Thursday 10/14/10 Commodity Ideas

There will be no morning newsletter tomorrow, but I will be back Monday. There are about 5 minor to moderate Economic data releases tomorrow at 7:30 am. I suspect that none will have a significant impact on the market though with traders waiting on Bernacke's speech to shed more light on QE later in the day.

Opening Note:

Yesterday
The morning started out firmer heading into the open with nearly every supportive market higher on the day and the risk aversion trade weaker. Buying entered on most of the market's opens as the Metals, Energies, Equities and Foreign Currencies all got a lift. As usually happens during the crawls higher, the markets kept a tight trading range throughout the afternoon before settling slightly off the highs for the day. The Grain markets were another story though as profit taking entered on the 9:30 am open. Although they came into the morning slightly higher the Grains mostly traded on a straight downtrend during the session. Finally, the Fixed Income markets got a lift on a positive 10 year note auction at noon. The long end of the yield curve began the day as the laggard, but managed to rally over a full handle from the session lows into the close.

Today
Almost all of the supportive markets are again at least moderately higher. The European Currencies, Precious Metals, and Cotton are the strengths this morning. It is worth noting that Cotton has already traded limit up (4 cents higher) for the session and Silver traded over $1 higher overnight on a 10 minute 50 cent rally at 1:45 am that tested $25. The Fixed Income sector is slightly weaker with the belly of the curve weaker than the wings. The Dollar Index is absolutely getting pummeled as well, further supporting prices in anything Dollar denominated.

Following Tuesday morning's recovery in the supportive markets we have seen continued buying on an uptrend. It is clear that the Quantitative Easing trade is still on and will likely continue along the same crawl until more details on the timing and size of the package are released. Circle November 3rd on your calendar as it is not only the morning after Election Day, but also the next FOMC announcement. From now until then I think that you can expect the same low volatility, directional crawl in the markets.

This morning there are Jobless Claims, PPI, and U.S. Trade Balance releases at 7:30 am, so I will provide a late update if I see any indication for today's trade on the market reaction.

Under the assumption that the markets melt higher for the rest of October I recommend continuing to employ a "buy the dips" strategy among the supportive markets. For now the European Currencies, Metals, and Equities are the most consistent and best performers. There still are isolated bouts of volatility though, so taking profits if you catch an hour of momentum or a strong up day is a good idea. Sure you can make $5 - $10 a day buying Gold, but if you are using loose parameters and get caught on the wrong end of the fast $25 sell off then you are losing 2-5 days of work. Most of the markets have already reached my furthest objectives and without at least a decent pullback it is difficult for me to recommend entering a trade without a profit target or defined risk/reward. A couple longer term objectives that I still have that have yet to be reached are 1208 - 1245 for the S&P 500 and 75.00 for the Dollar Index. I think that you can look at these levels as an area to take profits on the QE trade once they are reached. This means if the Aussie Dollar is working for you as a buy then keep looking to buy the dips until the Dollar reaches 75.

Buys to Watch:

Sells to Watch:

Put on the Radar:

Bonds (30 Year Auction at noon today)- Bonds have now negated the 2 week Bull trend for the daily chart and have unanimously Bearish momentum indicators. This would usually cause me to initiate a short position, but with the longer term Bull trend still intact and Treasury fundamentals swinging the market I think it is safer to stay out of the way for now. After clearly negating its Bullish trend since mid-September on Tuesday the Bonds sold off to 132.16 yesterday morning, but found support from the 10 year note auction at noon to rally over a full handle higher. This means that the longer term trendline from the low June 3rd to the open July 28th is resting intact at 132.04 today. Until this trend is negated I suggest holding off on looking for short entry.

The Treasury auction schedule effects the Fixed Income markets and the yield curve moves right now as well. Over the last couple months we have seen the "belly" of the curve advance (like over the last two weeks) in preparation for the auctions and decline after in a monthly cycle. With another round of auctions still to come in November for the long end of the curve it is possible that a market reversal holds off until after this time. This morning we are seeing the Bond prices as a strength in relation to the shorter end of the curve as the 30 year auction at noon today nears. Keep an eye on how the Bonds trade this afternoon post-auction.

Buy the Nasdaq dips- The Nasdaq should continue to be the strength on Equity rallies. The large Bullish head and shoulders pattern from the summer range still has an objective range from 2080 - 2135 that the market is nearing. The S&P 500 also still has its own objective range from 1208 - 1245 on the similar pattern. Because the markets only seem to produce minor pullbacks on the crawl higher the previous days mid-day consolidation range is a good support level to purchase against. So far this morning 1175 in the S&P 500 is providing this support, but look for 2051 as a support level in the Nasdaq.

Notes:

Euro- I retracted my sell the rallies suggestion yesterday morning and just in time to avoid the strong rally last night. With the Equity markets moving higher and the QE trade still strong it is likely that the Euro continues higher despite any European Economic concerns for the time being. Traders in the Euro are also aware that there is plenty of money already short the Euro and are using stops and short covering to add to the rally (such as the 7 pm 75 tick rally last evening that took out 1.40 and later 1.4050). I have a 2nd leg objective for the Dollar Index of 75.00, so I believe that the Euro should be looked at as strictly a buy until this level is reached.

Crude Oil- Crude Oil took out stops above $83.91 and $84.00 again last night as it rallied with the Euro and Equity markets. However, the Energies are definitely not a strength this morning and may turn into a weakness. The initial report on open interest from yesterday is again predicting a large increase in long positions meaning that an absurd 250,000 long positions have been entered within the last month and a half. Two consecutive closes above $83.91 projects a move to roughly $95, but if the market can not initiate this rally then this huge position is ripe for liquidation. I suggest a neutral stance on Crude for now...meaning stay flat.