Friday 9/3/10 Commodity Ideas

Opening Note:

Yesterday
Yesterday was slow as expected without too much to report as far as interesting moves. The Equity markets were impressive yesterday as they refused to give back the previous day's rally. On a slight uptrend the Indices managed steady gains throughout the day to move into the upper end of the 1090 higher volume resistance. Crude Oil followed suit after the early morning break on a 15 minute chart uptrend that rallied above the $74.50 moderate resistance level from the previous day. Silver was one of the leaders yesterday as Gold maintained its own Bullish trend and support from the industrial Metals like Copper and Palladium boosted the market from both ends. And finally, Cotton was the strongest market as it established a new high close on the Bullish move despite quiet action in the Grain markets.

Today
The markets are close to dead in preparation of the Unemployment Report this morning. I will instead provide a post Unemployment commentary because making an educated guess for today is rather pointless as of 7 am. I would like to note however that the Equity Sector has held up well beyond my expectations over the last 48 hours as the Bears have been run out of the market. Because most are already expecting a downgraded unemployment number it would take a pretty major shock to cause the longs to liquidate their positions. I suggest taking a sideline approach for today as I will be waiting until Tuesday when more human traders will be returning to the market. Once the dust settles we should have a better game plan for the week and month after the long weekend.

Late Unemployment Comments- Even before the number was actually released there was a quick rally burst in the Stock Indices. With the number beating expectations (although not a real positive number standing alone) this obviously worked to the Bulls advantage. It seems to me like this may have been a planned strategy prior to the number regardless of the outcome. We saw this on the strong Wednesday rally prior to the numbers that were released throughout the morning as it looks like advantageous Bulls looked to specifically push a short covering rally. As has been the case throughout the summer, the swings in expectations and sentiment have been violent and the Bearish expectations obviously over-extended themselves to set up this trap over the last 3 days.

I still have no interest in executing trades for today and wish to see how the market plays out. The S&P 500 has now rallied above the resistance up to 1098 and without much resistance until 1110 - 1113 I think that the market will likely test the upper end of the summer range, with a failure to do so a pretty Bearish signal for me. Have a Good Labor Day and talk to you Tuesday!

Buys to Watch:

Sells to Watch:

Put on the Radar:

A Note on the Long Term Silver Trade- On the weekly chart for the Gold/Silver the ratio has fallen below a longer term trendline that would encourage an increase in the price of Silver versus the price of Gold. Over the last week and a half this has been the case as Silver has displayed a stronger rally. However, this move near the apex of the consolidation triangle and less reliable with some stronger support for the ratio nearby. Having only entered on Wednesday much of the move in this ratio was avoided, but a move below 63.00 would indicate further momentum on Silver's gains in relation to Gold. This would be an indicator that it is probably time to exit and re-evaluate the trade because Gold would then be the better short under this scenario.

Silver was a leader yesterday on a fairly quiet day and established a high close on the 8 day rally. However, the daily chart, along with Gold, is giving all indications that the rally is overextended. Silver's high close for the year is $19.743, which is now being tested. Two consecutive closes above this level would be a concerning development as momentum is still positive for the market and would indicate that further gains are likely. I am still confident in the trade, but if Silver does establish a rally breakout then it would be time to evaluate if this is still a trade worth holding. There is no harm in saying I change my mind because if either of these scenarios occur then it could be a painful trip even if the trade eventually works.

Australian Dollar- With a second consecutive close above the head and shoulders neckline the Aussie Dollar has now confirmed the Bullish pattern objective of .9298. On another test overnight the market also dipped into the lower volume zone from .9056 - .9062 and held the minor support level at .9040. As today could prove to be volatile and possibly two sided trade I think it is a good idea to wait for entry until Tuesday though.

Crude Oil- The spreads have recovered to a degree, but they are still sitting in a concerning area for those Bullish Crude. I still have the 2nd leg lower objective of $61.50 for the market, but if the October contract is able to settle above $75.58 then the market would have an objective just below $80. Open Interest has increased sharply in Crude over the last week, which supports the recent Bullish move, so if this close is made I would not have a problem looking for this shorter term rally. Lets take a look on Tuesday.

Notes:

Gold- As noted yesterday, the trendline for Gold from the lows July 28th - August 11th has a value of $1253 today. With Gold falling on its 7:20 am open prior to the Unemployment Report and plummeting further down to $1240 it will be extremely difficult for the market to mount a recovery today. Although Gold is not yet below the upward channel if you take the August 24th spike low into account this is a negative sign for the those holding long positions. If the market fails to close above this trend by Tuesday's close then I recommend taking profits on long positions.

The Unwinding of the Long Treasuries/Short Equity Trade...Let's Not Get Ahead of Ourselves
The media has made a lot of the possible unwinding of the Long Treasuries vs. Short Equities trade since Wednesday's rally, but I am not willing to bet my money on this move right now. The strength of the Bond market has definitely been tested with a strong short term top being placed on the daily chart, but the longer term Bull trend over the last several months is still clearly intact. Markets have pullbacks on moves, although this one is rather strong, and until this trend is negated I am not looking to pick a top. Furthermore, the S&P 500 still is sitting pat in the sideways range for this summer. The rally over the last 3 days has been strong, but has yet to really accomplish anything new that would point to a move out of the range. I clearly have a Bearish opinion of the market over the longer term (as I believe a move below the range is more likely than above), but until a move outside of this summer range is established all this really is is just talk. Above 1130 the S&P 500 projects 1250 - 1260 and below 980 the projection is just below 800, but until either happens the only real trade is taking the short term swings to hopefully make the Lamborghini payments. Let's lay off the big bets on this trade unwinding until the market REALLY starts to show it.