Tuesday 10/12/10 Commodity Ideas

Opening Note:

Yesterday
Other than the Grains yesterday the market was pretty much lifeless. Corn started Sunday evening locked limit up 45 cents higher, but came off in the morning as profit taking took hold of the Grains. Wheat settled clearly lower on the day, but both Beans and Corn actually also settled at or below their own synthetic highs from Friday. Crude Oil and the Euro managed to settle moderately lower for the day as the notable laggards of the broad market. The day can be easily summed up though by noting that the S&P 500 only had a range of 4.75 points until 2:30 pm, including the overnight trade. Volume was low, the moves small, and the trade less meaningful.

Today
The supportive markets began last evening with a Bearish trend that continued until nearly 4 am, but have rebounded impressively since. The Energies, Metals, Euro, and Equities were well lower when I woke up this morning, but Crude Oil has now managed to even produce new highs for the session in spite of trading nearly $1.30 lower overnight (mostly done from 6:20 - 6:45am...there's no way that was predatory programs purposefully running stops and inducing short covering...no way). The Dollar Index is slightly higher along with the Treasury markets as the risk aversion trade appears to be inverted to the stock market action for today.

Although the supportive markets are still sitting lower this morning I feel undecided on my expectations for today. I am clearly now pushing the idea that the Quantitative Easing trade is ending, but this morning's rally leaves me suspicious. The early morning creep higher has become an indicating staple that has preceded buying of the supportive markets. Anytime that I begin to see those 15 minute chart uptrends I definitely become more hesitant about entering or holding short positions. I will include a late note though if I get clearer signals though.

Going forward I am using both the Euro and Crude Oil as my indicator markets for macro direction. With both still holding critical resistance I believe that the supportive markets should be viewed as a sale on rallies, with these two markets likely the best short positions of any. For right now I am going with the flow on the trade, but possible longer term objectives of 1.10 and $62.50 for the Euro and Crude would mean a broad sell off heading towards the end of the year. While it looks like the macro direction is in the process of reversing I still recommend holding off on larger long term positions for the time being. Focus on capturing the shorter term day to day moves because the topping or consolidation process can often mean that the next day looks different than the previous one (or the next hour different than the last).

Late Note: Traders are definitely looking to buy the supportive markets this morning despite the overnight sell off. Pay attention to some of the higher volume resistance levels below as possible opportunities to fade the rally, but if they do not hold then I would not fight it. Picking a top or reversal can be a frustrating trade because the rest of the market clearly does not realize the direction shift yet, so tread lightly. It is this type of trade though that produces the liquidation traps and trading opportunities as the market sells off larger during low volume times and fights higher on large allocation during the higher volume times. Be patient.

Buys to Watch:

Sells to Watch:

Put on the Radar:

Sell Crude Oil- Now that Crude Oil is beginning to head lower I am making sure to keep a close eye on open interest. Crude settled lower yesterday on very low Columbus Day volume, so it is unlikely that open interest dropped much for the market. The possible longer term objective of $62.50 will come into play if this long position accumulation over the last month chooses to liquidate once prices fall to an unacceptable level. Below $80.30 the November contract has a short term reversal objective of $77.10, which is a short term move that should be easier to quantify and capture. For today there is higher volume resistance from $82.20 - $82.60, which I am looking at to keep the market at bay as a sign of strength. Look to sell the rallies unless the markets makes consecutive closes above the $83.91 pivot point.

Sell Euro- The Bullish trendline on the daily chart from the low Sept. 10th - low Sept. 21st rests at 1.3941 today and is in serious danger of being violated today. Both Stochastics and RSI have also produced sell signals within the last two days for this daily chart. The possible longer term objective for the Euro is roughly 1.10, but if the market holds below 1.3825 then there is a shorter term reversal objective of 1.3650. As the market is on a morning recovery after last night's sell off it will likely re-encounter some higher volume resistance from 1.3866 - 1.3892 that I am hoping will hold as a sign of strength and level to fade. Continue to sell the rallies unless the market produces a settlement above 1.4050.

Buy Gold vs Sell Silver (Gold - Silver/2 to chart)- Both Gold and Silver are extremely volatile at times in the outright markets lately. Although I believe that the Metals are topping, this volatility makes me hesitant to suggest any trades in the individual outright markets. If these Metals are indeed topping though then Silver should correct more than Gold, putting this spread in play. On this differential I have a Bearish trendline from the August 30th high - September 21st high with a value of $201.8 today. RSI for this daily chart is near producing a buy signal along with some of the other momentum indicators. The ratio chart for Gold/Silver has actually produced a buy signal already for the daily RSI and is one that should be on your radar if you are looking at this trade as well. I think that you need to wait for the Bearish trendline to make a confirmed violation prior to longer term entry, so keep this fundamental trade on your radar until the technicals set up properly.

Bonds...Bearish Reversal?- I am considering the Treasury markets closed yesterday due to the low volume, so today's action will be important for the Bonds going forward. While the shorter term Treasuries have well defined trends higher the Bonds are fading with sell signals piling up. So far today the Bullish trendline from the low Sept. 17th - low Sept. 31st at 134.28 has produced the high for the Bond market. If there are two settlements below this trend then I think it is time to look for short entry in Bonds. Momentum indicators for the daily chart have already produced sell signals, so it is looking more likely that the market is creating a Bearish reversal pattern.


Notes:

Nasdaq- The Equity sector has been the strength among the macro market since I started noticing topping action among the markets last Wednesday. This means that I recommend looking at almost every other sector as a sale prior to the stock market currently. The Nasdaq is also a strength this morning on a lower board, which is often a signal that buying will be coming today. However, unless the Nasdaq is able to produce settlements above 2030 then the market looks like it could be topping. The Dow and S&P 500 have gained on the Nasdaq over the last several weeks and have established fresh highs during this time while the Nasdaq has not. If the Nasdaq is not able to form a breakout rally soon then look at this as another indication of a macro directional shift lower.