Wednesday 9/1/10 Commodity Ideas

Opening Note:

Yesterday
While the Philly Fed number came in rather Bearish yesterday and the Consumer Confidence number came in Bullish I do not think that either of these numbers had anything to do with the market action that we saw yesterday. It was in fact after the Bearish Philly number that we saw the biggest rally in the Equity markets with the Confidence number giving only a slight aftershock rally when it was released. Both Gold and Silver continued their impressive rallies yesterday with allocation coming into both markets on the 7:20 open on the dot that sent the algorithms crazy as usual. The Grain markets saw some closing allocation, with selling in Beans and Wheat further confirming that Corn is the one that you actually want to own. And finally, in the most interesting divergence of the day, October Crude Oil settled $3 lower on the day as the nearby spreads moved much further out to paint a very bearish fundamental supply story.

Today
I hope everybody bought the stock market close yesterday on the first day of the month trade because along with nearly every supportive market (poor Nat. Gas) the Equity markets are impressively higher as of 7 am this morning. Overnight a Bullish surprise in Australian 2nd Quarter GDP sent the Aussie Dollar on a tear that has carried over into the rest of the Currency markets with the Euro??? leading among the followers. Grains are stronger with Corn putting on an impressive rally this morning to new highs on the move. And yet again, Crude Oil is sticking out as the clear weakness among all of the sectors despite being slightly up on the day...and I am sitting here saying PLEASE give me a rally above $73 so I can sell the crap out of it.

There will be allocation today as well as a slew of minor Economic numbers including the ADP Unemployment Report, Construction Spending, and the ISM Manufacturing Index (ADP actually just came out pretty Bearish, but not much market reaction other than a couple point S&P sell off and then straight back to the buying). On top of this there is another 4 pack of less important data numbers tomorrow followed by the Friday Unemployment Report Main Event. As of right now I am pretty turned off by the sporadic and rather nonsensical moves in the market day to day over the last couple weeks, so I suggest using today as more of a day to watch rather than trade. Right now it literally feels like the computers are in complete control of everything that is happening (except in the Grains...I still feel like at least it's people messing with me in the Grains) and what is happening is just pushing people out of the market. Other than looking to sell a decent Crude Oil rally I do not see much to do for today as I intend to be watching and leaving earlier rather than later. It looks like today is positioned to be an all out buy day across the entire market, so do not stand in the way for long if you are jumping in.

**I have a longer term trade constructed in the Silver market with a thorough description that I will be sending out as a supplemental section later today.


Buys to Watch:

Sells to Watch:

Crude Oil- When I removed Crude from the Sell list a couple days ago I maintained that I would be looking for more opportunities to sell and the fundamentally Bearish story has now come into the picture again thanks to the Spreads. Take a look at the October - November Crude Oil spread and the move from - $0.62 all the way out to -$1.74 this morning over the last 7 days. This move is extremely Bearish Oil as it clearly shows that the fundamental supply is more than adequate right now. With the $3 sell off yesterday Crude also travelled back below the consolidation support line again and technically looks like the negative momentum will continue lower as Crude is the definite weakness among the entire market. There is a low volume zone between $73.10 - $73.30 with some moderate resistance up to $73.75 for an initial look at a short entry on a rally today. The longer term 2nd objective for Crude still remains at $61.50, but looking for a test near the contract lows over the summer just above $70 is an area to begin looking at taking profits on this portion of the trade. Remember that the Crude EIA numbers are released at 9:30 today. This will effect the market, but the spread action is still saying that there is not likely a Bullish surprise. It would be prudent to wait until after this number for the more risk averse.

Put on the Radar:

S&P 500- The stock market is already up significantly this morning so looking to take profits early is not a bad thing. However, there is likely to be continued buying this morning on the open. The next level to take profits falls at 1064.50 against minor resistance at 1065 and if the market rallies to 1070.50 this would be a great level to take profits with stronger resistance falling between 1069 - 1076.

On a side note, I know that I have spoken rather Bearish about the Equity markets going forward. However, if a September rally is in fact able to form off of the 1037 base and rally above 1125 - 1130 then there is a Bullish head and shoulders pattern that would be set off with a projection of 1250 - 1260 for the market.

Australian Dollar- The Aussie Dollar took off around 8 pm last night on the Bullish GDP data and is the leader among the Currencies for today. This strong advance has actually set off a Bullish head and shoulders pattern for the market above .9011 that provides an objective of .9298. This move would be the 3rd leg on the Aussie's advance and if you recall from my late July Afternoon Update essay I pegged the Aussie at .9297 (funny how the numbers work out sometimes). As the market is already much higher on the day I recommend waiting until tomorrow on confirmation of the pattern prior to looking for entry.

Grains- Briefly described in the Opening Note, the end of the month allocation in the Grains yesterday saw selling in both the Beans and Wheat, but a neutral mix in the Corn. This further confirms that the Corn market is the long purchase of choice among this sector. The Corn market actually gained strength overnight and closed well this morning, so with the $4.70 3rd leg rally objective still in mind Corn is still probably one of the better long positions anywhere.

On the flip side I am still looking at the Soybean Meal as a potential sale. Although the resistance level from $298 - $301 was taken out on the day that I was looking to fade it the Meal failed to make new highs on the recent rally leaving the possible formation of this bearish head and shoulders pattern still possible. Drawing a line from the lows August 11th to the lows August 25th creates the neckline on the pattern that has a $17 move projected if it is indeed set off. Because Beans are a weakness among the Grains you must also look at the Bean Oil to examine this trade. Looking at the Bean Oil - Soy Meal daily chart there appears to be a short term base forming at a previous support level that would favor the Oil in this relationship going forward, thus making the Meal the better sale in my opinion.

Notes:

Euro & Dollar Index- They were basically inverses on a similar trade, but overnight the stop loss on each trade was triggered. The Euro has exploded higher this morning on the Aussie's coattails and the running of shorts out of the market. Luckily, if the new 1.2750 stop loss on the trade was used then you were able to save yourself an extra 100 ticks or so already. I no longer recommend the Euro as a short or the Dollar as a long for the time being and actually have an objective of 1.2937 for the Euro if it holds above 1.2780. Because I believe the longer term trend on the next move is Bearish for the Euro I still am only looking to sell it and will re-evaluate the market if once it hits this small Bullish objective.