Thursday 9/2/10 Commodity Ideas

Opening Note:

Yesterday
Going into yesterday most traders knew that there was allocation coming, but I do not think that even those that were wildly Bullish expected a 250 point up day for the Dow. It is pretty clear that shorts were caught off guard by the all day buying spree, which surely added to the gains in the market for the day. While the Grains, Precious Metals, and Softs (other than the strong Cotton) saw little in the way of allocation there were big swings across every other market. The 8pm Bullish Australian GDP number Wednesday evening got the Aussie Dollar rolling as it was the leader higher among the very strong Foreign Currency markets that punished the U.S. Dollar. The Industrial Metals like Copper and Palladium mounted impressive gains to establish breakout highs over the last couple months. The Fixed Income sector experienced more violent liquidation reminiscent of Friday as the Bullish ISM number at 9 am fueled the largest move. And in my shocker for the day, Crude Oil exploded at 7:15 am on a $2 rally despite an increase in the EIA stocks number and the nearby supply glut.

As has been the case many times in the past month, I do not believe that any of the numbers yesterday had a true impact on the trade yesterday. The Bearish ADP Unemployment number only caused a brief sell off before buying resumed and the Bearish EIA stocks for Crude only held the market steady temporarily before prices took off again. It is pretty clear that some of this allocation just waited until after the reports to buy the market regardless of the news.

Today
The market is Very quiet...crickets quiet. I have to say that I am pretty impressed with the stock market action into this morning as there was little more than a 4 point break at any time in the last 24 hours in the S&P 500 that is still holding steady as of 7 am. Meanwhile Crude Oil is back to its weakness status as the market has fallen $1 since the 4:30 overnight highs. Other than that there really is not much to report.

Today there is another round of minor Economic data that should be noted, but will likely have only a slight impact if any on the market as the focus right now is on allocation and the Unemployment Report tomorrow. Volume and volatility will surely be light today with the trade choppy and less meaningful as well. Because of this I have no trades that will be listed in the Buys or Sells sections for today or tomorrow. While I do have some ideas, the market right now continues to give volatile back and forth trade that makes holding any position for more than 12 hours difficult. I believe there is a 51% chance that we see a slight pullback in the market today with stronger nearby resistance in the stock market today, but with Unemployment tomorrow your guess is as good as mine where the market goes in the next 24 hours.

I suggest clearing your slate prior to the Unemployment Report tomorrow and saving your ammo as I myself will definitely not be holding any outright position into the number. With a technical support rally in the stock market in motion I think there is a good possibility that the number tomorrow could be a trap for the Bears. Traders have bought poor numbers numerous times over the last 2 weeks and there could be some strong buying that enters the market even if the number is terrible to force more short covering. Tuesday should see a return in able bodied traders and volume, so waiting until next week to see where we are at is my game plan over the next two days.

Buys to Watch:

Sells to Watch:

Put on the Radar:

Crude Oil- As has been the case over the last week, Crude Oil skyrocketed yesterday after Tuesday's $3 break to continue the back and forth volatility in the market. I provided a suggestion yesterday for a short entry level in Crude, but allocation and short covering carried the market well beyond this level even prior to the stocks number. The move all the way back to $74.50 did provide a good opportunity for a short term fade, but for right now I am out of the market and holding off on entry until at least after the Unemployment Report.

Crude still is the clear weakness among the market with a Bearish fundamental as well as technical picture and is my favorite short right now. RSI for the market still maintains a Bear market range along with MACD on the daily chart despite the short term base and the market can not seem to hang above the last consolidation support line. Furthermore, although the Oct. - Nov. spread did come back in a little yesterday there is clearly still a short term over-supply of Crude that could become a bigger issue over the next couple weeks. I do have some concerns about Crude for the time being though because the MACD for the daily chart is nearing a minor buy signal on the Bear trend and Open Interest for the market has climbed nearly 100,000 contracts since August 27th. Moral of the story: Let's see how Crude looks on Tuesday and if we have to buy a long S&P 500 or Aussie Dollar hedge we will do it.

Australian Dollar- The Aussie is now broken out on a Bullish head and shoulders pattern with the neckline today at .9008 and the objective for the pattern at .9298. Confirmation will likely be made today as the Aussie is a Currency strength with a close above the .9008 neckline to put long entry into play. We will have to see what the trade is like today, but there is a low volume zone from .9056 - .9062 with minor support to .9040 that has provided a base overnight. If the market does travel below this minor support though there is an even better entry level from .9012 - .9024 with stronger support at .9000 and the pattern's neckline.

Grains-

Corn still has the 3rd leg projection of $4.70 and maintains its strength among the Grain sector with a new high close yesterday. The market has held a tight range overnight, but if the market is able to hold $4.45 today the move higher should continue to have strength.

Soybean Meal- Soy Meal was the weakness among the Grains yesterday as November Soybeans fell flat and the Bean Oil was slightly stronger. The neckline for the Bearish head and shoulders top pattern sits at $289.3 today with a $17 price break projected once the pattern is engaged.

Wheat appears to be shifting back into a Bullish mode as the market has now rallied out of the downward consolidation channel. A Stochastics buy signal was produced a couple days ago, although rather weak, and RSI and MACD still show the market in a Bull trend for the daily chart. I want to see the price action in Wheat for the rest of the week, but it is possible that another rally leg could be emerging in the market.


Notes:

S&P 500- There is some higher volume resistance in the S&P 500 between 1086.50 - 1090 that will likely provide a top on the market at least for today. There also is still a decent amount of resistance up to 1098 even if the market rallies above the 1090 level, but above 1098 would likely mean a test of 1115. Unless you have an iron stomach and wish to carry a long position through the Unemployment Report then taking profits around 1085 would be a great level.

Gold- Gold is now on the 26th day of its Bullish rally that looks like it wants to head back to the yearly highs. I am using a trendline for the market from the July 28th - August 11th lows that provides a value of $1250 today without 2 consecutive violation closes on this line yet. Gold seems to have a way of just eking it out when it comes to trends, so I expect it will find a way to close above today. Keep this trend on your chart though as a future indicator.