Wednesday 10/6/10 Commodity Ideas

Opening Note:

Yesterday
First I want to apologize for my confusion yesterday morning. I knew that it was Tuesday, wrote that it was Tuesday, but for some reason my mind jumped ahead to Wednesday. This means that there was not an EIA Energy Stocks number as it is this morning. As I was expecting Wednesday's data it was a little surprise to me when the ISM Non-Manufacturing Index was released at 9 am. The number was Bullish on its own, meaning not just in comparison to brutal expectations, and accelerated the early gains in the market.

The S&P 500 established a close above the short term 1150 resistance level as it led the supportive markets higher. Both Gold and Silver vaulted to new yearly highs as it looks like Asia REALLY wants to convert more of its Currency holdings into Gold and they want to do it NOW. The Corn market had another day of strong gains after Friday's sell off to lead the Grain Sector into positive territory yesterday. Lastly, the Dollar Index continued to get pummeled as it has nearly everyday for the last month.

Today
The markets are a mixed basket with my quote board flashing Green to Red in many of the markets. Gold, Silver, and the rest of the Metals are the only sector that is decidedly firmer as of 7 am with no markets sticking out particularly as a weakness yet. This could all change soon though with the ADP Employment Report released at 7:15 am. I will provide a late note if necessary.

While yesterday was clearly a Buy day with the S&P 500 taking out critical resistance I am a little disappointed with the followup action this morning and overnight. I expected that once the stock market established a rally above the recent consolidation zone that the market would be off to the races, yet this is not the case over the last 18 hours. I think it is important to gauge your expectations versus actual trade and my warning flags are flapping in the wind right now. The lack of fresh allocation to begin the quarter, no follow through on yesterday's strength, and expectations that the market will lull as we head into Friday's Unemployment Report leave me feeling uncertain about entering medium to long term positions right now. As a couple trades failed yesterday there are less ideas in play today. I suggest taking a shorter term mindset right now, meaning that if you get a day of good gains the market can not hurt you if you take the profits and look at it again tomorrow.

Late Note: The ADP Employment number was Bearish and sent the stock market from its session highs back to the session lows. The Nasdaq (which I will discuss more later) is the laggard of the Equity Sector this morning and is an indicator that Buying is less likely this morning (and if there is Buying it may be one to fade). There are a lot of mixed messages that the macro relationships are sending right now and I believe taking some positions off the table is a good idea for today.

Buys to Watch:

Crude Oil- With a rally to $83.33 overnight the market has nearly reached the $84.14 objective for the shorter term move. This morning the market has sold off a bit on its own with weakness even before the poor ADP Employment number. If you have a decent profit in Crude I think it is a good idea to take profits on at least half of your position this morning. There is some moderate support at $82.30 that has produced the low for today's session thus far. If the market moves below this level though there is not good support until the higher volume trade between $81.46 - $81.62. A pullback to this level is the only area that I would look to enter new long positions against for today. If you are trading the longer term move and looking to hold for the possible $95 target then I suggest using a stop below $81.46 as this looks like only a correction for right now. The EIA Energy Stocks number is this morning at 9:30 am...for sure this time.

Sells to Watch:

Dollar Index- The Dollar Index fell to a new low on the move yesterday as money continued to move out of the Dollar and into riskier assets. The objective of 1.4050 in Euro for this move is now nearing, so taking some risk and profits off the table may be a good idea at this point. I do still believe that it is likely that the market's reach their objectives and yesterday's suggestion for entry on a pullback rally still looks good. There is a lower volume zone from 78.35 - 78.53 for short entry on the trade with a stop above higher volume resistance at 78.66. I recommend using a stop above 78.66 today for those holding a longer term position.

Put on the Radar:

Nasdaq- The Nasdaq has a target range of 2080 - 2135 still on the Bullish head and shoulders pattern. Yesterday's stock market rally was impressive, but despite the S&P 500 rallying above its consolidation range I have issues with buying the Nasdaq (and stock market) for right now. The Dow and S&P 500 have performed better than the Nasdaq over the last week and until this trend shows a definitive shift I think the Equities should be avoided. Check out the Nasdaq/S&P 500 ratio daily chart to see that even with yesterday's rally the short term trend still favors the S&P 500. The Nasdaq has some moderate support at 2015 and 2010 for right now, but if the market falls below 2007 then it looks like it could easily give back most of yesterday's gains. Keep the Nasdaq on the Radar for today and if there is improvement in the troubling indicators then it will be moved to the Buy Section.

Bonds- Since the FOMC report two weeks ago that re-established the Quantitative Easing story the long end of the yield curve has lagged behind the shorter end as the curve has steepened. Although the QE story supports Bond prices it looks like momentum on the rally is slowing. Both MACD and Stochastics are nearing sell signals for the daily chart as the market has moved mostly sideways over the last 7 sessions. I am keeping my eye on the trendline from the low on September 17th - the low September 30th that falls at 133.18 today. The market has produced several bounces off of this trend including the lows on the session overnight, but a move below would signal to me that it is time to start looking at Bonds as a sale. The recent rally has failed to take out the highs from late August and could produce a Bearish Double Top or Cup and Handle Pattern if momentum turns negative. I believe there is no reason to enter the market until this trend fails, so just keep it on your computer screen for now.

Cotton & Sugar- Both are potentially forming Bearish Head and Shoulders patterns that would confirm a reversal in the markets.

Notes:

Bean Oil vs. Soy Meal- This trade has been a nuisance over the last several days and with the stop loss of 1404 triggered on the trade yesterday morning I am relieved to say good riddance. The Grains have seen both Bullish and Bearish volatility over the last week with the leaders and laggards exchanging daily. Despite the great technical setup for the trade it was unable to progress much as uncertainty gained strength in the Grain Sector. Meal has a tendency to lead (more than 50% of the time...but not always) the Soybean Complex on Bullish moves and the reversal in Soybean's momentum the last two days swung this differential below an acceptable level to stay with the trade. I would not be surprised if the spread continues on to reach the 1693 objective, but with Friday's Crop Progress and Supply/Demand Reports it would be risky to carry the trade through the rest of the week anyways.

Coffee- I had the Coffee on the Radar Monday and the trade worked like a charm, as I was able to take a good profit out of the market on my initial position. However, as I feared, as soon as I moved the trade to the Sells section yesterday the market blew up in my face. The pattern, technicals, correlated relationships, and trade entry setup were outstanding, but this is clearly not enough sometimes in the outrights for the thin Softs markets. Coffee calmly traded into the low volume zone for short entry and after kissing off the initial resistance at 175.30 exactly it looked like an easy short position to hold. At 12:23 pm (7 minutes before the pit close) this all changed though. In a 5 minute time frame the market rallied nearly 3 1/2 cents without a pullback straight through all of the higher volume resistance from the prior day. After doing a little inquiring about the move I was told that with options expiring in 3 days that there are people that go hunting for the stops in a predatory short term fashion. The move was clearly not allocation and obviously malicious in intent, but this is something that you deal with as a cost of business in the Softs. I hope I provided ample warning yesterday, but from here forward all outright trade suggestions in the Softs will remain on the Radar for their entirety as the markets are too unpredictable on short term moves.