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.