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.