping your ammo available and confidence up for the time being.
Buys to Watch:
Bonds- My entry suggestion at 132.09 with higher volume support down to 132.04 not only provided the low tick for the market intraday yesterday, but also was only one tick off the overnight low as the market continues onwards and upwards this morning. The shorter term objective for the Bullish cup and handle pattern remains at 133.29 with the market only half a handle off this target as of 7:35 am. I believe it is likely that this is the beginning of a fresh rally leg for the market that will produce new highs on the Bull trend. As the market is near the short term objective I only recommend long entry on an intraday pullback to a lower volume zone between 132.21 - 132.24 with higher volume support to 132.15 for stop placement below (also recommended as the stop loss on the trade unless you wish to put a trailing stop with new highs this morning). Once the trade reaches the objective I recommend taking profits for the time being and re-evaluating to see if this fresh rally is one to continue on. **Late Note: We are pretty much at the target. Put on a trailing stop. No longer suggest looking for long entry for the time being.
Nasdaq (with S&P 500 indicator)- Jobless Claims were just released and sent the Equity markets lower with the S&P 500 testing the low end of the higher volume support from 1117 - 1121. A close below this 1117 level would signal that the Equity markets are no longer a buy, but while they hold I believe you can buy against this support. The Nasdaq has held up much better than I expected over the last 24 hours as well as in comparison to the S&P 500, so I still recommend executing long positions in this market. While I predicted yesterday that we would see a pullback in the Nasdaq to volume support from 1950 - 1956 we have only pulled back to the moderate support level of 1962.50 during this S&P test, which is a Bullish signal in my opinion. Between 1964.50 - 1969 for the Nasdaq there is a low volume zone for long entry with moderate support at 1962.50 that correlates to the strong support level in the S&P 500. I recommend using the S&P 500 as the stop loss on the trade with a move below 1117. As indicated in the opening note I also recommend using an initial position for this trade instead of taking out a home equity loan.
December Corn- The low volume zone for long entry is between $4.96 1/2 - $4.98 1/2 with the higher volume support from $4.94 - $4.96. As described above, this is a critical level for the market with a failure to hold support likely meaning liquidation of long positions and a melt lower in prices. As Corn has been the leader among this Food and Grain trade over the last month it would also signal that the correlated markets are due for a pullback as well. Cotton has been highly correlated to the Corn and this morning the Cotton sold off on its open, but has regained some strength since that could indicate that Corn will hold this support as well. The longer term weekly chart objective for Corn remains at $5.50 so this pullback could be the beginning of another rally leg for the market towards this target.
Sells to Watch:
Dollar Index- The Dollar Index has found support into this morning after the post-FOMC free fall that provides an opportunity for short entry. Overnight some poor European Economic data was released that pressured the Euro and drove the Dollar higher, but the Euro seems to have found a base to support its own rally. The Dollar Index is currently sitting in a lower volume zone for short entry from 80.19 - 80.32 with moderate resistance from 80.33 - 80.44 for stop placement above. As this is only moderate resistance though I still have my eye on a lower volume zone from 80.46 - 80.55 with stronger resistance from 80.57 - 80.72 for entry at a later date if this moderate resistance fails today. The long term 2nd leg lower objective for the Dollar Index is 75.00 with this individual trade looking to capture a 2 - 3 day break in the market. As this is only a moderate trade entry level I also suggest using only a moderate position size for entry.
Put on the Radar:
Buy Bean Oil vs. Sell Soy Meal (December contract) (Bean Oil - Meal to chart)- This is strictly backed by technicals right now, but the daily chart of the spread is setting up a strong looking Bullish cup and handle pattern that supports further gains in Bean Oil in relation to Meal. Above 1359 the pattern provides an objective of 1693 for the spread. We are sitting 100 ticks away from this breakout level, so just keep it on the radar for now.
Crude Oil- Crude Oil repeatedly proves that it is the laggard of the entire macro market on a daily basis, but that does not mean that it has been easy to hold a short position or provide great execution setups. As Equities have rallied the open interest continues to flow into Crude on the correlated trade as the Funds have taken a strong interest in it. However, Crude continues to inch lower with a move below $73 for the November contract meaning that 100,000 longs that have entered since August 27th will be locked into losing trades. These entities continue to protect their trade and look like they are using purposeful buying tactics, which has caused many of the strong rallies off of the base making it difficult to hold a short. However, I think that these are clear signs that they are beginning to worry about their sizable position that is losing Bullish hope.
The spreads are slightly firmer this morning, but still remain ticks away from another move out to the very bearish zone as short term supply outweighs demand. I still have a 2nd leg lower objective for the market of roughly $62.50 for the November contract, but if we want to get really sinister there is a downward sloping head and shoulders pattern on the daily chart with a move below around $70 projecting to around $58. I would not be surprised by this move either with the amount of new longs that could potentially liquidate and provide a fast sell off below $70.
If you are a passive trader I believe that you should look to put on a short in Crude with a mental stop on consecutive closes above the Sept. 14th - Sept. 21st trendline at $75.37 today. You can also use a Long Nasdaq position as a hedge with the execution ratio being roughly 4 Nasdaq: 1 Crude Oil as a full hedge with contract size and volatility taken into consideration. All other shorter term traders I still recommend looking to sell rallies, but do not have a great setup for short entry at the time and suggest holding off until we get one.
Notes:
Yesterday
Early morning buying entered the market in Equities and Physical Commodities as carryover from the FOMC announcement Tuesday afternoon. The Dollar Index got absolutely pummelled over the 18 hour period after the announcement as Quantitative Easing appears to be on the horizon, which fueled this inflow of new money into the market mostly off the weaker Dollar stronger Commodity notion. This early morning buying however failed to sustain throughout the day as these supportive markets began to fall after the morning allocation. It appeared that we may have a downtrend day in the markets as the Dollar began to rally, the Nasdaq led Equities lower, and Crude Oil broke over $2 off its highs, but moderate support in the S&P 500 held steady on numerous tests to provide at least a plug on liquidation and a temporary base for a mild rally for the rest of the afternoon.
Today
This morning the macro market is moderately weaker, but the real story today will be a battle in the stock market at a high volume pivot point that could decide where the market heads into October. The S&P 500 has high volume support between 1117 - 1121 leftover from the 3 day battle at this breakout level on the Bullish head and shoulders pattern that is already being tested this morning. If this level holds then I can say the 1218 - 1245 objective for the market is on with a whole lot more certainty. In contrast though, a close below this support signals a move back into the range and directional uncertainty. If you ask any two analysts right now their opinion on Equities you are bound to get dissenting predictions as some steadfastly claim we are still stuck in the range while others (including yours truly...at least for right now) believe that we are breaking out on an extended rally to new highs for the year.
Both Corn and Cotton (and therefore the entire Food and things that grow trade) is also encountering a pivot point this morning that will either produce another Bullish rally leg or fuel a liquidation melt lower over the next several weeks. Corn and Cotton as the leaders on the trade have finally encountered a rough patch over the last several trading sessions that has caused prices to move significantly lower on consecutive days for the first time in months. As the story has morphed from a demand to a supply driven market the daily charts have moved parabolic without much more than short intraday pullbacks. Bullish Supply markets usually do not allow for pullbacks on long entry or allow the shorts a breath of fresh air, so I believe it is crucial that the market's hold if they are going to be viewed as Buys going forward. There is a low volume zone in December Corn from $4.96 1/2 - $4.98 1/2 with higher volume support from $4.94 - $4.96 that I have had my eye on for several sessions and is the pivot point I am watching for direction. A close below $4.94 would tell me it is time to liquidate the longs and re-evaluate the trade to decide if this is a Bullish story that will re-emerge or is over.
With several markets and stories at pivot points I think that the next two days may be ones to place minor bets on, but to pick your spots and be flexible on your directional opinion. Not that I own a houseboat, but I definitely would not be putting it on the stock market continuing its rally. Because these are pivot points there should be plenty of opportunity to get on the longer term trade objectives if they prove their strength. Even with my own directional convictions I am also finding lately that catching a chunk of the move and getting back in the next day is delivering better profits and better sleep. As the shorter term trades continue to work better than the longer term trends I suggest keeping your ammo available and confidence up for the time being.
Buys to Watch:
Bonds- My entry suggestion at 132.09 with higher volume support down to 132.04 not only provided the low tick for the market intraday yesterday, but also was only one tick off the overnight low as the market continues onwards and upwards this morning. The shorter term objective for the Bullish cup and handle pattern remains at 133.29 with the market only half a handle off this target as of 7:35 am. I believe it is likely that this is the beginning of a fresh rally leg for the market that will produce new highs on the Bull trend. As the market is near the short term objective I only recommend long entry on an intraday pullback to a lower volume zone between 132.21 - 132.24 with higher volume support to 132.15 for stop placement below (also recommended as the stop loss on the trade unless you wish to put a trailing stop with new highs this morning). Once the trade reaches the objective I recommend taking profits for the time being and re-evaluating to see if this fresh rally is one to continue on. **Late Note: We are pretty much at the target. Put on a trailing stop. No longer suggest looking for long entry for the time being.
Nasdaq (with S&P 500 indicator)- Jobless Claims were just released and sent the Equity markets lower with the S&P 500 testing the low end of the higher volume support from 1117 - 1121. A close below this 1117 level would signal that the Equity markets are no longer a buy, but while they hold I believe you can buy against this support. The Nasdaq has held up much better than I expected over the last 24 hours as well as in comparison to the S&P 500, so I still recommend executing long positions in this market. While I predicted yesterday that we would see a pullback in the Nasdaq to volume support from 1950 - 1956 we have only pulled back to the moderate support level of 1962.50 during this S&P test, which is a Bullish signal in my opinion. Between 1964.50 - 1969 for the Nasdaq there is a low volume zone for long entry with moderate support at 1962.50 that correlates to the strong support level in the S&P 500. I recommend using the S&P 500 as the stop loss on the trade with a move below 1117. As indicated in the opening note I also recommend using an initial position for this trade instead of taking out a home equity loan.
December Corn- The low volume zone for long entry is between $4.96 1/2 - $4.98 1/2 with the higher volume support from $4.94 - $4.96. As described above, this is a critical level for the market with a failure to hold support likely meaning liquidation of long positions and a melt lower in prices. As Corn has been the leader among this Food and Grain trade over the last month it would also signal that the correlated markets are due for a pullback as well. Cotton has been highly correlated to the Corn and this morning the Cotton sold off on its open, but has regained some strength since that could indicate that Corn will hold this support as well. The longer term weekly chart objective for Corn remains at $5.50 so this pullback could be the beginning of another rally leg for the market towards this target.
Sells to Watch:
Dollar Index- The Dollar Index has found support into this morning after the post-FOMC free fall that provides an opportunity for short entry. Overnight some poor European Economic data was released that pressured the Euro and drove the Dollar higher, but the Euro seems to have found a base to support its own rally. The Dollar Index is currently sitting in a lower volume zone for short entry from 80.19 - 80.32 with moderate resistance from 80.33 - 80.44 for stop placement above. As this is only moderate resistance though I still have my eye on a lower volume zone from 80.46 - 80.55 with stronger resistance from 80.57 - 80.72 for entry at a later date if this moderate resistance fails today. The long term 2nd leg lower objective for the Dollar Index is 75.00 with this individual trade looking to capture a 2 - 3 day break in the market. As this is only a moderate trade entry level I also suggest using only a moderate position size for entry.
Put on the Radar:
Buy Bean Oil vs. Sell Soy Meal (December contract) (Bean Oil - Meal to chart)- This is strictly backed by technicals right now, but the daily chart of the spread is setting up a strong looking Bullish cup and handle pattern that supports further gains in Bean Oil in relation to Meal. Above 1359 the pattern provides an objective of 1693 for the spread. We are sitting 100 ticks away from this breakout level, so just keep it on the radar for now.
Crude Oil- Crude Oil repeatedly proves that it is the laggard of the entire macro market on a daily basis, but that does not mean that it has been easy to hold a short position or provide great execution setups. As Equities have rallied the open interest continues to flow into Crude on the correlated trade as the Funds have taken a strong interest in it. However, Crude continues to inch lower with a move below $73 for the November contract meaning that 100,000 longs that have entered since August 27th will be locked into losing trades. These entities continue to protect their trade and look like they are using purposeful buying tactics, which has caused many of the strong rallies off of the base making it difficult to hold a short. However, I think that these are clear signs that they are beginning to worry about their sizable position that is losing Bullish hope.
The spreads are slightly firmer this morning, but still remain ticks away from another move out to the very bearish zone as short term supply outweighs demand. I still have a 2nd leg lower objective for the market of roughly $62.50 for the November contract, but if we want to get really sinister there is a downward sloping head and shoulders pattern on the daily chart with a move below around $70 projecting to around $58. I would not be surprised by this move either with the amount of new longs that could potentially liquidate and provide a fast sell off below $70.
If you are a passive trader I believe that you should look to put on a short in Crude with a mental stop on consecutive closes above the Sept. 14th - Sept. 21st trendline at $75.37 today. You can also use a Long Nasdaq position as a hedge with the execution ratio being roughly 4 Nasdaq: 1 Crude Oil as a full hedge with contract size and volatility taken into consideration. All other shorter term traders I still recommend looking to sell rallies, but do not have a great setup for short entry at the time and suggest holding off until we get one.
Notes:
Wednesday, September 22, 2010
Commodity Ideas Wednesday 9/22/10 (Posted Late, But From the Morning)
Opening Note:
Yesterday
As expected yesterday's action was slow and choppy in preparation for the afternoon FOMC announcement with a second consecutive Corn rally failure and a sell off in Crude Oil on a weak October contract expiration the notable early moves. It was not a shocker that The Fed did not change any key rates or enact further quantitative easing, but the statement they released suggested that easing would begin if economic conditions declined further. While the Equity markets took off on a gut reaction (or short squeeze, or over-enthusiasm) rally for the first half hour after the announcement this was not the real move to get on as it faded into the close. The rallies in Gold and Bonds (and other fixed income vehicles) were the real assets that you wanted to buy post-announcement, with the U.S. Dollar clearly the best sale. I did find it a bit curious though that despite The Fed's statement falling near the consensus that we saw market movement of that magnitude yesterday afternoon as I believe the whole market is rather jumpy, uncertain, and inconfident right now.
The Bond move was an easy one for me to understand and jump on as I believe The Fed statement supported the market from both ends. Quantitative Easing will likely involve the purchase of Bonds and if QE is to happen then we will see a decline in Economic data that should drive down interest rates. That's why I was pleasantly surprised when the initial computer algorithm response was to sell Bonds and provide a great buying opportunity. The Dollar Index sale was also logical in hindsight although I have not been on the move recently. More money....weaker dollar...easy. Predicting the Equity market's reaction is a bit more complicated though. Yes there is another round of stimulus on the horizon that can be front run, but this implies that the Economy is flat out weaker than expected and I believe also implies that valuations, future estimates, and expectations by many analysts are still over-inflated. Add to this the fact that the Nasdaq is on a sharp 15 day rally with Bullish enthusiasm near Summer highs after rallying above the 3 1/2 month range and you have another layer of complexity if it is not confusing enough. Finally, I think I grasp yesterday's Gold rally reaction fundamentally for the first time really in months. Weaker Dollar does mean Gold higher usually, but if you also take into account that the Fed is looking to protect against deflation, more purchases as a Currency reserve, and the overall uncertainty surrounding everything I think Gold was an easy buy as well. Gold continuation at this level though...we shall see.
So, coming to the conclusion that Fixed Income Bullish, Dollar Bearish, Stocks Neutral, and Gold Bullish where does that leave the Physical Commodities? The things that grow (specifically Corn and Cotton lately) have been on a tear this summer, the Industrial Metals have risen over the same time frame, and Energy prices both present and future are always in the back of Economists minds. The weaker Dollar tends to support these Commodity prices to a degree, but overall I believe that it is the global Economy and individual market fundamentals that really create price movement more than the U.S. Dollar's movement that day or month. This leads me to believe that while each specific Commodity will have its own market influences we will see these markets correlate more to the movement in the stock market more than any sort of run away inflation tied to the U.S. Dollar over the following 1 - 2 years barring any catastrophic shift in the macro fundamentals. This leaves me saying Commodity markets Neutral.
Lastly, on a brief side note...I have heard some discussion about inflation lately in regards to the Grains and Softs while The Fed still is occupied with preventing deflation. While global Food and related product demand has increased as some countries look to stockpile reserves, the real runaway markets are coming under supply shortage that has driven prices higher. The Meats, Softs, and Grains are all correlated on some basis and the fact that global Corn and Wheat yields have suffered setbacks this summer does not attribute this rise in prices to the U.S. inflation story as much as some analysts make it out to be. Take a look back at the weekly charts for the Grains and compare where the markets were in 2008 versus the Energies, Metals, and Currency markets were and you can see that the Grains may only be finally catching up to these other sectors as prices recover after the Recession. The increases in some of these markets on a yearly percentage basis may seem troubling for right now, but putting together some correlated Bullish supply markets this year does not concern me about overall inflation right now. Let's wait on the inflation cries until we see the Industrial Metals and Energies begin to rip.
Today
Dollar weaker, Fixed Income Higher, Equities slightly weaker. Disturbingly the Nasdaq is the weakness among the Equities, which is not a Bullish signal as it is the directional leader for the Sector right now. Gold is going after $1300 today. I believe that we may see a pullback on the Equity rally today as sentiment has become a bit too Bullish, so look for the Bonds to continue higher. The overall theme of Sell Dollar, Buy Fixed Income, Buy Gold, Neutral Equities & Physical Commodities will likely be recurring over the next several months.
Buys to Watch:
Bonds- Fundamental analysis in the Opening Note so just some technicals here. On the initial reaction to the FOMC announcement the Bond market sold off right into the lower volume buy level suggested yesterday between 130.19 - 130.22 while holding the higher volume support down to 130.13. The market then proceeded to rally nearly 2 full handles and has continued again this morning. Stochastics and RSI for the daily chart have already produced strong buy signals earlier this week, but it is noteworthy that RSI has maintained a Bull market range despite the 2 week break in prices. This means that it is very possible that this is in fact a new rally leg that could establish new highs on the Bullish move. For right now I have an objective of 133.29 for the market on the Bullish cup and handle reversal above the 131.20 breakout level. The market is already stronger this morning making a pullback for entry less likely, but 132.09 is a low volume level with higher volume support from 132.04 - 132.08 if the market does pull back to this level. This is my favorite and most recommended trade right now.
Nasdaq (but let's wait for a pullback)- The Nasdaq is the weakness this morning among the Equity Sector as the market continues to mull over what QE means going forward. As the Nasdaq has been the strength this morning's weakness is a Bearish signal that leads me to believe the market is due for a pullback. Both the Nasdaq and S&P 500 produced Stochastics sell signals yesterday that show momentum is waning and the Nasdaq trend from the low Sept. 8th - Sept. 15th is in trouble today at 1977.50. Support for the Nasdaq from 1973 - 1978 (which correlates to 1129 - 1131 in S&P) has held on numerous encounters, but I believe it is unlikely to hold later today. Below this there is some moderate support at 1962.50, but the real volume support for the market sits between 1950 - 1956. This 1950 - 1956 will likely correlate to the higher volume support for the S&P 500 from 1117 - 1121 and is the level that I recommend looking to buy against on a possible 1 - 2 day pullback. Long term objective for Nasdaq = 2080 - 2135.
Sells to Watch:
Dollar Index- Longer term objective of 75 handle within next 30 days. Parameters for entry to come tomorrow as the market is already much lower. Look to sell rallies.
Put on the Radar:
Crude Oil- Yesterday's October contract expiration was a debacle as the Oct. - Nov. spread plummeted out below $2 prior to the close, dragging the outright Crude market along with it. However, the spreads have come back in since yesterday afternoon signalling that a rally would be supported for the November contract. Right now I am keeping an eye on the recent Bearish trendline from the High Sept. 14th - High Sept. 21st at $75.87 today to see if it holds today. Crude remains a market weakness for the time being, so I strictly recommend selling rallies and avoiding long positions for the time being as this looks like a pullback rally on a Bear move for the time being. The conditions are still not right for me to suggest it as a sale, but keep it on your radar because it is nearly there again.
Industrial Metals (Copper, Palladium, Platinum)- Over the last week the Copper and Palladium markets have been laggards among the macro picture so I have kept a close eye on them. I know Gartman likes Copper and I still read analysts that put the market on a move above $4, but I am staying off that train for right now as it is not acting right with the Bullish Equity and Metal story lately. This morning Copper is higher along with every Commodity, but the market refused to rally yesterday even after a surprisingly Bullish Housing Starts number. I still peg the market as reaching its $3.50 head and shoulders objective and believe that it could continue to be a weakness. Palladium also reached my 3rd leg objective of $551 and has sold off since. The market is firmer this morning off of Dollar weakness, but this could further support my weaker Copper theory. Finally, the entry parameters I provided yesterday for Platinum worked perfectly although it was likely not very comfortable as it was right after the FOMC that the market rallied. Objective range for Platinum remains $1711 - $1723.
Currencies- The Dollar is WEAK after taking out the previous swing low near 80.75. As explained above I believe that the Dollar will continue to weaken and now put the market on a target of the 75 handle on a 2nd leg lower. While I believed that European weakness could become the dominant story yet again over this fall it now looks like QE for the U.S. will be the Currency leader meaning that the Euro will rally regardless of the European Economy. The Euro now has an objective of 140.50 on this possible 2nd leg rally. Finally, the Canadian Dollar has seen spiky rallies over the last 18 hours, but the Currency remains the obvious laggard this morning. There will likely be a Currency spread suggestion on the horizon to take advantage of this weakness with Long Euro/Short Canadian a possibility.
Notes:
Corn- Corn had 2 straight rally spike failures, but I still believe that the market is not done rallying yet. There is a good lower volume zone around $4.98 that I am keeping my eye on as a buy zone on a market pullback. However, with Commodity strength everywhere today on the weaker Dollar I believe that we could see an opening rally along with the rest of the Grains.
A Combination Trade That I Like But Too Tricky To Recommend:
Long - 4 Nasdaq, 2 Bonds, 1 Gold, 1 Silver
Short- 1 Crude Oil, 1 Copper, 4 Dollar Index, 2 Canadian Dollar
The explanation is intricate, but the entire trade comes out rather hedged, but takes adavantage of the strengths and weaknesses that I believe exist right now. I am not doing it personally, but I believe that if you put it on today and look at it in two weeks it will be a winner. I will "paper trade" it with entry at 8:30 am this morning and give a report in 10 trading sessions.
Yesterday
As expected yesterday's action was slow and choppy in preparation for the afternoon FOMC announcement with a second consecutive Corn rally failure and a sell off in Crude Oil on a weak October contract expiration the notable early moves. It was not a shocker that The Fed did not change any key rates or enact further quantitative easing, but the statement they released suggested that easing would begin if economic conditions declined further. While the Equity markets took off on a gut reaction (or short squeeze, or over-enthusiasm) rally for the first half hour after the announcement this was not the real move to get on as it faded into the close. The rallies in Gold and Bonds (and other fixed income vehicles) were the real assets that you wanted to buy post-announcement, with the U.S. Dollar clearly the best sale. I did find it a bit curious though that despite The Fed's statement falling near the consensus that we saw market movement of that magnitude yesterday afternoon as I believe the whole market is rather jumpy, uncertain, and inconfident right now.
The Bond move was an easy one for me to understand and jump on as I believe The Fed statement supported the market from both ends. Quantitative Easing will likely involve the purchase of Bonds and if QE is to happen then we will see a decline in Economic data that should drive down interest rates. That's why I was pleasantly surprised when the initial computer algorithm response was to sell Bonds and provide a great buying opportunity. The Dollar Index sale was also logical in hindsight although I have not been on the move recently. More money....weaker dollar...easy. Predicting the Equity market's reaction is a bit more complicated though. Yes there is another round of stimulus on the horizon that can be front run, but this implies that the Economy is flat out weaker than expected and I believe also implies that valuations, future estimates, and expectations by many analysts are still over-inflated. Add to this the fact that the Nasdaq is on a sharp 15 day rally with Bullish enthusiasm near Summer highs after rallying above the 3 1/2 month range and you have another layer of complexity if it is not confusing enough. Finally, I think I grasp yesterday's Gold rally reaction fundamentally for the first time really in months. Weaker Dollar does mean Gold higher usually, but if you also take into account that the Fed is looking to protect against deflation, more purchases as a Currency reserve, and the overall uncertainty surrounding everything I think Gold was an easy buy as well. Gold continuation at this level though...we shall see.
So, coming to the conclusion that Fixed Income Bullish, Dollar Bearish, Stocks Neutral, and Gold Bullish where does that leave the Physical Commodities? The things that grow (specifically Corn and Cotton lately) have been on a tear this summer, the Industrial Metals have risen over the same time frame, and Energy prices both present and future are always in the back of Economists minds. The weaker Dollar tends to support these Commodity prices to a degree, but overall I believe that it is the global Economy and individual market fundamentals that really create price movement more than the U.S. Dollar's movement that day or month. This leads me to believe that while each specific Commodity will have its own market influences we will see these markets correlate more to the movement in the stock market more than any sort of run away inflation tied to the U.S. Dollar over the following 1 - 2 years barring any catastrophic shift in the macro fundamentals. This leaves me saying Commodity markets Neutral.
Lastly, on a brief side note...I have heard some discussion about inflation lately in regards to the Grains and Softs while The Fed still is occupied with preventing deflation. While global Food and related product demand has increased as some countries look to stockpile reserves, the real runaway markets are coming under supply shortage that has driven prices higher. The Meats, Softs, and Grains are all correlated on some basis and the fact that global Corn and Wheat yields have suffered setbacks this summer does not attribute this rise in prices to the U.S. inflation story as much as some analysts make it out to be. Take a look back at the weekly charts for the Grains and compare where the markets were in 2008 versus the Energies, Metals, and Currency markets were and you can see that the Grains may only be finally catching up to these other sectors as prices recover after the Recession. The increases in some of these markets on a yearly percentage basis may seem troubling for right now, but putting together some correlated Bullish supply markets this year does not concern me about overall inflation right now. Let's wait on the inflation cries until we see the Industrial Metals and Energies begin to rip.
Today
Dollar weaker, Fixed Income Higher, Equities slightly weaker. Disturbingly the Nasdaq is the weakness among the Equities, which is not a Bullish signal as it is the directional leader for the Sector right now. Gold is going after $1300 today. I believe that we may see a pullback on the Equity rally today as sentiment has become a bit too Bullish, so look for the Bonds to continue higher. The overall theme of Sell Dollar, Buy Fixed Income, Buy Gold, Neutral Equities & Physical Commodities will likely be recurring over the next several months.
Buys to Watch:
Bonds- Fundamental analysis in the Opening Note so just some technicals here. On the initial reaction to the FOMC announcement the Bond market sold off right into the lower volume buy level suggested yesterday between 130.19 - 130.22 while holding the higher volume support down to 130.13. The market then proceeded to rally nearly 2 full handles and has continued again this morning. Stochastics and RSI for the daily chart have already produced strong buy signals earlier this week, but it is noteworthy that RSI has maintained a Bull market range despite the 2 week break in prices. This means that it is very possible that this is in fact a new rally leg that could establish new highs on the Bullish move. For right now I have an objective of 133.29 for the market on the Bullish cup and handle reversal above the 131.20 breakout level. The market is already stronger this morning making a pullback for entry less likely, but 132.09 is a low volume level with higher volume support from 132.04 - 132.08 if the market does pull back to this level. This is my favorite and most recommended trade right now.
Nasdaq (but let's wait for a pullback)- The Nasdaq is the weakness this morning among the Equity Sector as the market continues to mull over what QE means going forward. As the Nasdaq has been the strength this morning's weakness is a Bearish signal that leads me to believe the market is due for a pullback. Both the Nasdaq and S&P 500 produced Stochastics sell signals yesterday that show momentum is waning and the Nasdaq trend from the low Sept. 8th - Sept. 15th is in trouble today at 1977.50. Support for the Nasdaq from 1973 - 1978 (which correlates to 1129 - 1131 in S&P) has held on numerous encounters, but I believe it is unlikely to hold later today. Below this there is some moderate support at 1962.50, but the real volume support for the market sits between 1950 - 1956. This 1950 - 1956 will likely correlate to the higher volume support for the S&P 500 from 1117 - 1121 and is the level that I recommend looking to buy against on a possible 1 - 2 day pullback. Long term objective for Nasdaq = 2080 - 2135.
Sells to Watch:
Dollar Index- Longer term objective of 75 handle within next 30 days. Parameters for entry to come tomorrow as the market is already much lower. Look to sell rallies.
Put on the Radar:
Crude Oil- Yesterday's October contract expiration was a debacle as the Oct. - Nov. spread plummeted out below $2 prior to the close, dragging the outright Crude market along with it. However, the spreads have come back in since yesterday afternoon signalling that a rally would be supported for the November contract. Right now I am keeping an eye on the recent Bearish trendline from the High Sept. 14th - High Sept. 21st at $75.87 today to see if it holds today. Crude remains a market weakness for the time being, so I strictly recommend selling rallies and avoiding long positions for the time being as this looks like a pullback rally on a Bear move for the time being. The conditions are still not right for me to suggest it as a sale, but keep it on your radar because it is nearly there again.
Industrial Metals (Copper, Palladium, Platinum)- Over the last week the Copper and Palladium markets have been laggards among the macro picture so I have kept a close eye on them. I know Gartman likes Copper and I still read analysts that put the market on a move above $4, but I am staying off that train for right now as it is not acting right with the Bullish Equity and Metal story lately. This morning Copper is higher along with every Commodity, but the market refused to rally yesterday even after a surprisingly Bullish Housing Starts number. I still peg the market as reaching its $3.50 head and shoulders objective and believe that it could continue to be a weakness. Palladium also reached my 3rd leg objective of $551 and has sold off since. The market is firmer this morning off of Dollar weakness, but this could further support my weaker Copper theory. Finally, the entry parameters I provided yesterday for Platinum worked perfectly although it was likely not very comfortable as it was right after the FOMC that the market rallied. Objective range for Platinum remains $1711 - $1723.
Currencies- The Dollar is WEAK after taking out the previous swing low near 80.75. As explained above I believe that the Dollar will continue to weaken and now put the market on a target of the 75 handle on a 2nd leg lower. While I believed that European weakness could become the dominant story yet again over this fall it now looks like QE for the U.S. will be the Currency leader meaning that the Euro will rally regardless of the European Economy. The Euro now has an objective of 140.50 on this possible 2nd leg rally. Finally, the Canadian Dollar has seen spiky rallies over the last 18 hours, but the Currency remains the obvious laggard this morning. There will likely be a Currency spread suggestion on the horizon to take advantage of this weakness with Long Euro/Short Canadian a possibility.
Notes:
Corn- Corn had 2 straight rally spike failures, but I still believe that the market is not done rallying yet. There is a good lower volume zone around $4.98 that I am keeping my eye on as a buy zone on a market pullback. However, with Commodity strength everywhere today on the weaker Dollar I believe that we could see an opening rally along with the rest of the Grains.
A Combination Trade That I Like But Too Tricky To Recommend:
Long - 4 Nasdaq, 2 Bonds, 1 Gold, 1 Silver
Short- 1 Crude Oil, 1 Copper, 4 Dollar Index, 2 Canadian Dollar
The explanation is intricate, but the entire trade comes out rather hedged, but takes adavantage of the strengths and weaknesses that I believe exist right now. I am not doing it personally, but I believe that if you put it on today and look at it in two weeks it will be a winner. I will "paper trade" it with entry at 8:30 am this morning and give a report in 10 trading sessions.
Tuesday, September 21, 2010
Tuesday 9/21/10 Commodity Ideas
Opening Note:
Yesterday
After taking a personal day yesterday I admit that I was not plastered to a screen watching every tick, but yesterday was pretty much another straight buy day as the stock market saw morning gains steadily continue throughout the afternoon. The Equity markets are beginning to look, feel, and smell like the times over the past 18 months that we have had extended rallies. There is the early morning and open buying doing the brunt of the work, steady gains nearly everyday making it difficult to find good pullbacks for entry, intraday 15 minute chart trendlines (the market's favorite way to push out the shorts), and the Nasdaq leading the move among the Sector. With a strong close above the 1120.50 head and shoulders breakout yesterday the Equity markets now look like they are headed for continuation higher.
The macro correlations were not in line with what I would have expected on a strong Equity day, but there were not any huge red flags yesterday either. The Bonds traded higher and the Industrial Metals lower as the interesting outliers. However, the Energies, most of the Currencies, and Cotton continued in line with the Equities.
Today
The Equities are slightly higher along with the Fixed Income Sector and the rest of the market kind of a mixed basket. The Metals are all notably weaker for the first time in what seems like 2 months. The Industrial Metals of Palladium, Copper, and Silver have lagged and trader weaker though for the last several days compared to other correlated markets. Finally, Corn is sitting flat this morning after yesterday's spike high, but Cotton is back near the highs for its move this morning meaning that the things that grow trade looks like it is still strong.
Much of the market moves over the last month appear to be based more on sentiment, both present and future rather than Economic data or technicals, as the overall outlook has definitely turned more Bullish. The Fed's admission that they would seek quantitative easing again if necessary has opened the gates to new entry on the risk trade. Yesterday's town hall meeting with Obama also seemed to have a positive effect on the markets that could have a carryover effect for the next few weeks. Although I believe that Obama sits very far left with his actions and doubt he is ready to start making Economic policy concessions I could easily see how at least his words yesterday were encouraging for the market. We are seeing that the early morning money flows leading the moves for right now and if the Funds believe that now is the time to continue adding to the risk trade they will probably continue to move the market higher.
Today is the FOMC meeting making it difficult for me to suggest new entry on trades as the market could look completely different this afternoon than it does this morning. All trades will therefore sit on the radar for today, but in order of ranking as there are a couple I feel stronger about. I believe that Equities are nearly a confirmed buy now as they look positioned for new yearly highs, meaning that supportive Commodity markets will also likely benefit. However, while the trade is likely to be choppy today I recommend trading smaller, waiting for your exact spots, and waiting until after the FOMC announcement to put on longer term trades.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Nasdaq with S&P 500 Indicator- The S&P 500 is searching for a confirmation close above the 1120.50 head and shoulders breakout that provides a market objective of 1218 - 1245. This in turn would mean that the 2080 -2135 objective for the Nasdaq is in play. Technology has continually led the Equity Sector over the recovery and the technicals are again pointing towards this move. On its 15 day rally the Nasdaq has only had one lower close, which has extended both RSI and Stochastics into overbought territory. However, we saw during the February 3 month rally this year that the market can easily remain in overbought territory for 2 months without a significant pullback, making these momentum indicators less concerning for the time being. The Nasdaq has some higher volume support from 1973 - 1978 that has supported the market thus far today and is a good level for long entry against on a pullback. Most of the volume and momentum in the market comes between just before to an hour after the 8:30 am open.
Buy Bonds- The Bearish trendline from the September 1st high to the September 8th high was violated yesterday and is looking for a confirmation close above 130.07 today on this move. Both Stochastics and RSI for the daily chart have now produced buy signals over the last two days as well. The daily chart appears to be forming a Bullish cup and handle pattern that would provide an objective of 133.29 on a move above 131.20. There is higher volume support in the market from 130.13 - 130.19 with some continuation down to 130.05 with a lower volume zone just above this from 130.19 - 130.22 that looks like a good level to look for long entry. I am very familiar with trading these cup and handle patterns and this setup looks great right now with basically all of the technical indicators falling in line, so if the market does not provide an opportunity today then look for this trade in the Buys section tomorrow.
Notes:
Crude Oil- On Friday Crude Oil made a strong rally bounce near the close and yesterday the market was able to make a strong rally on the back of the Equity markets, but the nearby spreads and fundamental story for the market continue to look very Bearish. The problem with looking to short Crude Oil is that if Equities trade higher then money flows into Crude Oil without as much of a second thought under the premise that "a better economy means more oil consumption". True in theory, but the real story is that there is enough Crude right now and demand just is not there.
Right now there is some "basic" technical buying, as in Joe Schmo looking at the chart and saying "Oh, it looks like we are stuck in a range between $70 - $90 just like the stock market", but it is clear that the Oil is severely lagging behind the Equity markets. The recent upward trend on the daily chart has now been violated, but holding a short position has obviously been difficult since then. The Nov - Dec and Dec - Jan spreads are now sitting below their lows on the last dip and at levels now where the market usually does not support any sort of outright price gains. Investors continue to blindly add to their long positions though with the number of longs between the $71.50 - $78 level now well over 100,000. This will provide a great opportunity again for shorts as I still strongly believe that Crude will move below $70 within the next few weeks. Higher volume support from $76.12 - $76.24 has been toyed with this morning so I can not recommend entry today, but Crude will be on the Sell list soon with the long Nasdaq position as a possible spread.
Platinum- Platinum now has confirmation on its Bullish cup and handle pattern with a move above $1607.5 providing an objective range from $1711 - $1723. Platinum is extremely thin with the October contract the only one trading right now, but within 10 days of expiration. There is a low volume zone from $1613.6 - $1615.4 with higher volume support from $1607.6 - $1613.4 that is a good setup for long entry. However, I recommend only using a minimal position in the market if you choose to enter. Both Palladium and Copper are laggard markets recently and could indicate that Platinum may decline in price in the future.
Canadian Dollar- The Canadian Dollar continues to mess with its daily chart Bullish trend from Sept. 1st low - Sept. 8th low, but looks like it may be heading for a sell off as a laggard market this morning. Keep an eye on the higher volume resistance today from .9704 - .9726 as an indicator of possible weakness going forward if it holds.
Yesterday
After taking a personal day yesterday I admit that I was not plastered to a screen watching every tick, but yesterday was pretty much another straight buy day as the stock market saw morning gains steadily continue throughout the afternoon. The Equity markets are beginning to look, feel, and smell like the times over the past 18 months that we have had extended rallies. There is the early morning and open buying doing the brunt of the work, steady gains nearly everyday making it difficult to find good pullbacks for entry, intraday 15 minute chart trendlines (the market's favorite way to push out the shorts), and the Nasdaq leading the move among the Sector. With a strong close above the 1120.50 head and shoulders breakout yesterday the Equity markets now look like they are headed for continuation higher.
The macro correlations were not in line with what I would have expected on a strong Equity day, but there were not any huge red flags yesterday either. The Bonds traded higher and the Industrial Metals lower as the interesting outliers. However, the Energies, most of the Currencies, and Cotton continued in line with the Equities.
Today
The Equities are slightly higher along with the Fixed Income Sector and the rest of the market kind of a mixed basket. The Metals are all notably weaker for the first time in what seems like 2 months. The Industrial Metals of Palladium, Copper, and Silver have lagged and trader weaker though for the last several days compared to other correlated markets. Finally, Corn is sitting flat this morning after yesterday's spike high, but Cotton is back near the highs for its move this morning meaning that the things that grow trade looks like it is still strong.
Much of the market moves over the last month appear to be based more on sentiment, both present and future rather than Economic data or technicals, as the overall outlook has definitely turned more Bullish. The Fed's admission that they would seek quantitative easing again if necessary has opened the gates to new entry on the risk trade. Yesterday's town hall meeting with Obama also seemed to have a positive effect on the markets that could have a carryover effect for the next few weeks. Although I believe that Obama sits very far left with his actions and doubt he is ready to start making Economic policy concessions I could easily see how at least his words yesterday were encouraging for the market. We are seeing that the early morning money flows leading the moves for right now and if the Funds believe that now is the time to continue adding to the risk trade they will probably continue to move the market higher.
Today is the FOMC meeting making it difficult for me to suggest new entry on trades as the market could look completely different this afternoon than it does this morning. All trades will therefore sit on the radar for today, but in order of ranking as there are a couple I feel stronger about. I believe that Equities are nearly a confirmed buy now as they look positioned for new yearly highs, meaning that supportive Commodity markets will also likely benefit. However, while the trade is likely to be choppy today I recommend trading smaller, waiting for your exact spots, and waiting until after the FOMC announcement to put on longer term trades.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Nasdaq with S&P 500 Indicator- The S&P 500 is searching for a confirmation close above the 1120.50 head and shoulders breakout that provides a market objective of 1218 - 1245. This in turn would mean that the 2080 -2135 objective for the Nasdaq is in play. Technology has continually led the Equity Sector over the recovery and the technicals are again pointing towards this move. On its 15 day rally the Nasdaq has only had one lower close, which has extended both RSI and Stochastics into overbought territory. However, we saw during the February 3 month rally this year that the market can easily remain in overbought territory for 2 months without a significant pullback, making these momentum indicators less concerning for the time being. The Nasdaq has some higher volume support from 1973 - 1978 that has supported the market thus far today and is a good level for long entry against on a pullback. Most of the volume and momentum in the market comes between just before to an hour after the 8:30 am open.
Buy Bonds- The Bearish trendline from the September 1st high to the September 8th high was violated yesterday and is looking for a confirmation close above 130.07 today on this move. Both Stochastics and RSI for the daily chart have now produced buy signals over the last two days as well. The daily chart appears to be forming a Bullish cup and handle pattern that would provide an objective of 133.29 on a move above 131.20. There is higher volume support in the market from 130.13 - 130.19 with some continuation down to 130.05 with a lower volume zone just above this from 130.19 - 130.22 that looks like a good level to look for long entry. I am very familiar with trading these cup and handle patterns and this setup looks great right now with basically all of the technical indicators falling in line, so if the market does not provide an opportunity today then look for this trade in the Buys section tomorrow.
Notes:
Crude Oil- On Friday Crude Oil made a strong rally bounce near the close and yesterday the market was able to make a strong rally on the back of the Equity markets, but the nearby spreads and fundamental story for the market continue to look very Bearish. The problem with looking to short Crude Oil is that if Equities trade higher then money flows into Crude Oil without as much of a second thought under the premise that "a better economy means more oil consumption". True in theory, but the real story is that there is enough Crude right now and demand just is not there.
Right now there is some "basic" technical buying, as in Joe Schmo looking at the chart and saying "Oh, it looks like we are stuck in a range between $70 - $90 just like the stock market", but it is clear that the Oil is severely lagging behind the Equity markets. The recent upward trend on the daily chart has now been violated, but holding a short position has obviously been difficult since then. The Nov - Dec and Dec - Jan spreads are now sitting below their lows on the last dip and at levels now where the market usually does not support any sort of outright price gains. Investors continue to blindly add to their long positions though with the number of longs between the $71.50 - $78 level now well over 100,000. This will provide a great opportunity again for shorts as I still strongly believe that Crude will move below $70 within the next few weeks. Higher volume support from $76.12 - $76.24 has been toyed with this morning so I can not recommend entry today, but Crude will be on the Sell list soon with the long Nasdaq position as a possible spread.
Platinum- Platinum now has confirmation on its Bullish cup and handle pattern with a move above $1607.5 providing an objective range from $1711 - $1723. Platinum is extremely thin with the October contract the only one trading right now, but within 10 days of expiration. There is a low volume zone from $1613.6 - $1615.4 with higher volume support from $1607.6 - $1613.4 that is a good setup for long entry. However, I recommend only using a minimal position in the market if you choose to enter. Both Palladium and Copper are laggard markets recently and could indicate that Platinum may decline in price in the future.
Canadian Dollar- The Canadian Dollar continues to mess with its daily chart Bullish trend from Sept. 1st low - Sept. 8th low, but looks like it may be heading for a sell off as a laggard market this morning. Keep an eye on the higher volume resistance today from .9704 - .9726 as an indicator of possible weakness going forward if it holds.
Friday, September 17, 2010
Friday 9/17/10 Commodity Ideas
Opening Note:
Yesterday
Yesterday was very slow with low volatility for most of the day until 2 pm. when the Equity markets exploded higher led by the Nasdaq with the S&P 500 settling above the 1120.50 breakout at 1122.50. While this is obviously an important development there were a few notable moves earlier in the day. Crude Oil continued its 3 day slide as the nearby spreads continued to move out pressuring the October contract to settle over $1.40 lower on the day. Meanwhile, Gold and Silver both made new yearly highs with Silver leading the rally. Pretty much all of the other markets fell into line with the Equity move with those mentioned being the extremes.
Today
Overnight the Equity markets rallied early with the Nasdaq climbing 20 points higher at one point, but have fallen back since 3 am leaving only moderate gains as of 7 am. Crude Oil is again weaker compared to the Equity and other supportive Commodity markets as the spreads have continued to move out with the October contract only slightly higher this morning. Both Corn and Cotton continue their parabolic rallies with December Corn rallying to a high of $5.11 3/4 overnight. Although these early gains were a sign of strength we are seeing a significant reversal in the markets that has happened over the last several hours. The Bond market has rallied over 1 1/2 handles from its overnight lows, the Euro has lost a full point from its overnight highs, and the strength that we saw in the Supportive Commodities is dwindling.
Today is probably going to come down to a battle in the Equity markets to establish not only a strong weekly close, but a confirmation settlement in the S&P 500 above the head and shoulders 1120.50 breakout level. While this looked almost like a certainty when I went to bed last night it now looks like today could be a choppy battle to regain positive momentum after the early morning sell off. Due to the overnight volatility and uncertainty surrounding the macro direction at this pivot point I am taking a wait and see approach for today because the macro relationships are a jumble with both Bullish and Bearish indicators this morning. As long as the S&P 500 maintains this breakout level for today and heading into next week I believe that you have to look at long positions for the macro trade, but with a failure to hold this 1120 level being a good indicator of long position liquidation following.
Buys to Watch:
Sells to Watch: (Crude is moved to the radar for right now as macro direction is uncertain)
Put on the Radar:
Crude Oil- I fully believe in Crude's weakness and its continuation as a weakness, but if the Equity markets continue on their rally then the best trade will not be an outright short position in Crude. While the Crude market appears to be following its own fundamental story more than any time over the last 18 months, the investment tendency in Crude continues to correlate highly to the stock market.
Overnight the moderate resistance level from $75.24 - $75.38 held strong for the October contract as Crude failed to rally with the same vigor as the Equity markets. The fact that this only moderate resistance produced the highs so far today is also a testament to Crude's weakness right now. Technically all of the momentum indicators point towards a continued drop in Crude prices and there is only some moderate support left before the real move in the market begins. A weak upsloping base trendline drawn from the low Aug. 25th - Sept. 1st provides a value today of $73.85 for the October contract that could provide support for the market for a time. Remember that the real money in this trade is based on liquidation of caught longs with over 100,000 still holding newly initiated positions since August 27th between $71.53 - $78.04 and a longer term target of $61.50 on the 2nd leg lower for the market.
I personally covered my short position after the S&P 500 established a close above the 1120.50 breakout level because I wish to see today's action prior to taking a position in the Crude market. If the S&P 500 settles below the breakout then the outright short on Crude is back on the Sells list. However, if not then I recommend:
Long Nasdaq vs. Short Crude- The Nasdaq is the strength of the Equity Sector as you will read below and it is the best market to use as a long position against a Crude short. To chart enter (Nasdaq/Crude) and look at the weekly chart. There is a strong weekly base that has formed over the last year that now is heading towards the top of the consolidation range and looks prepared to begin a rally with momentum. The correct ratio for the trade is between Long 4-5 Nasdaq vs. Short 1 Crude to take into account not only the ratio, but the volatility and contract size. Because the Equity markets are likely to battle today I believe it is wise to hold off on this trade until Monday. If the S&P 500 posts another convincing close above 1120.50 then this will be on the Buys. If not then outright short Crude is the best position.
Nasdaq and S&P 500- You have heard me talk about these Equity breakouts ad nausea over the last week so I will be brief. S&P 500 above 1120.50 = 1218 - 1245. Nasdaq above 1899 = 2080 - 2135. Wait on the S&P 500 for confirmation and then the Nasdaq is the one that you want to own.
As far as support today the S&P 500 really does not have much until 1121 and the Nasdaq has only minor support at 1945 until 1938 where there is higher volume support.
A few weeks ago I described an Equity crossover that I was using as an indicator on short term direction that popped up yet again yesterday so I will give a brief description. The Nasdaq is the leader among the Equity Sector and tends to lead the Sector whether Bullish or Bearish in volatility regardless of direction. If the Macro market and Equity Sector is higher on the day it should be the Nasdaq leading for right now, so if the Nasdaq becomes the laggard to the S&P or Dow then this is a Bearish indicator that may precede a sell off. In contrast, like occurred yesterday, if the Macro market and Equity Sector are weaker the Nasdaq should be the laggard market, so if the the Nasdaq becomes the strength compared to the S&P or Dow on a down board then this is a Bullish indicator that may precede a rally.
Notes:
Corn & Cotton- Both continue their parabolic rallies overnight with the Cotton looking as strong as ever as of 8:30 am and Corn rallying well above the $5 psychological resistance overnight. In no way do I suggest selling these markets, but I do recommend using a fairly tight trailing stop as they continue to defy gravity. The tops on the parabolic moves are always volatile, so be careful and keep an eye on both markets as liquidation in one will likely mean liquidation in the other.
Yesterday
Yesterday was very slow with low volatility for most of the day until 2 pm. when the Equity markets exploded higher led by the Nasdaq with the S&P 500 settling above the 1120.50 breakout at 1122.50. While this is obviously an important development there were a few notable moves earlier in the day. Crude Oil continued its 3 day slide as the nearby spreads continued to move out pressuring the October contract to settle over $1.40 lower on the day. Meanwhile, Gold and Silver both made new yearly highs with Silver leading the rally. Pretty much all of the other markets fell into line with the Equity move with those mentioned being the extremes.
Today
Overnight the Equity markets rallied early with the Nasdaq climbing 20 points higher at one point, but have fallen back since 3 am leaving only moderate gains as of 7 am. Crude Oil is again weaker compared to the Equity and other supportive Commodity markets as the spreads have continued to move out with the October contract only slightly higher this morning. Both Corn and Cotton continue their parabolic rallies with December Corn rallying to a high of $5.11 3/4 overnight. Although these early gains were a sign of strength we are seeing a significant reversal in the markets that has happened over the last several hours. The Bond market has rallied over 1 1/2 handles from its overnight lows, the Euro has lost a full point from its overnight highs, and the strength that we saw in the Supportive Commodities is dwindling.
Today is probably going to come down to a battle in the Equity markets to establish not only a strong weekly close, but a confirmation settlement in the S&P 500 above the head and shoulders 1120.50 breakout level. While this looked almost like a certainty when I went to bed last night it now looks like today could be a choppy battle to regain positive momentum after the early morning sell off. Due to the overnight volatility and uncertainty surrounding the macro direction at this pivot point I am taking a wait and see approach for today because the macro relationships are a jumble with both Bullish and Bearish indicators this morning. As long as the S&P 500 maintains this breakout level for today and heading into next week I believe that you have to look at long positions for the macro trade, but with a failure to hold this 1120 level being a good indicator of long position liquidation following.
Buys to Watch:
Sells to Watch: (Crude is moved to the radar for right now as macro direction is uncertain)
Put on the Radar:
Crude Oil- I fully believe in Crude's weakness and its continuation as a weakness, but if the Equity markets continue on their rally then the best trade will not be an outright short position in Crude. While the Crude market appears to be following its own fundamental story more than any time over the last 18 months, the investment tendency in Crude continues to correlate highly to the stock market.
Overnight the moderate resistance level from $75.24 - $75.38 held strong for the October contract as Crude failed to rally with the same vigor as the Equity markets. The fact that this only moderate resistance produced the highs so far today is also a testament to Crude's weakness right now. Technically all of the momentum indicators point towards a continued drop in Crude prices and there is only some moderate support left before the real move in the market begins. A weak upsloping base trendline drawn from the low Aug. 25th - Sept. 1st provides a value today of $73.85 for the October contract that could provide support for the market for a time. Remember that the real money in this trade is based on liquidation of caught longs with over 100,000 still holding newly initiated positions since August 27th between $71.53 - $78.04 and a longer term target of $61.50 on the 2nd leg lower for the market.
I personally covered my short position after the S&P 500 established a close above the 1120.50 breakout level because I wish to see today's action prior to taking a position in the Crude market. If the S&P 500 settles below the breakout then the outright short on Crude is back on the Sells list. However, if not then I recommend:
Long Nasdaq vs. Short Crude- The Nasdaq is the strength of the Equity Sector as you will read below and it is the best market to use as a long position against a Crude short. To chart enter (Nasdaq/Crude) and look at the weekly chart. There is a strong weekly base that has formed over the last year that now is heading towards the top of the consolidation range and looks prepared to begin a rally with momentum. The correct ratio for the trade is between Long 4-5 Nasdaq vs. Short 1 Crude to take into account not only the ratio, but the volatility and contract size. Because the Equity markets are likely to battle today I believe it is wise to hold off on this trade until Monday. If the S&P 500 posts another convincing close above 1120.50 then this will be on the Buys. If not then outright short Crude is the best position.
Nasdaq and S&P 500- You have heard me talk about these Equity breakouts ad nausea over the last week so I will be brief. S&P 500 above 1120.50 = 1218 - 1245. Nasdaq above 1899 = 2080 - 2135. Wait on the S&P 500 for confirmation and then the Nasdaq is the one that you want to own.
As far as support today the S&P 500 really does not have much until 1121 and the Nasdaq has only minor support at 1945 until 1938 where there is higher volume support.
A few weeks ago I described an Equity crossover that I was using as an indicator on short term direction that popped up yet again yesterday so I will give a brief description. The Nasdaq is the leader among the Equity Sector and tends to lead the Sector whether Bullish or Bearish in volatility regardless of direction. If the Macro market and Equity Sector is higher on the day it should be the Nasdaq leading for right now, so if the Nasdaq becomes the laggard to the S&P or Dow then this is a Bearish indicator that may precede a sell off. In contrast, like occurred yesterday, if the Macro market and Equity Sector are weaker the Nasdaq should be the laggard market, so if the the Nasdaq becomes the strength compared to the S&P or Dow on a down board then this is a Bullish indicator that may precede a rally.
Notes:
Corn & Cotton- Both continue their parabolic rallies overnight with the Cotton looking as strong as ever as of 8:30 am and Corn rallying well above the $5 psychological resistance overnight. In no way do I suggest selling these markets, but I do recommend using a fairly tight trailing stop as they continue to defy gravity. The tops on the parabolic moves are always volatile, so be careful and keep an eye on both markets as liquidation in one will likely mean liquidation in the other.
Thursday, September 16, 2010
Thursday 9/16/10 Commodity Ideas
Opening Note:
Yesterday
From the get go yesterday morning it was pretty much a straight buy day as money flowed into most of the Commodity Sectors to carry the weaker morning market back to gains in many cases. The S&P 500, led by the Nasdaq, again tested the 1120.50 Bullish head and shoulders breakout level and managed to close 1/4 of a point (Yes 1 tick) above this level as buying re-entered the market in the late afternoon. Most of the Commodity markets with high Equity correlation experienced similar buying throughout the day with Crude Oil and Copper finding a strong bid even though they were trading weaker in the morning. The Yen was the headline news on the Japanese Currency Intervention as it settled on its lows over 3 1/2 points lower without much of a bounce. Lastly, the Crop markets experienced a stall in fresh buying for the first time since Friday's report as Cotton settled lower on the day and Corn failed to mount a strong test of the $5.00 level.
Today
The markets are kind of mixed this morning with Equities, Energies, and the supportive foreign Currencies (other than the Euro) slightly to moderately weaker this morning, but the Metals and Softs are strong. I can clearly say right now that Crude Oil and RBOB (Gas) are VERY weak in relation to every other market as the fundamentals of the Sector look to finally be driving the market while Equities remain range bound and directionless over the summer. I can also say that the market is establishing a pretty steady pattern as there is some heavy allocation going on most mornings throughout the first half of the month and basically since Bernacke suggested that The Fed would be willing to do more quantitative easing if necessary.
PPI and Jobless Claims were just released with the numbers slightly Bullish, but the markets have actually sold off the first 5 minutes after the release after an initial high frequency rally pop just prior to the report. This is contrary to how the markets have reacted to data over the last few weeks as there has been buying directly following almost every number regardless of its impact. This could be a shift in momentum and I still believe that the Equities fail on this rally breakout. I suggest remaining on the sidelines on Bullish trades unless the S&P 500 is able to make a convincing close above 1120.50. and looking for macro short opportunities while this resistance holds.
Buys to Watch:
Sells to Watch: (Copper off the Sells)
Crude Oil (still quoting October for today)- Crude came into yesterday morning's open down $2 on the day, but what followed was nothing but buying as the intraday uptrend took over without much of a pullback at all. Several days ago I wrote that these people allocating into Crude are dip buyers that will be adding to their already large position as the price falls and this seems to be the real case. On Tuesday there was now a confirmed rise in open interest and I imagine today's preliminary report of an increase of 35,000 may even be revised upward. The way that you get this open interest increase along declining price is the only time that the market really rallies is when these guys come in and buy the crap out of the market, but the market price falls apart during the lower volume times. What we now have is 130,000 new longs since August 27th from a price between $71.53 - $78.04 with the market currently sitting right in the middle of this range. Are these buyers really that confident that the Equities make new highs for the year and that Crude is going to $85? And are they willing to hold their longs if Crude moves below $70?
Crude Oil has now produced consecutive Harami Bearish and Hanging Man Candlestick patterns that signal $78 was likely a reversal top. Stochastics for the daily chart also is confirming a crossover sell signal with the price action thus far today. The nearby spreads continue to weaken with the Nov - Dec spread moving below -$1.50 this morning and lower than the front Oct. - Nov. spread. I am now moving the stop loss on this trade to just above the higher volume $76.25 level that acted as resistance intraday for the market yesterday with new entry based upon this stop level on a rally. The long term objective for the market is $61.50, but the on this individual trade it remains a see-as-we-go proposition as it is dependent on liquidation from caught longs.
Sometimes the best trades are the toughest and I can tell you that the $1.50 rally from lows to highs yesterday was not particularly fun, especially when the market went high frequency around 12:30 pm. I know Goldman has updated its target for Oil this year to above $80 and in the media I continuously hear that you need Oil exposure...blah blah, but right now the fundamentals, technicals, and macro relationships are saying that Crude is the weakest market out there. It may be tough with allocation continuing to come into the market, but the market setup looks like it will provide a big payoff if you sit through the temporary pains.
Put on the Radar:
Canadian Dollar- Still sitting on the radar today as the 2 week uptrend from the low Sept. 1st - open Sept. 8th is still intact with a value of .9709 for today. The Australian Dollar appears to be unexcited about going after new highs for the time being after it nearly reached my 3rd leg objective for its rally move earlier in the week. The Aussie topping would support the sale of the Canadian Dollar on a move back toward the .9360 low of its range and possibly out the bottom on the large bearish pattern. So, keep this on the radar until the recent uptrend is broken and more parameters will be explained then.
Corn- First I want to clarify that yesterday's "weekly" objective for Corn means weekly chart objective of $5.50, meaning within the next few months and not by tomorrow. With that cleared up, I think that Corn is going to need more buying to enter today for the market to hold off a 30 - 50 cent pullback. All of the indicators are deep in overbought territory and a decline in price will likely produce sell signals in Stochastics and RSI. In kind of an awkward correlation, I also recommend keeping an eye on the Cotton market as a loose indicator for Corn. The Cotton and Corn daily charts look nearly identical over the last couple months as they do have acreage competition. The fundamental and demand stories for the two are basically unrelated, but I believe that the allocation and entities doing the allocation may pull the trigger to liquidate around the same time as they group them in a similar category. Cotton is open throughout the morning, so if you see a large sell off I would use it as a warning in Corn. Cotton is strong today, so no worries this morning.
Notes:
Copper- It was a good setup with great risk/reward, but the market is not cooperating right now with short positions. The $3.48 stop level on the trade was triggered early last evening and after an evening sell off the market has made a strong rally since the European open to rally above $3.51. I believe that some of the enthusiasm for the Metal sector is spilling into Copper today as many of the other correlated markets are not stronger today. Palladium has now reached my 3rd leg rally objective for the market of $551, which could mean that a top is near for the Industrial Metals. If Copper is unable to hold a rally above the $3.5345 swing high then this trade may be revisited soon.
Platinum- Although I have watched it for a long time I have never traded Platinum as the market is very thin, but I thought it was worth noting that the market is testing a Bullish cup and handle breakout today. Above $1607.5 the market has an objective range from $1711 - $1723. Platinum has been the dog of the entire Metal sector, sitting in a range for most of the summer. Like Copper though it looks like the rest of the Metal enthusiasm may be catching up to Platinum though, so buy a small position if you wish on confirmation for the pattern.
Yesterday
From the get go yesterday morning it was pretty much a straight buy day as money flowed into most of the Commodity Sectors to carry the weaker morning market back to gains in many cases. The S&P 500, led by the Nasdaq, again tested the 1120.50 Bullish head and shoulders breakout level and managed to close 1/4 of a point (Yes 1 tick) above this level as buying re-entered the market in the late afternoon. Most of the Commodity markets with high Equity correlation experienced similar buying throughout the day with Crude Oil and Copper finding a strong bid even though they were trading weaker in the morning. The Yen was the headline news on the Japanese Currency Intervention as it settled on its lows over 3 1/2 points lower without much of a bounce. Lastly, the Crop markets experienced a stall in fresh buying for the first time since Friday's report as Cotton settled lower on the day and Corn failed to mount a strong test of the $5.00 level.
Today
The markets are kind of mixed this morning with Equities, Energies, and the supportive foreign Currencies (other than the Euro) slightly to moderately weaker this morning, but the Metals and Softs are strong. I can clearly say right now that Crude Oil and RBOB (Gas) are VERY weak in relation to every other market as the fundamentals of the Sector look to finally be driving the market while Equities remain range bound and directionless over the summer. I can also say that the market is establishing a pretty steady pattern as there is some heavy allocation going on most mornings throughout the first half of the month and basically since Bernacke suggested that The Fed would be willing to do more quantitative easing if necessary.
PPI and Jobless Claims were just released with the numbers slightly Bullish, but the markets have actually sold off the first 5 minutes after the release after an initial high frequency rally pop just prior to the report. This is contrary to how the markets have reacted to data over the last few weeks as there has been buying directly following almost every number regardless of its impact. This could be a shift in momentum and I still believe that the Equities fail on this rally breakout. I suggest remaining on the sidelines on Bullish trades unless the S&P 500 is able to make a convincing close above 1120.50. and looking for macro short opportunities while this resistance holds.
Buys to Watch:
Sells to Watch: (Copper off the Sells)
Crude Oil (still quoting October for today)- Crude came into yesterday morning's open down $2 on the day, but what followed was nothing but buying as the intraday uptrend took over without much of a pullback at all. Several days ago I wrote that these people allocating into Crude are dip buyers that will be adding to their already large position as the price falls and this seems to be the real case. On Tuesday there was now a confirmed rise in open interest and I imagine today's preliminary report of an increase of 35,000 may even be revised upward. The way that you get this open interest increase along declining price is the only time that the market really rallies is when these guys come in and buy the crap out of the market, but the market price falls apart during the lower volume times. What we now have is 130,000 new longs since August 27th from a price between $71.53 - $78.04 with the market currently sitting right in the middle of this range. Are these buyers really that confident that the Equities make new highs for the year and that Crude is going to $85? And are they willing to hold their longs if Crude moves below $70?
Crude Oil has now produced consecutive Harami Bearish and Hanging Man Candlestick patterns that signal $78 was likely a reversal top. Stochastics for the daily chart also is confirming a crossover sell signal with the price action thus far today. The nearby spreads continue to weaken with the Nov - Dec spread moving below -$1.50 this morning and lower than the front Oct. - Nov. spread. I am now moving the stop loss on this trade to just above the higher volume $76.25 level that acted as resistance intraday for the market yesterday with new entry based upon this stop level on a rally. The long term objective for the market is $61.50, but the on this individual trade it remains a see-as-we-go proposition as it is dependent on liquidation from caught longs.
Sometimes the best trades are the toughest and I can tell you that the $1.50 rally from lows to highs yesterday was not particularly fun, especially when the market went high frequency around 12:30 pm. I know Goldman has updated its target for Oil this year to above $80 and in the media I continuously hear that you need Oil exposure...blah blah, but right now the fundamentals, technicals, and macro relationships are saying that Crude is the weakest market out there. It may be tough with allocation continuing to come into the market, but the market setup looks like it will provide a big payoff if you sit through the temporary pains.
Put on the Radar:
Canadian Dollar- Still sitting on the radar today as the 2 week uptrend from the low Sept. 1st - open Sept. 8th is still intact with a value of .9709 for today. The Australian Dollar appears to be unexcited about going after new highs for the time being after it nearly reached my 3rd leg objective for its rally move earlier in the week. The Aussie topping would support the sale of the Canadian Dollar on a move back toward the .9360 low of its range and possibly out the bottom on the large bearish pattern. So, keep this on the radar until the recent uptrend is broken and more parameters will be explained then.
Corn- First I want to clarify that yesterday's "weekly" objective for Corn means weekly chart objective of $5.50, meaning within the next few months and not by tomorrow. With that cleared up, I think that Corn is going to need more buying to enter today for the market to hold off a 30 - 50 cent pullback. All of the indicators are deep in overbought territory and a decline in price will likely produce sell signals in Stochastics and RSI. In kind of an awkward correlation, I also recommend keeping an eye on the Cotton market as a loose indicator for Corn. The Cotton and Corn daily charts look nearly identical over the last couple months as they do have acreage competition. The fundamental and demand stories for the two are basically unrelated, but I believe that the allocation and entities doing the allocation may pull the trigger to liquidate around the same time as they group them in a similar category. Cotton is open throughout the morning, so if you see a large sell off I would use it as a warning in Corn. Cotton is strong today, so no worries this morning.
Notes:
Copper- It was a good setup with great risk/reward, but the market is not cooperating right now with short positions. The $3.48 stop level on the trade was triggered early last evening and after an evening sell off the market has made a strong rally since the European open to rally above $3.51. I believe that some of the enthusiasm for the Metal sector is spilling into Copper today as many of the other correlated markets are not stronger today. Palladium has now reached my 3rd leg rally objective for the market of $551, which could mean that a top is near for the Industrial Metals. If Copper is unable to hold a rally above the $3.5345 swing high then this trade may be revisited soon.
Platinum- Although I have watched it for a long time I have never traded Platinum as the market is very thin, but I thought it was worth noting that the market is testing a Bullish cup and handle breakout today. Above $1607.5 the market has an objective range from $1711 - $1723. Platinum has been the dog of the entire Metal sector, sitting in a range for most of the summer. Like Copper though it looks like the rest of the Metal enthusiasm may be catching up to Platinum though, so buy a small position if you wish on confirmation for the pattern.
Wednesday, September 15, 2010
Wednesday 9/15/10 Commodity Ideas
Opening Note:
Yesterday
While the markets appeared to be in normal order as of yesterday's morning analysis, there was an absurd amount of odd relationship moves that occurred throughout the day. The S&P 500 methodically tested the 1120.50 head and shoulders breakout level and 1122.50 summer swing high only to fail near the late afternoon settlement as I expected it would. The real odd stuff began around 8:30 am though as Gold busted out a strong rally above the $1260 resistance to rally to above $1275 by 7 am. This was followed by slow and steady gains in the Fixed Income Sector throughout the day amidst stock market strength as a contrary move to the recent relationship. It was also pretty clear that the risk trade and allocation programs were on yesterday as Crude Oil, Copper, Corn, Cotton and some of the supportive Foreign Currencies (Aussie, Canadian, Euro?) began strong uptrends just prior to the stock market open. Overall this was very odd action for the macro relationships with a lot of conflicting moves, but once the supportive markets like Crude, Copper, and Aussie started to sell off mid-day it was pretty clear to me that the S&P 500 did not have the support to settle above the 1120.50 head and shoulders breakout.
Today
Today the headline news is that the Japanese have intervened in the Currency market to devalue the Yen by buying U.S. Dollars without providing specific parameters or amounts. The Yen is over 3 full points lower as of this morning on the first "announced" intervention by Japan in 15 years (I say "announced" because if you look at the spiky action in the market around 115 over the last 2 years, the same level they began talking about intervention this time, it is fairly obvious that there was an invisible brick wall there). Because the Yen is viewed as a safe haven Currency the Fixed Income Sector began to sag on the news as well and has continued losses this morning. The supportive markets are slightly weaker this morning with Crude Oil being the clear loser, but Cotton remaining a strength.
Today should prove very interesting and critical to the market action over the next few weeks. With the S&P 500 failing on its rally breakout from the summer range yesterday it is possible that we see another test of this level this week, but I believe it is likely that the market may now be shifting away from the Bullish momentum of September as I write. The macro directional web I laid out on Monday is falling into line with my prediction that the S&P rally fails as the Australian Dollar, Crude, and Copper have put in possible tops on their rallies. The real question mark right now is what happens with the Yen and therefore the Fixed Income markets and is this a move that continues or creates a new relationship among the markets.
Buys to Watch: (Aussie is off the buys...please see the notes)
Sells to Watch:
Crude Oil- It only took 7 days of patience on the radar for Crude to finally provide a good opportunity for short entry...jeesh. Yesterday the market rallied early back to the $78 level at the same time the S&P 500 was making a strong breakout rally attempt providing very tight risk parameters on entry (if the S&P 500 goes, then Crude probably is not a good short). At 11 am the Crude market followed with a large price dive as the Equity markets fell off their highs. The nearby spreads for Crude Oil weakened at this same time with both Oct. - Nov. and Nov. - Dec. moving back below the -$1.00 warning level. This morning the market is a the clear weakness (other than the Yen) as Crude is now near a test of a moderate support level from $74.70 - $75.00.
Preliminary open interest reports for the market show an increase of 43,000 contracts yesterday, which can easily be revised 50,000 either way, but maintains the large open interest position since August 27th that is not holding a long from a better price than $71.53. The spreads have continued to move out this morning to suggest the over-supply issue is present in the market again. Technicals for the daily chart now have Stochastics likely providing a sell signal with today's price break and RSI maintaining a range that is consistent with a bear market move. For right now I am placing my stop just above the day's highs of $76.65, but I believe that this is the best trade out there right now and is one worth holding. Below $71.53 there should be a large amount of longs caught with losing positions that will provide a liquidation run lower towards the 2nd leg objective of $61.50 for the market. For new short entry I do not have great levels right now, but you can sell against today's highs and I believe all rallies are to be sold.
There are some very important things to note though. The API/EIA Enegy Stocks is today at 9:30 CT, which can have a significant impact on the market. Also, the October contract is nearing expiration and rolling the position to the October contract should be done by this evening as it will switch to the volume traded month tomorrow.
Copper- Other than the Monday rally on Chinese manufacturing data the Copper market has been a laggard among the macro picture since it reached its bottom head and shoulders objective of $3.50. Yesterday the market followed in line with the other Commodities on a morning rally, but ran into resistance just below $3.50 and has been a weakness market since. Copper has a similar, yet less substantial, setup to the Crude market with 8,000 (out of 142K) longs since Sept. 1st holding a long position from no better level than $3.37. Below $3.3930 the market has a smaller cup and handle pattern that projects a move to $3.2885, which is the objective for the trade. There is stronger resistance around $3.48 fro the market that has held overnight and without a great entry level I believe that entry should be constructed with a stop just above this level.
Put on the Radar:
Equity Indices- The S&P 500 failed yesterday on a test of the 1120.50 Bullish head and shoulder pattern breakout as a previous summer high at 1122.50 provided resistance to the exact tick for the market. The Nasdaq remains slightly stronger than the rest of the Indices and now actually has confirmation on its own head and shoulder pattern with an objective of 2135 above 1899. However, I strongly recommend refraining from long entry in the Nasdaq for the time being. The S&P 500 is the main directional indicator of the sector right now and without further progress it is unlikely that the Nasdaq will continue to rally on its own I recommend either fading this resistance level in the S&P 500 or staying out of the Equities for the time being. Above 1120.50 the S&P has an objective of 1245, so waiting for confirmation on the pattern still will provide ample time to catch a good move.
Canadian Dollar- The Canadian Dollar is the ugly sister to the Australian Dollar and with the Aussie basically meeting its 3rd leg rally objective I think it is time to start looking at shorting the Canadian. The Canadian is stuck in a summer range similar to the Equities and looks like it could be creating the right shoulder on a fairly large Bearish head and shoulders pattern with a breakout level around .9360 on the pattern. Stochastics is near a sell for the daily chart and RSI remains in a bear market range for the time being, so entry might be possible as early as today or tomorrow. Connecting a trendline from the Sept. 1st Low - Sept. 8th Open provides a value of .9679 today with a close below this level meaning short entry is now in play. I expect a preliminary objective of .9360 on this trade, but with the possibility of the pattern actually initiating a move to .86 on a longer term move.
Notes:
Australian Dollar- The Aussie Dollar reached .9356 yesterday, which for my purposes is close enough to the .9416 objective on the trade. I now recommend liquidating and taking profits on the trade as continuation higher is unlikely. Unless the S&P 500 is able to initiate its Bullish head and shoulders pattern it is likely that the Aussie has reached its high on the 3 leg advance and will weaken, making the Canadian in play as a short on this idea.
Gold- Not only did Gold make a new high close yesterday it made it on yearly and all-time highs as it ran through resistance like it was butter yesterday. The Silver lagged to the Gold yesterday, but I believe that going forward Silver is likely the better buy on this trade with a weekly objective of $21.48 right now. However, personally I am very skeptical of both markets technically, fundamentally, and macro relationship-wise. They are both acting right now under their own powers and they are ones that I do not understand at all. Some linked the Gold rally yesterday to Dollar weakness, but if you look at the 2 charts next to each other right now you can see that they literally have no correlation at all over the last several months. I suggest staying out of both Gold and Silver and say trade at your own risk.
Bonds- The Bonds are interesting right now as the devaluation of the Yen overnight has had an impact on the market. It is not the strongest correlation, but you can see that Bonds did sell off at 8:30 pm overnight on the Yen news and have trended lower into this morning with it. This puts the Bonds out of line with the macro picture this morning as the Commodity and Equity markets are weaker for the most part. Bonds also bounced off the topside trendline from the high Sept 1st - Sept. 8th at 131.20 on the dot last night prior to the Yen news. It will be interesting to see how the Yen and therefore Bonds react over the next 24 hours as I believe that the market was in the process of a Bullish reversal prior to the intervention.
Corn- The weekly objective is $5.50 for the market, but I have been sitting on the sidelines as Corn continues skyward. The market is very overdue for a pullback, but along with Cotton, there has not been a significant one since last weeks Crop Report. This morning Cotton actually has sold off since its open, so keep a close eye on Corn long positions as this could be a potential warning of similar action in the Grains.
Yesterday
While the markets appeared to be in normal order as of yesterday's morning analysis, there was an absurd amount of odd relationship moves that occurred throughout the day. The S&P 500 methodically tested the 1120.50 head and shoulders breakout level and 1122.50 summer swing high only to fail near the late afternoon settlement as I expected it would. The real odd stuff began around 8:30 am though as Gold busted out a strong rally above the $1260 resistance to rally to above $1275 by 7 am. This was followed by slow and steady gains in the Fixed Income Sector throughout the day amidst stock market strength as a contrary move to the recent relationship. It was also pretty clear that the risk trade and allocation programs were on yesterday as Crude Oil, Copper, Corn, Cotton and some of the supportive Foreign Currencies (Aussie, Canadian, Euro?) began strong uptrends just prior to the stock market open. Overall this was very odd action for the macro relationships with a lot of conflicting moves, but once the supportive markets like Crude, Copper, and Aussie started to sell off mid-day it was pretty clear to me that the S&P 500 did not have the support to settle above the 1120.50 head and shoulders breakout.
Today
Today the headline news is that the Japanese have intervened in the Currency market to devalue the Yen by buying U.S. Dollars without providing specific parameters or amounts. The Yen is over 3 full points lower as of this morning on the first "announced" intervention by Japan in 15 years (I say "announced" because if you look at the spiky action in the market around 115 over the last 2 years, the same level they began talking about intervention this time, it is fairly obvious that there was an invisible brick wall there). Because the Yen is viewed as a safe haven Currency the Fixed Income Sector began to sag on the news as well and has continued losses this morning. The supportive markets are slightly weaker this morning with Crude Oil being the clear loser, but Cotton remaining a strength.
Today should prove very interesting and critical to the market action over the next few weeks. With the S&P 500 failing on its rally breakout from the summer range yesterday it is possible that we see another test of this level this week, but I believe it is likely that the market may now be shifting away from the Bullish momentum of September as I write. The macro directional web I laid out on Monday is falling into line with my prediction that the S&P rally fails as the Australian Dollar, Crude, and Copper have put in possible tops on their rallies. The real question mark right now is what happens with the Yen and therefore the Fixed Income markets and is this a move that continues or creates a new relationship among the markets.
Buys to Watch: (Aussie is off the buys...please see the notes)
Sells to Watch:
Crude Oil- It only took 7 days of patience on the radar for Crude to finally provide a good opportunity for short entry...jeesh. Yesterday the market rallied early back to the $78 level at the same time the S&P 500 was making a strong breakout rally attempt providing very tight risk parameters on entry (if the S&P 500 goes, then Crude probably is not a good short). At 11 am the Crude market followed with a large price dive as the Equity markets fell off their highs. The nearby spreads for Crude Oil weakened at this same time with both Oct. - Nov. and Nov. - Dec. moving back below the -$1.00 warning level. This morning the market is a the clear weakness (other than the Yen) as Crude is now near a test of a moderate support level from $74.70 - $75.00.
Preliminary open interest reports for the market show an increase of 43,000 contracts yesterday, which can easily be revised 50,000 either way, but maintains the large open interest position since August 27th that is not holding a long from a better price than $71.53. The spreads have continued to move out this morning to suggest the over-supply issue is present in the market again. Technicals for the daily chart now have Stochastics likely providing a sell signal with today's price break and RSI maintaining a range that is consistent with a bear market move. For right now I am placing my stop just above the day's highs of $76.65, but I believe that this is the best trade out there right now and is one worth holding. Below $71.53 there should be a large amount of longs caught with losing positions that will provide a liquidation run lower towards the 2nd leg objective of $61.50 for the market. For new short entry I do not have great levels right now, but you can sell against today's highs and I believe all rallies are to be sold.
There are some very important things to note though. The API/EIA Enegy Stocks is today at 9:30 CT, which can have a significant impact on the market. Also, the October contract is nearing expiration and rolling the position to the October contract should be done by this evening as it will switch to the volume traded month tomorrow.
Copper- Other than the Monday rally on Chinese manufacturing data the Copper market has been a laggard among the macro picture since it reached its bottom head and shoulders objective of $3.50. Yesterday the market followed in line with the other Commodities on a morning rally, but ran into resistance just below $3.50 and has been a weakness market since. Copper has a similar, yet less substantial, setup to the Crude market with 8,000 (out of 142K) longs since Sept. 1st holding a long position from no better level than $3.37. Below $3.3930 the market has a smaller cup and handle pattern that projects a move to $3.2885, which is the objective for the trade. There is stronger resistance around $3.48 fro the market that has held overnight and without a great entry level I believe that entry should be constructed with a stop just above this level.
Put on the Radar:
Equity Indices- The S&P 500 failed yesterday on a test of the 1120.50 Bullish head and shoulder pattern breakout as a previous summer high at 1122.50 provided resistance to the exact tick for the market. The Nasdaq remains slightly stronger than the rest of the Indices and now actually has confirmation on its own head and shoulder pattern with an objective of 2135 above 1899. However, I strongly recommend refraining from long entry in the Nasdaq for the time being. The S&P 500 is the main directional indicator of the sector right now and without further progress it is unlikely that the Nasdaq will continue to rally on its own I recommend either fading this resistance level in the S&P 500 or staying out of the Equities for the time being. Above 1120.50 the S&P has an objective of 1245, so waiting for confirmation on the pattern still will provide ample time to catch a good move.
Canadian Dollar- The Canadian Dollar is the ugly sister to the Australian Dollar and with the Aussie basically meeting its 3rd leg rally objective I think it is time to start looking at shorting the Canadian. The Canadian is stuck in a summer range similar to the Equities and looks like it could be creating the right shoulder on a fairly large Bearish head and shoulders pattern with a breakout level around .9360 on the pattern. Stochastics is near a sell for the daily chart and RSI remains in a bear market range for the time being, so entry might be possible as early as today or tomorrow. Connecting a trendline from the Sept. 1st Low - Sept. 8th Open provides a value of .9679 today with a close below this level meaning short entry is now in play. I expect a preliminary objective of .9360 on this trade, but with the possibility of the pattern actually initiating a move to .86 on a longer term move.
Notes:
Australian Dollar- The Aussie Dollar reached .9356 yesterday, which for my purposes is close enough to the .9416 objective on the trade. I now recommend liquidating and taking profits on the trade as continuation higher is unlikely. Unless the S&P 500 is able to initiate its Bullish head and shoulders pattern it is likely that the Aussie has reached its high on the 3 leg advance and will weaken, making the Canadian in play as a short on this idea.
Gold- Not only did Gold make a new high close yesterday it made it on yearly and all-time highs as it ran through resistance like it was butter yesterday. The Silver lagged to the Gold yesterday, but I believe that going forward Silver is likely the better buy on this trade with a weekly objective of $21.48 right now. However, personally I am very skeptical of both markets technically, fundamentally, and macro relationship-wise. They are both acting right now under their own powers and they are ones that I do not understand at all. Some linked the Gold rally yesterday to Dollar weakness, but if you look at the 2 charts next to each other right now you can see that they literally have no correlation at all over the last several months. I suggest staying out of both Gold and Silver and say trade at your own risk.
Bonds- The Bonds are interesting right now as the devaluation of the Yen overnight has had an impact on the market. It is not the strongest correlation, but you can see that Bonds did sell off at 8:30 pm overnight on the Yen news and have trended lower into this morning with it. This puts the Bonds out of line with the macro picture this morning as the Commodity and Equity markets are weaker for the most part. Bonds also bounced off the topside trendline from the high Sept 1st - Sept. 8th at 131.20 on the dot last night prior to the Yen news. It will be interesting to see how the Yen and therefore Bonds react over the next 24 hours as I believe that the market was in the process of a Bullish reversal prior to the intervention.
Corn- The weekly objective is $5.50 for the market, but I have been sitting on the sidelines as Corn continues skyward. The market is very overdue for a pullback, but along with Cotton, there has not been a significant one since last weeks Crop Report. This morning Cotton actually has sold off since its open, so keep a close eye on Corn long positions as this could be a potential warning of similar action in the Grains.
Tuesday, September 14, 2010
Tuesday 9/14/10 Commodity Ideas
Opening Note:
Yesterday
The S&P 500 made a convincing test of the 1120.50 Bullish head and shoulders breakout, but failed to close above this level as strong resistance held the market off. Most of the correlated Commodity markets also fell into a similar pattern with the Australian Dollar, Crude Oil, and Copper also establishing higher closes, but falling off a bit to settle off of early highs. Bonds made a nice recovery despite early morning weakness to close higher on the day in the face of stronger Equities and these correlated Commodities. Copper was a leader yesterday as Bullish Chinese manufacturing data supported the market. The Grain Sector was quiet as Corn made a new high close, yet only a few cents above Friday's settlement. And Gold closed below the base of its Bullish month and a half rally channel for a second consecutive day.
Today
The market is moderately weaker with Equities, Energies, Grains, and most Foreign Currencies trading lower at 6:50 am. Gold is strong this morning despite yesterday's 2nd consecutive close below the market's trendline, leaving me a bit perplexed on the market fundamentals. Cotton is the strongest market this morning with the great Bullish trend maintaining even better than Corn for the time being. Copper is a laggard this morning as it reverses the gains from yesterday's Chinese data. Everything appears pretty much in line on the macro level though other than Gold with the risk aversion trade stronger this morning.
In the Notes section yesterday I laid out the Macro indicator markets that I am using currently that are pointing towards a failure on the Equity breakout attempt above the summer range. Today I am seeing nothing that has changed my opinion with Copper weakness this morning looking like topping action for the market and actually strengthening my opinion that a larger macro rally is not in the works for now. I recall conversations when I began trading several years ago, and my fundamental acumen was about 1/4 what it is now, when I would lay out this relationship web as evidence for my macro directional opinion and I would get a lot of confusion and "what is this kid talking about" responses. I have found though that this is a reliable tool that takes out fundamental data confusion and adds more accuracy to the decision making process than just applying technicals to the S&P 500 chart. While I am eagerly willing to buy Nasdaq if the S&P 500 chart does initiate the Bullish head and shoulders pattern this is just a different indicator that is saying "hold off and don't get too Bullish".
That being said, I also do not want to get too Bearish right now either as each day for the market continues to look different than the next. While there are a lot of notes and possible suggestions on the Radar finding a predictable, fluid trade for entry right now is difficult. I still recommend sitting on the sidelines for most longer term trades and looking more for just intraday moves because that is what the market is giving right now.
Buys to Watch:
Australian Dollar- This remains my only longer term trade idea with the .9416 target clearly defined and a fluid rally continuing higher. With the outside markets slightly weaker this morning I think that it is more likely today that the market provides a pullback for new long entry opportunity. The low volume zone/gap left from over the weekend between .9170 - .9186 is a good level for long entry with a stop from either at .9138 or .9148 depending on opinion, safety, and risk appetite below the higher volume support range. For the longer term trade I also still recommend using a stop level of .9138 or .9148. The technicals for the Aussie daily chart are becoming slightly overextended and into overbought territory, but it looks like another 1 - 2 day pullback would still not set off liquidation signals, making this trade still in play.
Sells to Watch:
Put on the Radar:
Crude Oil- We are now on about Day 7 since I first pointed out the sizable increase in open interest versus price action and the market is now ready to begin looking for initial short entry. Although there actually was a 1 day decrease in the open interest there still remains over 100,000 longs that entered at a price no better than $71.53. The key to this trade's success is that these dip buying strategies become locked into losing trades on these large positions like for example in late April/early May of this year, which can easily happen with 2 - 3 days of sharp breaks. The best part is that these guys are dip buyers, which means they add to their positions on this price break adding to the later liquidation.
Yesterday October Crude Oil made a high of $78.05 just below the $78.25 short term target for the market before breaking in price mid-day back to $77. The Crude spreads have sat relatively flat over the last 24 hours, but they still are sitting at an uncomfortable level for Bulls as another dip below $1.00 for Oct. - Nov. could mean trouble. The daily chart is also becoming extended on this smaller rally now with indicators coming closer to sell signals on the 2nd leg lower target of $61.50 for the Crude market. Although the market is slightly weaker this morning I still think there is a possibility that there is another rally above $78, which provides a good initiation level for Bearish positions that I recommend executing in the options market for the time being. I recommend using the November options contract because I expect the full trade to last roughly 20 days and definitely will not cover the 2 days left on the October contract.
S&P 500- Up to 1120.50 the market has strong resistance that has been repeatedly tested, but I believe will eventually hold on this rally attempt for the market. However, if there are two consecutive closes above this level the market has an objective of 1245 on the Bullish cup and handle pattern. The Nasdaq also has an even stronger cup and handle pattern with an objective of 2135 above 1899 and would be the preferable market for a long position as the technology sector has continually outperformed on the recovery.
Notes:
Gold- This morning Gold is trading back above $1260 on a $13 rally above the base trendline that the market negated yesterday. This move is out of line with the rest of the market as it appears that Gold is further confirming that it is completely uncorrelated and its own entity for right now. As there are so many different fundamental stories for Gold right now it is difficult to pin the rally on a specific idea. It is being bought as a Currency reserve, store of value, and the Asian market seems to have a voracious appetite for it right now. Furthermore, there are also people just buying it based on the long term technicals and the belief that it is in a long term bull market. Technical indicators for the market have lagged considerably and have proved unreliable on a day to day basis for the market, so for right now I suggest staying out of the market. It really appears to be whoever is coming in to buy Gold on a longer term basis that day that is moving the market, making predictability difficult.
Bonds- With the failure on the move lower yesterday and higher settlement it is possible that Bonds have reversed their short term Bearish trend and are setting up another rally leg. Keep an eye on the topside trendline on the 2 week break that is sitting at 132.00 today as Stochastics may be nearing a buy signal as well.
Yesterday
The S&P 500 made a convincing test of the 1120.50 Bullish head and shoulders breakout, but failed to close above this level as strong resistance held the market off. Most of the correlated Commodity markets also fell into a similar pattern with the Australian Dollar, Crude Oil, and Copper also establishing higher closes, but falling off a bit to settle off of early highs. Bonds made a nice recovery despite early morning weakness to close higher on the day in the face of stronger Equities and these correlated Commodities. Copper was a leader yesterday as Bullish Chinese manufacturing data supported the market. The Grain Sector was quiet as Corn made a new high close, yet only a few cents above Friday's settlement. And Gold closed below the base of its Bullish month and a half rally channel for a second consecutive day.
Today
The market is moderately weaker with Equities, Energies, Grains, and most Foreign Currencies trading lower at 6:50 am. Gold is strong this morning despite yesterday's 2nd consecutive close below the market's trendline, leaving me a bit perplexed on the market fundamentals. Cotton is the strongest market this morning with the great Bullish trend maintaining even better than Corn for the time being. Copper is a laggard this morning as it reverses the gains from yesterday's Chinese data. Everything appears pretty much in line on the macro level though other than Gold with the risk aversion trade stronger this morning.
In the Notes section yesterday I laid out the Macro indicator markets that I am using currently that are pointing towards a failure on the Equity breakout attempt above the summer range. Today I am seeing nothing that has changed my opinion with Copper weakness this morning looking like topping action for the market and actually strengthening my opinion that a larger macro rally is not in the works for now. I recall conversations when I began trading several years ago, and my fundamental acumen was about 1/4 what it is now, when I would lay out this relationship web as evidence for my macro directional opinion and I would get a lot of confusion and "what is this kid talking about" responses. I have found though that this is a reliable tool that takes out fundamental data confusion and adds more accuracy to the decision making process than just applying technicals to the S&P 500 chart. While I am eagerly willing to buy Nasdaq if the S&P 500 chart does initiate the Bullish head and shoulders pattern this is just a different indicator that is saying "hold off and don't get too Bullish".
That being said, I also do not want to get too Bearish right now either as each day for the market continues to look different than the next. While there are a lot of notes and possible suggestions on the Radar finding a predictable, fluid trade for entry right now is difficult. I still recommend sitting on the sidelines for most longer term trades and looking more for just intraday moves because that is what the market is giving right now.
Buys to Watch:
Australian Dollar- This remains my only longer term trade idea with the .9416 target clearly defined and a fluid rally continuing higher. With the outside markets slightly weaker this morning I think that it is more likely today that the market provides a pullback for new long entry opportunity. The low volume zone/gap left from over the weekend between .9170 - .9186 is a good level for long entry with a stop from either at .9138 or .9148 depending on opinion, safety, and risk appetite below the higher volume support range. For the longer term trade I also still recommend using a stop level of .9138 or .9148. The technicals for the Aussie daily chart are becoming slightly overextended and into overbought territory, but it looks like another 1 - 2 day pullback would still not set off liquidation signals, making this trade still in play.
Sells to Watch:
Put on the Radar:
Crude Oil- We are now on about Day 7 since I first pointed out the sizable increase in open interest versus price action and the market is now ready to begin looking for initial short entry. Although there actually was a 1 day decrease in the open interest there still remains over 100,000 longs that entered at a price no better than $71.53. The key to this trade's success is that these dip buying strategies become locked into losing trades on these large positions like for example in late April/early May of this year, which can easily happen with 2 - 3 days of sharp breaks. The best part is that these guys are dip buyers, which means they add to their positions on this price break adding to the later liquidation.
Yesterday October Crude Oil made a high of $78.05 just below the $78.25 short term target for the market before breaking in price mid-day back to $77. The Crude spreads have sat relatively flat over the last 24 hours, but they still are sitting at an uncomfortable level for Bulls as another dip below $1.00 for Oct. - Nov. could mean trouble. The daily chart is also becoming extended on this smaller rally now with indicators coming closer to sell signals on the 2nd leg lower target of $61.50 for the Crude market. Although the market is slightly weaker this morning I still think there is a possibility that there is another rally above $78, which provides a good initiation level for Bearish positions that I recommend executing in the options market for the time being. I recommend using the November options contract because I expect the full trade to last roughly 20 days and definitely will not cover the 2 days left on the October contract.
S&P 500- Up to 1120.50 the market has strong resistance that has been repeatedly tested, but I believe will eventually hold on this rally attempt for the market. However, if there are two consecutive closes above this level the market has an objective of 1245 on the Bullish cup and handle pattern. The Nasdaq also has an even stronger cup and handle pattern with an objective of 2135 above 1899 and would be the preferable market for a long position as the technology sector has continually outperformed on the recovery.
Notes:
Gold- This morning Gold is trading back above $1260 on a $13 rally above the base trendline that the market negated yesterday. This move is out of line with the rest of the market as it appears that Gold is further confirming that it is completely uncorrelated and its own entity for right now. As there are so many different fundamental stories for Gold right now it is difficult to pin the rally on a specific idea. It is being bought as a Currency reserve, store of value, and the Asian market seems to have a voracious appetite for it right now. Furthermore, there are also people just buying it based on the long term technicals and the belief that it is in a long term bull market. Technical indicators for the market have lagged considerably and have proved unreliable on a day to day basis for the market, so for right now I suggest staying out of the market. It really appears to be whoever is coming in to buy Gold on a longer term basis that day that is moving the market, making predictability difficult.
Bonds- With the failure on the move lower yesterday and higher settlement it is possible that Bonds have reversed their short term Bearish trend and are setting up another rally leg. Keep an eye on the topside trendline on the 2 week break that is sitting at 132.00 today as Stochastics may be nearing a buy signal as well.
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