Wednesday 9/8/10 Commodity Ideas

Opening Note:

Yesterday
So much for the return in volume after the holiday weekend. Across most of the markets volume remained paltry on a fairly quiet day other than some sideways swings. The Euro and Pound were the clear losers with Soybeans putting up a nice rally despite an otherwise quiet Grain Sector as the winner. There were some decent sized swings among the daily range with Crude rallying $2 off its low and Silver rallying nearly 50 cents of its own, but much ado for little change in the settlement prices from the previous session. The risk aversion markets of the Fixed Income Sector, Japanese Yen, and U.S. Dollar also had a nice recovery rally, with the Yen making new highs against the U.S. Dollar over the last decade, after they were beat up towards the end of last week.

Today
The markets are very quiet yet again with the Aussie and Pound the leaders and no real notable loser yet. As of 6:45 am the market is the slightest bit firmer, but a sneeze and accidental mouse click from somebody with size could easily change this. There is Consumer Installment Credit this afternoon at 2 pm, but you can pretty much file that under the same category as it is a Full Moon and tomorrow is Rosh Hashannah so sell the stock market and buy it back on Yom Kippur.

All kidding aside though there are a few intriguing setups that I am watching on the radar right now despite the lack of trade ideas in play for the time being. The Grain Sector could become even more interesting with Friday's Crop Production and Supply/Demand Reports looming, Russia's inconsistent comments of "we are...we aren't going to export wheat", how much will USDA yield estimates decline, and how Chinese demand holds up for Beans and Corn. It is pretty clear from the lack of volume and market indecision though that this is a time to keep the powder dry to wait until something really pokes its head out. Remember that flat is still a position and one that usually leads to more Golf and better sleep.

Buys to Watch:

Australian Dollar- The Aussie Dollar appeared reluctant to rally yesterday afternoon, but coming into this morning it is a market leader with one of the highest percentage gains. The lower volume zone from .9104 - .9126 provided yesterday was traded into several times throughout the day and overnight, but the support down to .9068 held strong for the trade. For entry yesterday I also suggested executing only an initial position because Euro and Equity weakness could drag the Aussie lower, but despite the Euro trading below 1.27 and the S&P 500 testing the 1085 support the Aussie did not decline much in price.

The objective for the trade still sits at .9298 on the bullish head and shoulders pattern and 3rd leg advance for the Aussie, but it must be noted that there is some higher volume resistance that the market is now encountering. Nearby resistance sits at the .9175 high, but there is also an older swing high from August 6th at .9183. Furthermore, there is an even older high range on the weekly chart from April that ranges up to .9330. In conclusion, this means that you should be aware that it will likely be a grind, but not a deal breaker on the trade. I believe that you may now move the stop loss on the trade at least up to .9109, but could move up to .9123 possibly if you wish to lock in even more profit. Having only entered an initial position yesterday I am also looking for further entry, but there is not an outstanding setup for today. There is a lower volume zone from .9124 - .9132 that would be good for new entry with support down to the .9109 stop level, but I am not too confident that this will be hit today meaning it may be better to use either a 15 minute chart to look for a base to buy or wait for a better entry setup.

Sells to Watch:

Put on the Radar:

Grains (with Soybeans likely the best buy short term)- November Soybeans made an impressive close above the previous highs for the recent trade and now have an objective of $10.67 on the Bullish cup and handle pattern and around $10.83 on the 3rd leg advance. Overnight the moderate support from $10.45 - $10.47 provided a base on the trade and would be a good level to buy against on initial entry into the market. However, there is not very good support for the Beans until $10.38 1/2 below this, so I recommend using a fairly tight stop if you are buying against this level.

I am a little concerned about buying the Beans right now though because the December Corn has now reached its 3rd leg objective of $4.70 and could be nearing a top on the move. The Corn market has traded relatively sideways under this $4.70 level for the last 2 sessions and again overnight. Due to this lack of fresh advance the indicators are beginning to stagnate with RSI and Stochastics sitting well in overbought territory and threatening to set off sell signals. On top of this, MACD is also near a minor sell signal on the Bullish trend and I believe that any one or a combination of these indicators could cause technical liquidation in the market. Because of this I recommend taking profits on at least part of Corn long positions if you have been holding longer term.

However, December Wheat still looks like it is potentially setting up another rally leg. Wheat was the laggard of the Grain Sector yesterday as the flip-flop on Russian exports and planting weather has longs on edge, but if the market is able to hold moderate support from $7.28 - $7.29 with MACD for the daily chart nearing a minor buy signal on the Bullish trend.

Buy 1 November Bean vs. Sell 2 December Corn ((Nov Bean - Dec Corn*2) to chart)- I have no interest in carrying a position into the USDA reports on Friday and I strongly recommend only doing so if you have a strong knowledge of the Grain market. But, I wanted to note a possible trade on the horizon that looks technically promising. The Corn has gained over the Beans the last month, but the differential is now running into some longer term support between $.95 - $1.10 that could be setting up a reversal in favor of Beans. Stochastics recently produced a buy signal from overbought territory and MACD is also nearing a minor buy. Keep this on the Radar and take a look at it on Friday after the morning reports.

Bonds...A Tipping Point?- The Bonds got hammered towards the end of last week on the Equity rally and a number of analysts have called this a top on the Bonds. However, I am not in this camp quite yet as the longer term Bull trend still is very strong and intact. Bonds have rallied over the last 2 1/2 sessions, but today the market is encountering a teeter-totter point that could indicate how the market acts over the next few sessions. There is a low volume zone from 132.16 - 132.20 with higher volume support from 132.08 - 132.15 that is a good looking setup for long entry today. This trade works if the 3 days prior were just a minor pullback on the Bull trend. On the contrary though this 2 1/2 session rally could be seen as a pullback on a newly established shorter term Bear move. Personally I am still only looking to buy Bonds, so I will likely look at entering a small long position, but if this level fails to hold then we could see at least another several days of decline in Bonds.

Notes:

Crude Oil- Since August 27th Open Interest has dramatically increased in Crude Oil and money has piled in yet again yesterday. When looking at the daily chart and comparing the Open Interest versus the price action over these sessions I almost have to rub my eyes to make sure I am seeing this right. CQG sometimes posts later revisions in OI, but the total increase in new longs stands at 150,000 since Aug. 27th without much increase in price. All I am thinking is that these guys better be pretty confident that Crude is going to rally or they are in for a world of hurt if prices decline and liquidation begins (the spreads still look like crap). This is part of the reason I like to check out what a Commodity Fund's allocation system is prior to investing my money in them. Check out yesterday's letter or my blog to see the trade ideas yesterday on the radar for Crude, but for right now I recommend watching and waiting for the right opportunity.

Metals- The Metal Sector is very interesting right now as there are a number of markets that are meeting pivot points that could provide opportunity. The Industrial Metals of Copper, Palladium, and Silver have been hot lately and further advances could be an indicator of Economic growth. Palladium and Copper are nearing their highs for the year, with a move above this level possibly pointing the direction of Equities this fall. For Palladium I have a 3rd leg advance objective for the market of $551 that would put it just below the Spring high near $573. For Copper though I have a Bullish head and shoulders pattern that has completed its objective of $3.50 already with a 3 leg advance in the market up for debate right now. I have seen some analysts that put Copper on this advance, which would likely mean a move near $4. If Copper makes a new high close on the move above $3.5350 I believe this advance is likely, but until then I am sitting on the sidelines skeptically because the macro market is not really showing that this move is likely.

Today Gold made a run at its yearly highs with the high close for the December contract lying at $1262.4. After an initial push on the 7:20 am open though the market sold off slightly so this is a market to watch today. Silver is tied to both the Industrials and Gold, so the balance between both ends of the Metal spectrum should come into play if Silver is to continue its advance. The weekly chart for the Gold/Silver ratio now has a confirmed move below a consolidation triangle that indicates further Silver strength in the relationship, but if Gold fails then so could Silver. With the strong weekly close last week I have a less reliable objective for Silver of $21.48, so keeping an eye on these Metals should give a signal if the Long Silver trade is one to look for entry on.