Thursday 9/9/10 Commodity Ideas

Opening Note:

Yesterday
Although the market started out nearly flat, yesterday proved to actually be a decent day of strength as morning buying propelled the Equities, Foreign Currencies, and Energies higher. The Nasdaq, Australian and Canadian Dollars, and British Pound yielded the most impressive gains while the Fixed Income markets and Wheat led the decliners. Despite an early rally that carried Gold above the yearly high close the market was unable to hold these gains, so prepare for another battle today. However, without much news of impact released or curious market action though I would pretty much just call the action par for the course.

Today
Today the markets are again slightly firmer with the Australian Dollar leading the gainers on a positive Unemployment report overnight, but Copper leading the decliners in a "Whaaa?" relationship move that has my interest peaked this morning. I have to admit though that I do not have a real good feel right now which direction the market is headed today or whether it will just be back and forth, but I will put a 51% stamp of confidence that we will see another day of moderate gains. The currently in-play trade ideas remain solely the Australian Dollar for now with a number of things to watch on the radar. So, I suggest still taking more of a sideline approach to the markets for now until better opportunities emerge.

**Crop Production and Supply/Demand Reports for Grains 7:30 am tomorrow. Read the Radar for thoughts, but know I am not a fan of holding positions through this one.

Late Note:
The Jobless Claims number beat expectations today and I believe it is likely we will see the moderate gains yet again today. The S&P 500 runs into stronger resistance from 1110 - 1126, which should prove very difficult to progress through.

Buys to Watch:

Australian Dollar- The Aussie Dollar got a boost overnight as the Australian Unemployment Report came in better than expectations and has the Currency leading the sector this morning. During the release of this report though there was a large spike lower as well though that traded all the way down to .9119. Yesterday I recommended using .9109 as a stop with .9123 as another option, so it is possible if you used the higher level that you barely got hit on an unpredictable bit of bad luck. The head and shoulders objective of .9298 is now near, but after looking at the chart a bit more I believe that this is most likely a full 3rd leg advance, which is why it remains in the Buys Section today. After plotting my objective of .9517 for this leg I actually took a peek to see what Bill Gary (an analyst I like) was seeing and his similar 3rd leg objective is .9515, but because mine is likely more accurate (haha) the target will remain .9517.

The Aussie is now on a rally breakout above the yearly highs for the September contract above .9230 and is on pace for a new contract high close above .9190. This basically only leaves some weekly chart resistance up to .9330 for the market to get through. I believe that you can now move up stop placement on the trade to around the .9150 level or (I hesitate to say this after last night's spike) just below .9170 if you wish to take more risk off the table. For entry today or tomorrow there actually is a good level if the market provides a pullback with the low volume zone from .9192 - .9198 with higher volume support down to .9170 and through to .9150 for multiple stop placement levels to choose from.

On an interesting quirk I noticed over the last 2 days is the Aussie tends to be the early morning leader, but the Canadian seems to come on later in the day to catch up. The two are highly correlated to each other and the stock market, but with some divergence over this summer. This obviously could just be the mere fact that Australia is going to sleep as we start trading while Canada is up and active at the same time as us.

Sells to Watch:

Put on the Radar:

Grains- The Grains have acted finicky over the early part of this week leaving me even more skittish about carrying a position into the report tomorrow morning. Corn has run into a wall below the $4.70 level despite a number of rally attempts and just today Stochastics has produced a sell signal that could be the first of a number of technical indicators that cause some liquidation. Beans still maintain their bullish cup and handle pattern above $10.34 with a projection of $10.67 and the 3rd leg objective of $10.83, but the market performance over the last 24 hours has been disappointing as the rest of the Grains have not helped the Bullish case. Wheat sold off hard the last two days on the fundamental Russian story and global yield estimate revisions leaving a new rally leg less likely. Finally, Cotton looks like it may have found a top with the spike high left on Tuesday that looks like it may leave the market to melt lower (see recent Wheat daily chart), and fundamental reports say market conditions should not support 90 cents for long.

Last Friday Informa released Bullish yield numbers below previous expectations that sent the market higher, but this could be a case of over-enthusiasm from the Bulls prior to the report. Corn open interest is at huge levels as the summer increase may have stretched the ability of much new long interest to enter the market. I see a decent possibility that there could be a screw job top being set up and the lack of confidence in the market right now points to a possible reversal. I personally do not have an interest in carrying any positions into the Grains because sometimes the best money is made on the open after the report if you come in flat.

Crude Oil- Crude is testing its rally breakout level yet again this morning with a move above $75.44 providing an objective of $78.25. I have detailed my observations on open interest over the last couple days, and the new longs continue to file into the market. If you look back at the market action from April into May of this year I believe that we are setting up a similar situation. The open interest rises with strong conviction despite a lack of sizable price increase and with only a couple days of price breaks you have large positions locked into losing positions and stumbling over each other to get out. It was not only the stock market break that began this May break, but also an over-supply situation, which the spreads are indicating could be underway as we speak.

I have no problem jumping on the long side of the trade because having the algorithms and Funds on your side is an easy way to make money. However, I am really excited about the possibility of a great short position in the next few days, so much so that I have already looked at the setup around the projection level. There is a lower volume zone from $78.10 - $78.35 with higher volume resistance up to $78.88 that looks like it may be a good setup to execute a short position. Obviously though I would like to see the market action prior to just jumping in at this level. I believe that Crude is in the midst of a large 2nd leg lower to $61.50, so looking for opportunities on the short side of the trade should be more appealing and profitable.

Notes:

In the interest of timeliness this morning, I will be sending out a short prediction later today on where I see the market going over the next 3 weeks based on individual market's technicals and extrapolating these to the broader macro relationships.