Tuesday 9/28/10 Commodity Ideas

Opening Note:

Yesterday
The stock market turned weaker on the morning open and settled lower on the day as I expected. The Grain Sector was surprisingly weak after Beans and Corn established new high closes on Friday, but selling pressure came into both Corn and Wheat from the morning open. The Fixed Income markets traded higher with Bonds leading the way to re-confirm my Bullish opinion on the sector. In most other markets (including some of the aformentioned markets) yesterday was quiet with low volatility range swings throughout the day. I believe the Corn sell off was the only development worth noting with nothing new established elsewhere.

Today
I am not sure whether I am more surprised the Bears are 3-0 or that Gold is actually trading $8 lower this morning. It seems like months (it actually has been) since Gold has consistently traded with prices more than $5 below the previous day's settlement. On nearly every dip since late July we have seen fast buying enter the market. We also had another "Wizard of Oz" moment overnight when a 2 am sell off triggered a stop run down to $1276. I can tell you that with the curtain pulled back there does not appear to be a strong bid in the market down to at least $1275...I wonder if we are going to trade there? (I think it is highly probable within the next couple days)

The Grain markets are weaker as Corn and Wheat continue their 2 day sell off this morning. The Soybeans are the strength over the last 36 hours, but I think you can attribute the Bean strength more to an unwinding of the Corn/Bean relationship trade than anything to get too excited about in the outright November Beans.

As of 7 am the rest of the macro picture is rather mixed as my quote board looks like Christmas (half red/half green). Most of the physical Commodity markets are weaker though with the Metals looking the worst this morning. I think it is likely that we see some pressure on the Equity and other supportive markets again today, but this should provide a good opportunity to buy pullbacks in the strength markets.

**Late Note- Since 7 am the Metals have recovered, Crude Oil had buying enter on the open, and the Equity markets are creeping higher. Consumer Confidence is at 9 am and this number may better set the market direction for today.

Buys to Watch:

Nasdaq- The Nasdaq traded through the nearby higher volume support at 2014.50 early yesterday triggering my tight stop loss suggestion on the long Nasdaq trade. However, I still believe that the Equity markets will continue higher both fundamentally and technically over the next several weeks. As the strength of the Sector this makes the Nasdaq one of the best buys of any market. The Bullish head and shoulders pattern retains its target range from 2080 - 2135. As noted yesterday, for new entry there is higher volume support from 1994 - 1997.50 to purchase against. This level provided a base overnight, but unless this morning's Consumer Confidence number beats expectations significantly I think we will see another test of this support. If this support does not hold the next higher volume level falls between 1981 - 1986.50. Note: Daily chart Stochastics produced a sell signal crossover in overbought territory, but the signal does not appear to be very strong right now. The Nasdaq already has produced similar crossovers on its 1 month rally so this is something to watch rather than be concerned about right now. Strong directional markets have a tendency to repeatedly do this in Stochastics.

Sells to Watch:

Dollar Index- The Dollar Index traded higher overnight, but created a high when it ran into the higher volume support from 79.89 - 80.14. The longer term objective for the 2nd leg lower in the market is 75.00, with this technical objective supported fundamentally with Quantative Easing possibly on the horizon. There is not new higher volume resistance in the market, so for the time being this resistance from 79.89 - 80.14 remains the level to sell against.

Put on the Radar:

Buy Bean Oil vs. Sell Soy Meal (December Oil - December Meal to chart)- Above 1359 the differential has a projection of 1693 on the technically strong daily chart cup and handle pattern. The differential has traded right around this breakout level for the last several sessions and is again trading higher this morning. The Grain Sector possibly coming under pressure soon after its extended rally could also help this trade as Meal tends to lead in Soybean Bull markets. Wait for a close above this 1359 breakout value prior to entering a position, but this trade could finally be in play tomorrow. For execution the ratio to equalize contract and tick size is 5 Bean Oil: 3 Soy Meal. Note: The daily chart is showing overbought status for Stochastics and RSI, but MACD, which does not have as restrictive parameters, is still showing a strong uptrend for the market. This is not overly concerning for now, but just take note.

Gold & Silver- Both markets are laggards this morning and could be signalling an end to the 2 month Bull market for the precious and industrial metals. Daily Stochastics for both markets have now produced sell signals in overbought territory, but the strength of these signals is debatable for right now without confirmation. Silver has now met its weekly chart objective of $21.48 with Gold finally reaching the destiny, psychological $1300 level at the same time. Both markets have traded sideways to lower since. As suggested in the Opening Note, I also believe that it is likely that Gold at least trades down to $1275 within the next few days. I am not ready to suggest entering a short position in the market, but I recommend holding off on new long entry for right now. I think we need to see the market's action over the next few days to get a better directional indication for the market whether Bullish, Bearish or sideways. Late Note: At 8:04 am the computer algorithms decided to run out all of the shorts (check out a 1 minute chart). No news here moving the market...just a perfect example of why I want to wait for the right time to enter the Gold market. If you are a shorter term trader you probably got taken out of the Gold market from both ends within the last 12 hours as holding a long or short in Gold is difficult.

Notes:

December Corn, July - Dec Corn Spread- With the sell off on yesterday's open my stop loss on the Long Corn trade was triggered below higher volume support at $5.19. If you were able to hold a long from the suggested entry on Thursday or Friday though this means a 13 - 23 cent profit despite the market not reaching the $5.50 target. Right now the Grain Sector is a jumble with the leader and laggard switching on a daily basis, but Soybeans have acted stronger than Corn over the last week. This makes me iffy on not only holding a Long Corn position, but a Long position in any of the outright Grain markets right now. As we head into Thursday's stocks report and the end of the 3rd quarter it now looks questionable whether the historic speculative long position in Corn will maintain its position or if there will be liquidation this week to pressure prices further. I still believe the Corn is a buy rather than a sell, but suggest staying flat for the time being.

The July '11 - Dec '11 Corn spread is also troublesome as it appears to be topping. A move below 43 3/4 cents provides and objective of 31 1/4 on the reversal pattern. With a settlement of 44 3/4 this morning the market will probably test the breakout this morning with a confirmation on the pattern providing a Bearish signal for the outright Corn market as well.