I took a little extra liberty over Thanksgiving with some time off from writing...I know...I know. I wanted to give an early warning that I will be out of town on vacation both Thursday and Friday of this week as well and there will be no newsletter either day. I will be around for the rest of the time until Christmas though, so you got that to look forward to at least...
Opening Note:
Yesterday
Euro weakness led the decliners yesterday again, putting pressure on the rest of the supportive markets early. The stock market and the rest of the Currencies were the most effected. From 8:45 - 9:00 am the Nasdaq actually fell over 23 points to test the lows on its up-sloping daily chart range over the last week and a half. This early break ended up forming the low of the session though. After trading in a tight sideways range for most of the day the stock market was able to advance into the afternoon close and settle nearly unchanged. Weakness was not uniform across the market as the Metals, Grains, Energies, and Softs opted to ignore the advancing Dollar. January Crude Oil actually was able to settle nearly $2 higher for the session as the Energies were the strongest sector.
Today
Same story with the weak Euro dragging most of the other foreign Currencies and the Equity markets lower. Crude Oil and the rest of the Energies however are not a strength this morning. Identifying a clear strength is a bit difficult actually. The "safety" markets like Treasuries, Japanese Yen, and U.S. Dollar are all strong (possibly more than I would expect in relation), but Gold and Cotton would have to be the strongest of the supportive markets (mostly by default).
There is no question that the Euro has terrible price action over the last 7 sessions, but it is still uncertain what its (as well as the Dollar's) impact will be on the rest of the market. The Physical Commodity and Equity markets have acted very resilient in the face of the Euro's sharp decline and much more so than I expected. The question is if this is a sign of real strength among the other markets, or more of just a lag between the relationship. The Euro is now near my 2nd leg (flag pattern) objective of 1.2953, so it is possible that the Euro finds some support shortly with previous consolidation from 1.26 - 1.29 slowing the decline. Just Monday of last week though the Euro was trading near 1.38. Quite a significant move over that time frame. We have seen several occasions over the last year where the rest of the markets quickly snap back into line with the relationship to the Euro and this looks like a similar setup. Even if the Euro does find support in the short term we could still see a correction in the rest of the market over the next couple weeks.
Regardless of your opinion on the individual markets or sectors I think that it is a good idea to take into account this possible relationship (correlation) realignment. My belief is that without the introduction of a new unexpected Bullish catalyst that the supportive markets will begin to sink. The Equity markets have maintained a range, the Energies rallied, and the Metals slid higher, but I prefer to error on the short side of these trades for the first half of December (before end of the year profit taking and realignment take over the markets). I am very constructive on many of the Physical Commodity markets for 2011 fundamentally and becoming more so each day. However, that is a discussion to have at a later date. For now I opt to play the short side or sit on the sidelines.
Buys to Watch:
Sells to Watch:
Australian Dollar- The Aussie Dollar now has a confirmed Bearish head and shoulders breakout on the daily chart. The move below .9741 from Friday now provides an objective of .9245. I am confident in this trade and believe it will be the most consistent short over the next week, but I unfortunately do not have entry parameters today that I am confident suggesting. If the Aussie does hold below .9632 though I believe that it is a great sign of weakness. As a side note it is a good idea to also keep an eye on the Euro and its relationship to the Aussie. The Euro is nearing my 1.2953 objective and its free fall may subside at least temporarily. If the Aussie does not look like it can go without the Euro going at the same time then it would be time to re-evaluate the trade.
Put on the Radar:
Buy Dollar Index (With Euro Commentary)- The Dollar Index now has a confirmed Bullish head and shoulders pattern in motion with an objective range from 83.40 - 83.90. The only reason that the Dollar is not on the Buys section for right now is I believe that the rally may be temporarily over-extended and the Euro may stall in its decline. The 2nd leg objective for the Euro is 1.2953, which would temper the Dollar Index gains obviously. I believe that the Euro will shortly produce a 3rd leg lower towards 1.24 or so, which will eventually support this Dollar move. However, at this time I suggest holding off on aggressive entry into a long Dollar position. Both RSI and Stochastics are showing overbought levels and are near producing sell signals. I think it is wise to wait for a pullback towards the pattern neckline on a 2-3 day correction prior to looking for entry now.
Sell Crude Oil- Over the last 4 days Crude Oil has been the best performer over the broad market. While open interest does not seem to reflect this in the outright markets I have heard accounts and noticed that the open interest for some of the December '11 out of the money calls ($100..$110...$120) is rising substantially. Some big players have clearly been positioning for next year, but I also suspect that part of Crude's recent strength is derived from the simple reversal from the market weakness over the previous several weeks. Measuring from the high Nov. 11 to the low Nov 23 the 61.8% Fibonacci retracement sits at $85.73, which is also near the level that the market topped yesterday and overnight. I believe that Crude is likely in the process of reversing the short term Bull trend over the last week. Keep in mind that a move below $80 would project a move to around $72 on the head and shoulders pattern for the January contract. When I woke up this morning around 4:30 am I did one of those "throw the dart" trades and shorted Crude to see if it sticks. Right now it is sticking. For new entry I would recommend risking only to new highs above $85.90, as I am doing myself.
Natural Gas Potential Buy (Weekly Chart)- I have no interest in trading Natural Gas today, tomorrow, or for the rest of this week for that matter. I did want to bring attention to the weekly chart though and the possible reversal of Nat. Gas from a weakness to a strength market as we head into next year. Natural Gas has been abused because of fundamental reasons over the last year, but what has really hurt it is its use a short position hedge against a long Crude position. I suspect that some time early January or February this may no longer be the case though. Natural Gas has built an extensive base and if it is able to rally above this year's early highs then I see it easily rallying above $8.50 by the end of 2011. The trend line for the weekly chart from the high January 18th - June 14th sits at $4.463 this week. The market has failed on a test of this trend over the last week, but with support building below current prices I believe it will not be long before this trend is violated. Get your finger on the Nat. Gas buy trigger for early 2011.
Bonds (Buy Short Term, Great Sale Long Term)- To begin, switch your contract to March if you have not already. The Bonds have found support over the last couple weeks as the supportive markets have declined and as the market prepares for the December 9th 30 Year Auction. This has initiated a Bullish cup and handle pattern on the daily chart this morning with a move above 127.19 producing an objective of 130.10. This trade will be moved to the Buy section if it is confirmed. However, I strongly feel that the Bonds have put in at least an interim top on the weekly chart with the major trend over the next year or two shifting Bearish. Around December 9th we should see the cyclical shift back to price declines, so if the Bonds reach the 130.10 objective near this time I am ready to switch to the short side. Next stop for the Bonds is 122 after this corrective rally.
Notes:
Sell March Coffee- Yesterday the Coffee messed around its breakout as it is again this morning. Below the neckline from the low Nov. 3rd - Nov. 17th at 200.80 cents/lb. the market has a projection of 176.05. I absolutely recommend waiting for confirmation on this pattern prior to entering a position. I would rather miss the move than get chopped because Coffee is thin.
Tuesday, November 30, 2010
Friday, November 26, 2010
Friday 11/26/10 Holiday Briefing
Intro:
The Holiday trade is always thin and over the last few days has definitely been choppy. The risk trade can not seem to decide whether it is concerned about Europe, Asia, Quantitative Easing, or any combination of the three on an hourly or daily basis. The Equity markets continue to trade in a volatile yet well defined range. The Physical Commodity markets are generally weakening, but with swings that really test your conviction. The one thing that I can say with conviction is that the Euro is weak and looks to be dragging the other supportive Currencies like the Aussie, Canadian, and other Europeans along for the ride.
I continue to stick by my stance that the supportive markets will weaken into the year end. In almost every market we have a well defined top already with a number of confirmed reversals and reversals on the horizon. Recall that on just Monday the Euro was trading near 1.38 on the high and has already traded 1.32 as of this morning. The relationship between the Euro and Commodity/Equity prices is more loose than the media may have you believe. Each time we have seen a runaway Euro though it is only 3-6 days until the rest of the market begins to correct and take this move into account. The Equity and Commodity markets have acted resilient throughout this 6 point Euro move this week, but look for a price break among the supportive markets next week to take this move in the Euro and the U.S. Dollar into account.
I figured that since I have not written since Tuesday I would point out a few trades that are now in play
Initiated Patterns and Trades:
Sell Australian Dollar- Originally initiated on Tuesday and negated on the reversal Wednesday, the Bearish head and shoulders pattern is in play again today. For the daily chart the neckline value for the pattern is .9741 today with a projection for the move of .9245 now. Chances are nearly 100% that the Aussie settles below this breakout today, so I believe that Sunday evening/Monday you can begin to look for pullbacks and opportunities to enter a short position. I believe that this move will likely progress now without another test of the neckline.
Sell Euro- The Euro is the most consistent weakness among the Currencies. For right now I have the Euro in the middle of a flag pattern that projects a move to 1.2953. The Euro has already made a big move, but I think that until it reaches this level you should continue to aim at selling the rallies. Oftentimes the Euro leads the larger market lower while the others lag, so it is possible that the Euro finds a bottom quicker than other markets like the Aussie Dollar.
Buy Dollar Index- As the inverse to the Euro the Dollar Index has now initiated its own Bullish head and shoulders pattern. The neckline today sits at 79.99, with the market well above this level. Because the Dollar Index has a spiky low on a reversal day I am leaving the projection for this pattern as a ranger from 83.40 - 83.90.
Sell Euro vs Buy Swiss Franc (Euro/Swiss Franc to chart)- As another option to play the declining Euro you can also add a Long Swiss Franc position. The cross between these two Currencies has initiated its own Bearish head and shoulders pattern today. Below 1.3320 the cross has a projection of 1.2872. I believe you can trade this position with a bit more size than you would just an outright Euro position. Remember that this pattern was set off today, so it is wise till wait until at least midday Monday for confirmation prior to adding size.
Trades and Patterns on the Horizon:
December Gold- We will switch to the February contract soon, but for now I will refer to December. The large Bearish head and shoulders pattern on the Gold daily chart is nearing a test of the neckline. For Monday the neckline value is $1336.5. The pattern projects a move of roughly $99, so if Monday is the day then the move is to $1226.
December Silver- Silver will be switched to the March contract soon, but for now it is still December. There are two separate patterns that I have on my radar for Silver. The closer yet less reliable pattern is the Bearish head and shoulders for the daily chart. For Monday the neck line is $25.98 with an objective of $20.93 if it is set off Monday. This neckline has an steep up-slope though making the projection less reliable in its own right. Below $24.98 Silver has an Bearish cup and handle objective of $22.07, which I believe is a lot more likely for the move. The 38.2% retracement level for the large Silver rally is $24.925, which supported the previous $24.98 low. The "Box" between the 50 and 61.8% retracement levels is $22.20 - $23.56. My game plan is to look at establishing an initial position once there is confirmation on the head and shoulders pattern, but not adding until there is confirmation below the $24.98 breakout.
Buy Gold vs Sell Silver (Gold-Silver/2)- This is the way to hedge some of the risk out of the Metal break. The spread is trading around $20 this morning with Silver much weaker. My guess is we will see the individual markets initiate their patterns with this spread around $50 (with Gold premium). Above $87.8 this spread has an objective of $200. Once the individual patterns for Gold and Silver are set in motion then you can look to enter this trade even prior to its own breakout.
March Coffee- There is a Bearish head and shoulders pattern forming on the daily chart for Coffee. A move below 200.50 cents produces a target of 175.75 cents/lb. Coffee is thin and volatile at times, so any position should be smaller than what you would trade in other markets.
The Holiday trade is always thin and over the last few days has definitely been choppy. The risk trade can not seem to decide whether it is concerned about Europe, Asia, Quantitative Easing, or any combination of the three on an hourly or daily basis. The Equity markets continue to trade in a volatile yet well defined range. The Physical Commodity markets are generally weakening, but with swings that really test your conviction. The one thing that I can say with conviction is that the Euro is weak and looks to be dragging the other supportive Currencies like the Aussie, Canadian, and other Europeans along for the ride.
I continue to stick by my stance that the supportive markets will weaken into the year end. In almost every market we have a well defined top already with a number of confirmed reversals and reversals on the horizon. Recall that on just Monday the Euro was trading near 1.38 on the high and has already traded 1.32 as of this morning. The relationship between the Euro and Commodity/Equity prices is more loose than the media may have you believe. Each time we have seen a runaway Euro though it is only 3-6 days until the rest of the market begins to correct and take this move into account. The Equity and Commodity markets have acted resilient throughout this 6 point Euro move this week, but look for a price break among the supportive markets next week to take this move in the Euro and the U.S. Dollar into account.
I figured that since I have not written since Tuesday I would point out a few trades that are now in play
Initiated Patterns and Trades:
Sell Australian Dollar- Originally initiated on Tuesday and negated on the reversal Wednesday, the Bearish head and shoulders pattern is in play again today. For the daily chart the neckline value for the pattern is .9741 today with a projection for the move of .9245 now. Chances are nearly 100% that the Aussie settles below this breakout today, so I believe that Sunday evening/Monday you can begin to look for pullbacks and opportunities to enter a short position. I believe that this move will likely progress now without another test of the neckline.
Sell Euro- The Euro is the most consistent weakness among the Currencies. For right now I have the Euro in the middle of a flag pattern that projects a move to 1.2953. The Euro has already made a big move, but I think that until it reaches this level you should continue to aim at selling the rallies. Oftentimes the Euro leads the larger market lower while the others lag, so it is possible that the Euro finds a bottom quicker than other markets like the Aussie Dollar.
Buy Dollar Index- As the inverse to the Euro the Dollar Index has now initiated its own Bullish head and shoulders pattern. The neckline today sits at 79.99, with the market well above this level. Because the Dollar Index has a spiky low on a reversal day I am leaving the projection for this pattern as a ranger from 83.40 - 83.90.
Sell Euro vs Buy Swiss Franc (Euro/Swiss Franc to chart)- As another option to play the declining Euro you can also add a Long Swiss Franc position. The cross between these two Currencies has initiated its own Bearish head and shoulders pattern today. Below 1.3320 the cross has a projection of 1.2872. I believe you can trade this position with a bit more size than you would just an outright Euro position. Remember that this pattern was set off today, so it is wise till wait until at least midday Monday for confirmation prior to adding size.
Trades and Patterns on the Horizon:
December Gold- We will switch to the February contract soon, but for now I will refer to December. The large Bearish head and shoulders pattern on the Gold daily chart is nearing a test of the neckline. For Monday the neckline value is $1336.5. The pattern projects a move of roughly $99, so if Monday is the day then the move is to $1226.
December Silver- Silver will be switched to the March contract soon, but for now it is still December. There are two separate patterns that I have on my radar for Silver. The closer yet less reliable pattern is the Bearish head and shoulders for the daily chart. For Monday the neck line is $25.98 with an objective of $20.93 if it is set off Monday. This neckline has an steep up-slope though making the projection less reliable in its own right. Below $24.98 Silver has an Bearish cup and handle objective of $22.07, which I believe is a lot more likely for the move. The 38.2% retracement level for the large Silver rally is $24.925, which supported the previous $24.98 low. The "Box" between the 50 and 61.8% retracement levels is $22.20 - $23.56. My game plan is to look at establishing an initial position once there is confirmation on the head and shoulders pattern, but not adding until there is confirmation below the $24.98 breakout.
Buy Gold vs Sell Silver (Gold-Silver/2)- This is the way to hedge some of the risk out of the Metal break. The spread is trading around $20 this morning with Silver much weaker. My guess is we will see the individual markets initiate their patterns with this spread around $50 (with Gold premium). Above $87.8 this spread has an objective of $200. Once the individual patterns for Gold and Silver are set in motion then you can look to enter this trade even prior to its own breakout.
March Coffee- There is a Bearish head and shoulders pattern forming on the daily chart for Coffee. A move below 200.50 cents produces a target of 175.75 cents/lb. Coffee is thin and volatile at times, so any position should be smaller than what you would trade in other markets.
Tuesday, November 23, 2010
Tuesday 11/23/10 Commodity Ideas
Opening Note:
Yesterday
Chop, Chop Chop. For the majority of the market the last week has been a glorified consolidation trade. One with constructive data and news, but also one with stories of risk and fear. Early yesterday morning the market made a sharp reversal lower as news of FBI raids on Insider Trading rings leaked and the European and Chinese stories still garnered headlines. My thought in yesterday's letter was that we were now finally past the point of return and ready for another leg lower for most markets. Some like the Euro and the Industrial Metals (Silver excluded) fell in line with my expectations, but there was divergence among the Sectors as well as in the traditional leader/laggard relationships for macro moves. The Equity markets recovered throughout the day to pare early losses led by a strong a volatile Nasdaq. Both Gold and Silver defied the rest of the Metal Sector (Silver especially yet again) to settle higher despite the awful action among the Industrials. The Grains meanwhile were a jumbled sideways trade that failed to establish anything noteworthy or constructive. Overall, the macro picture was a jumble and the markets were mostly a hunting ground for high frequency chop.
Today
Concern is rampant this morning as conflict is rising between North and South Korea. Accounts of missile launches are being reported, so keep an eye on the news for developments. This has added pressure to the markets in addition to the European and Chinese stories. All of the supportive markets other than the Swiss Franc and Gold (which has options expiration today) are lower as of 6:50 am this morning. Both of these likely higher this morning on "safety" or "best option out there" buying. The Euro, Industrial Metals, and Equities are the weakest sectors thus far, while the Treasury markets and Dollar Index have both conversely found strength.
The Fundamental news this morning appears to be the catalyst that the market needed to snap out of its consolidation range and choppy trade. The Equity markets have at least temporarily set off Bearish flag patterns this morning. There are also numerous Bearish patterns looming nearby across nearly every sector. Barring a second (or fourth) consecutive midday recovery I expect that will now see the supportive markets resume a decline that will continue for several more weeks and into mid-late December. There will be bouts of volatility, but in summation I am looking at this as a natural and healthy correction that is overdue. I do not believe this is a disastrous break or one that will be comparable even to the one from May of this year. I expect fundamental and technically healthy Bull markets to resume shortly after the turn of this year once the overbought Bullish sentiment corrects a bit.
Because most trades are on the radar for now I figured I would take some time today to disucss some of the Sectors and individual markets.
Buys to Watch:
Sells to Watch:
S&P 500 & Nasdaq (Wait until S&P comfortably below 1186)- First, take a look at the S&P 500 daily chart. Clearly there is consolidation over the last week with a base trend from the low Nov. 16th - low Nov. 18th with a value of 1186 today. Over the last several days the market has found quick dip buying against this trend on rallies back to the magnetic 1197 - 1202 resistance. This morning though the S&P 500 has at least temporarily moved below this trend. Stochastics for the daily chart attempted a Bullish crossover the last few sessions, but now appears to have failed on a Bearish bounce with all other indicators remaining negative as well. Below the 1186 trend today I have the S&P initiating a smaller flag pattern that projects a move to 1152. Non-coincidentally the 38.2% retracement level from August 31st - November 9th is 1151.25...hmm. I believe this is a 2nd leg lower with a 3rd to subsequently follow on a final move into the 50 - 61.8% retracement box between 1106 - 1128.50.
The S&P 500 has clearer cut trends for right now, so trading the Nasdaq may prove to be more difficult. The Nasdaq does have the same flag pattern forming as the S&P though with the same 3 leg move lower expected. I have two separate trend lines for the Nasdaq over the last 5 day period with the higher at 2133.25 today and the lower at 2118.50. I believe that if the S&P 500 holds its 1186 level and the Nasdaq moves below 2133.25 that you can look to assume a short position prior to violating 2118.50. The Nasdaq has been a clear winner in relation to the S&P 500 over the last week, but I believe that the Nasdaq will be the bigger percentage loser on the potential flag pattern. The first objective for the Nasdaq is 2040 in correlation to the S&P 1152 level.
Late Note for Stocks: Q'3 GDP revision was announced at 7:30 and the Equities received a slight rally off of the lows. The S&P 500 is battling with the 1186 level but holding lower for now. Look for this to be a testing point throughout the day. If this level is abandoned with a move lower after the open then I think you can look to begin piecing into a short position this morning. There is Existing Home Sales at 9 am this morning and a smorgasbord of Economic data tomorrow that will effect the market.
Put on the Radar:
Grains- December Corn is currently testing the lowest trend line that you can draw on the daily chart that encompasses the entire rally from July. From the low June 30th - low Oct. 4th the trend has a value today of $5.14 1/2. Yesterday this trend provided support for the market as it settled just above this level. Personally I am less concerned with this trend and its only two contact points and focused on the trend from the low June 30th to the low July 28th with multiple contacts and a value of $5.23 1/2. Yesterday the market settled below this level and is seeking violation confirmation with a second consecutive lower close this afternoon. I have previously noted that $5.05 is the 38.2% retracement for the entire rally, but with the failure of this trend I believe that this level will not hold for long. I am looking for a pullback for December Corn near the $4.50 level (around $4.64 for March) in between the 50 - 61.8% retracement levels prior to looking at Corn as a buy. Until this price, and especially if this trend fails today, I am looking to establishes short positions in Corn for the next few weeks.
December Wheat- The Wheat market does not want to break much over the last week, but the flagging action looks like it is nearly finished. What should follow is a commitment to the move lower towards the $6.00 triangle pattern objective. I am becoming intrigued though with the possibility that Wheat actually has a larger top with a projection of around $5.30 for December before the market becomes a constructive long position again. Add 40 cents to any objective for the March contract.
Soybeans- On the weekly chart for Soybeans the market has failed over the last two weeks on Bullish breakout attempts above the June 8th highs from last summer. Above $12.91 1/4 the long term objective for the weekly chart has a range of $16.56 - $17.08 that should take several months to complete once initiated. However, while this breakout has failed on numerous attempts I believe the market will now head into a Bearish consolidation move. $11.80 is the 38.2% retracement level, but like Corn I do not expect this level to hold. Look for a pullback between $10.83 - $11.32.
Metals (December Option expiration this morning)- Gold- I think it is fairly obvious, so on the daily chart draw your own trend lines for the Bearish head and shoulders top that may be forming. If this pattern initiates then it projects a $100 magnitude move, which would likely fall around the $1250 price level.
Silver- You can draw a possible Bearish head and shoulders pattern or a cup and handle pattern for the Silver daily chart. The Bearish head and shoulders pattern projects a $5.00 magnitude mover. Either way I believe that you are looking at a pullback between the $21 - $23.50 price level.
Buy Gold vs Sell Silver (Gold - Silver/2 to chart)- Overnight the differential found support again at -$28 and still above the left shoulder low close of -$35.2. The spread rallied this morning back above $0, but has pulled back once again as Silver has found support after its open. Today is December options expiration for the Metals, so expect erratic trade into the close. After this expiration though and once the volume picks back up after Thanksgiving I expect this spread to heat back up and become an outstanding trade. Above $87.8 the spread would have an objective of $200. Notice that the Gold head and shoulders has a $100 projection and the Silver a $5.00 projection. This would equate to a $150 move...I wonder if they set off around $50 in the spread? If these tops set into motion then this spread is for sure a great vehicle to hedge volatility and risk.
Palladium- A very thin contract and I only recommend using it as an indicator rather than a trade. Palladium shows the greatest symmetry to the Silver market right now and Palladium has begun to fall apart. Trading near $675/oz. and well off the Nov 9th high of $743.50 the market would have an objective of $535 on a move below $625. If Palladium goes then so goes Silver. Watch it as an indicator.
Currencies- Australian Dollar- Bearish head and shoulders pattern on the daily chart is near the .9721 breakout level today. I do not think the prospects are strong that it initiates this morning, but once it does it projects a 5 point move. Look for around .9250 as the target.
Euro- Following the 3 1/2 day rally (that I am looking at as a flag) the Euro is going after the low of 1.3444 of the move this morning. Using this as a flag pattern provides an objective just below 1.30 as the 2nd leg lower. Remember that the Dollar Index also has a Bullish head and shoulders pattern near initiation that would come near an 84.00 target. I believe that this means that a 3rd leg lower on this Bearish move would be in the mix for the Euro.
Notes:
Yesterday
Chop, Chop Chop. For the majority of the market the last week has been a glorified consolidation trade. One with constructive data and news, but also one with stories of risk and fear. Early yesterday morning the market made a sharp reversal lower as news of FBI raids on Insider Trading rings leaked and the European and Chinese stories still garnered headlines. My thought in yesterday's letter was that we were now finally past the point of return and ready for another leg lower for most markets. Some like the Euro and the Industrial Metals (Silver excluded) fell in line with my expectations, but there was divergence among the Sectors as well as in the traditional leader/laggard relationships for macro moves. The Equity markets recovered throughout the day to pare early losses led by a strong a volatile Nasdaq. Both Gold and Silver defied the rest of the Metal Sector (Silver especially yet again) to settle higher despite the awful action among the Industrials. The Grains meanwhile were a jumbled sideways trade that failed to establish anything noteworthy or constructive. Overall, the macro picture was a jumble and the markets were mostly a hunting ground for high frequency chop.
Today
Concern is rampant this morning as conflict is rising between North and South Korea. Accounts of missile launches are being reported, so keep an eye on the news for developments. This has added pressure to the markets in addition to the European and Chinese stories. All of the supportive markets other than the Swiss Franc and Gold (which has options expiration today) are lower as of 6:50 am this morning. Both of these likely higher this morning on "safety" or "best option out there" buying. The Euro, Industrial Metals, and Equities are the weakest sectors thus far, while the Treasury markets and Dollar Index have both conversely found strength.
The Fundamental news this morning appears to be the catalyst that the market needed to snap out of its consolidation range and choppy trade. The Equity markets have at least temporarily set off Bearish flag patterns this morning. There are also numerous Bearish patterns looming nearby across nearly every sector. Barring a second (or fourth) consecutive midday recovery I expect that will now see the supportive markets resume a decline that will continue for several more weeks and into mid-late December. There will be bouts of volatility, but in summation I am looking at this as a natural and healthy correction that is overdue. I do not believe this is a disastrous break or one that will be comparable even to the one from May of this year. I expect fundamental and technically healthy Bull markets to resume shortly after the turn of this year once the overbought Bullish sentiment corrects a bit.
Because most trades are on the radar for now I figured I would take some time today to disucss some of the Sectors and individual markets.
Buys to Watch:
Sells to Watch:
S&P 500 & Nasdaq (Wait until S&P comfortably below 1186)- First, take a look at the S&P 500 daily chart. Clearly there is consolidation over the last week with a base trend from the low Nov. 16th - low Nov. 18th with a value of 1186 today. Over the last several days the market has found quick dip buying against this trend on rallies back to the magnetic 1197 - 1202 resistance. This morning though the S&P 500 has at least temporarily moved below this trend. Stochastics for the daily chart attempted a Bullish crossover the last few sessions, but now appears to have failed on a Bearish bounce with all other indicators remaining negative as well. Below the 1186 trend today I have the S&P initiating a smaller flag pattern that projects a move to 1152. Non-coincidentally the 38.2% retracement level from August 31st - November 9th is 1151.25...hmm. I believe this is a 2nd leg lower with a 3rd to subsequently follow on a final move into the 50 - 61.8% retracement box between 1106 - 1128.50.
The S&P 500 has clearer cut trends for right now, so trading the Nasdaq may prove to be more difficult. The Nasdaq does have the same flag pattern forming as the S&P though with the same 3 leg move lower expected. I have two separate trend lines for the Nasdaq over the last 5 day period with the higher at 2133.25 today and the lower at 2118.50. I believe that if the S&P 500 holds its 1186 level and the Nasdaq moves below 2133.25 that you can look to assume a short position prior to violating 2118.50. The Nasdaq has been a clear winner in relation to the S&P 500 over the last week, but I believe that the Nasdaq will be the bigger percentage loser on the potential flag pattern. The first objective for the Nasdaq is 2040 in correlation to the S&P 1152 level.
Late Note for Stocks: Q'3 GDP revision was announced at 7:30 and the Equities received a slight rally off of the lows. The S&P 500 is battling with the 1186 level but holding lower for now. Look for this to be a testing point throughout the day. If this level is abandoned with a move lower after the open then I think you can look to begin piecing into a short position this morning. There is Existing Home Sales at 9 am this morning and a smorgasbord of Economic data tomorrow that will effect the market.
Put on the Radar:
Grains- December Corn is currently testing the lowest trend line that you can draw on the daily chart that encompasses the entire rally from July. From the low June 30th - low Oct. 4th the trend has a value today of $5.14 1/2. Yesterday this trend provided support for the market as it settled just above this level. Personally I am less concerned with this trend and its only two contact points and focused on the trend from the low June 30th to the low July 28th with multiple contacts and a value of $5.23 1/2. Yesterday the market settled below this level and is seeking violation confirmation with a second consecutive lower close this afternoon. I have previously noted that $5.05 is the 38.2% retracement for the entire rally, but with the failure of this trend I believe that this level will not hold for long. I am looking for a pullback for December Corn near the $4.50 level (around $4.64 for March) in between the 50 - 61.8% retracement levels prior to looking at Corn as a buy. Until this price, and especially if this trend fails today, I am looking to establishes short positions in Corn for the next few weeks.
December Wheat- The Wheat market does not want to break much over the last week, but the flagging action looks like it is nearly finished. What should follow is a commitment to the move lower towards the $6.00 triangle pattern objective. I am becoming intrigued though with the possibility that Wheat actually has a larger top with a projection of around $5.30 for December before the market becomes a constructive long position again. Add 40 cents to any objective for the March contract.
Soybeans- On the weekly chart for Soybeans the market has failed over the last two weeks on Bullish breakout attempts above the June 8th highs from last summer. Above $12.91 1/4 the long term objective for the weekly chart has a range of $16.56 - $17.08 that should take several months to complete once initiated. However, while this breakout has failed on numerous attempts I believe the market will now head into a Bearish consolidation move. $11.80 is the 38.2% retracement level, but like Corn I do not expect this level to hold. Look for a pullback between $10.83 - $11.32.
Metals (December Option expiration this morning)- Gold- I think it is fairly obvious, so on the daily chart draw your own trend lines for the Bearish head and shoulders top that may be forming. If this pattern initiates then it projects a $100 magnitude move, which would likely fall around the $1250 price level.
Silver- You can draw a possible Bearish head and shoulders pattern or a cup and handle pattern for the Silver daily chart. The Bearish head and shoulders pattern projects a $5.00 magnitude mover. Either way I believe that you are looking at a pullback between the $21 - $23.50 price level.
Buy Gold vs Sell Silver (Gold - Silver/2 to chart)- Overnight the differential found support again at -$28 and still above the left shoulder low close of -$35.2. The spread rallied this morning back above $0, but has pulled back once again as Silver has found support after its open. Today is December options expiration for the Metals, so expect erratic trade into the close. After this expiration though and once the volume picks back up after Thanksgiving I expect this spread to heat back up and become an outstanding trade. Above $87.8 the spread would have an objective of $200. Notice that the Gold head and shoulders has a $100 projection and the Silver a $5.00 projection. This would equate to a $150 move...I wonder if they set off around $50 in the spread? If these tops set into motion then this spread is for sure a great vehicle to hedge volatility and risk.
Palladium- A very thin contract and I only recommend using it as an indicator rather than a trade. Palladium shows the greatest symmetry to the Silver market right now and Palladium has begun to fall apart. Trading near $675/oz. and well off the Nov 9th high of $743.50 the market would have an objective of $535 on a move below $625. If Palladium goes then so goes Silver. Watch it as an indicator.
Currencies- Australian Dollar- Bearish head and shoulders pattern on the daily chart is near the .9721 breakout level today. I do not think the prospects are strong that it initiates this morning, but once it does it projects a 5 point move. Look for around .9250 as the target.
Euro- Following the 3 1/2 day rally (that I am looking at as a flag) the Euro is going after the low of 1.3444 of the move this morning. Using this as a flag pattern provides an objective just below 1.30 as the 2nd leg lower. Remember that the Dollar Index also has a Bullish head and shoulders pattern near initiation that would come near an 84.00 target. I believe that this means that a 3rd leg lower on this Bearish move would be in the mix for the Euro.
Notes:
Monday, November 22, 2010
Monday 11/22/10 Commodity Ideas
Opening Note:
Yesterday
The big news Friday was that China again raised its bank reserve rate. This was the same news that sent Commodity prices with the highest Asian demand reeling earlier in the week. The market reaction was different this time around though. The Metal markets that led the decliners on the last Chinese news recovered after declining into the morning with buying entering around 9:30 am. Both Crude Oil and the Equities also received a boost after trading weaker to eventually settle higher on the session. Trading against the Grain though were both Soybeans and Corn. After an hour long rally on the gap lower opening, both markets declined throughout the rest of the day as Beans settled over 40 cents and Corn 20 cents lower.
Towards the latter half of last week it was apparent that there was a difference in the relationships from Commodity to Commodity. This divergence in the market correlations was larger than we have seen for several weeks. The larger moves were spurred by fund and big investment liquidation that was not fluent across the entire market. This makes trying to pick the best position for the day or even week more difficult. Figuring out when big money will take profits or exit the market involves much more guessing. For now the Grain markets look to be under the most pressure from the Asian demand story and more so than the Metals, Energies, or Equities. Keep an eye on the open interest for the markets to get a better idea whether money is actually exiting. Keep in mind though that until December options expire even the Open Interest can be deceiving with positions coming off the table via expiration.
Today
The market started out firmer last evening, but has sank into this morning. The S&P 500 initially rallied above my 1202 resistance, Silver above my $27.68 resistance, and the Euro well above 1.37. Without much standing in the markets way the trade looked to be highly constructive to begin the week. Since 5 am the market has especially declined though with the S&P 500 trading 13 points, Silver 70 cents, and the Euro 170 ticks off their highs late last evening. The Grains are the strength so far this morning along with the Swiss Franc, and the long end of the yield curve. I suspect that the Grains will not remain the leader for long though as they fall back in line after being closed for part of the decline. When the market has a clear path higher and reverses into the morning it has a tendency to follow this reversal for the rest of the day. I will be looking for opportunities to short the supportive markets and go with this morning's trend throughout the day.
My market beliefs were tested over the last few days, but this morning's reversal reaffirms my opinion that we are generally heading lower over the next several weeks before end of the year positioning. A Bullish head and shoulders pattern looks to be forming in the Dollar Index that I believe will initiate within the next week and a half and act as a catalyst for this macro move. The resilience displayed over the last few days makes me believe that this correction will not be too dramatic though, just a healthy and needed break from the 3 month Bull market.
Buys to Watch:
Sells to Watch:(NO more Bonds, No more Wheat)
Put on the Radar:
Australian Dollar Bearish Head and Shoulders- On the daily chart draw the trend lines from the low Oct. 27th - low Nov. 16th to produce the neckline. The pattern has a 5 point projection if it is initiated. The neckline value is .9715 today, so it will still be several days until it is potentially violated.
Dollar Index Bullish Head and Shoulders- To form the neckline draw a trend line on the daily chart from the high Oct. 19th - high Nov. 16th. There is at least one other possible way to draw this neckline, but for right now I am looking at this as the more accurate trend. The magnitude of the pattern once initiated would be 3.5 - 4 points depending on whether the spike low from November 3rd is taken into account. Like the Aussie Dollar, the 79.78 breakout value for today means it is unlikely that the pattern is initiated for several days.
Buy Gold vs. Sell Silver (Gold-Silver/2 to chart)- On Friday my initial entry attempt was stopped out by the late afternoon (I was actually out a bit earlier once it was clearly not constructive for the day) with a move below -$10. I can not and will not recommend any outright position in the Silver market right now due to volatility and inconsistency. This makes this spread, although especially frustrating at times, the best vehicle to trade a correction in the Metals. While Silver remains premium to Gold in this differential and huge support on the weekly chart at -$50 there is less risk and great potential here. That is why I think you still pick your spots and continue to look for opportunities.
Although I was stopped out below -$10 I actually feel even better about the trade this morning after the price action overnight. On the daily chart the low close from November 9th of -$35.2 was tested overnight and the spread found support near -$30 before rallying into this morning. This makes a potential Bullish cup and handle (or double bottom) pattern still in play as long as there is no trade below the Nov. 9th low. Pull up a 120 or 240 minute chart for this differential pattern to get a closer look. For this chart there not only is clearly a possible base forming, but there are also unanimous and confirmed buy signals for Stochastics, RSI, and MACD. I expect that this base overnight above the November 9th low will begin the Bullish double bottom pattern with a move above $87.8 providing an objective of roughly $200 (premium Gold).
This is a potentially huge risk/reward at this time, so I continue to throw out feeler positions to see if I can get an early leg in. I personally am long again from early this morning, but will leave the recommendation for the trade on the Radar for now and "proceed at your own risk".
Notes:
Wheat- The $6.70 1/2 - $6.76 1/2 higher volume resistance in Wheat still has not been tested and continues to hold. This keeps Wheat strictly as a short position in my opinion for now, but not necessarily the best today. The moves right now are coming in the markets where there is liquidation and it is clear from the Wheat open interest that there is not that ammo to move the price currently. Both Corn and Soybeans have been better shorts over the last week with Wheat trading in an idle range. My objective of $6.00 for the December contract and $6.40 for the March contract still are in play, but I recommend exiting the Wheat market for greener pastures right now. It could very well be a crawl lower, so there are better trades.
Bonds- The Bond market along with the rest of the Treasuries seems to have at least a temporary base. Furthermore, I am getting signs this morning that there is some money coming into the long end of the yield curve on a safety basis from the risk in Equities, Commodities, and therefore Europe. The Bonds still continue to gain on the 10 Year as well. This is too many symptoms of illness for me, so I recommend exiting short positions in the Bonds currently. 123.00 is still a valid objective, but there may need to be a further rally and a longer consolidation that I do not wish to sit through.
Yesterday
The big news Friday was that China again raised its bank reserve rate. This was the same news that sent Commodity prices with the highest Asian demand reeling earlier in the week. The market reaction was different this time around though. The Metal markets that led the decliners on the last Chinese news recovered after declining into the morning with buying entering around 9:30 am. Both Crude Oil and the Equities also received a boost after trading weaker to eventually settle higher on the session. Trading against the Grain though were both Soybeans and Corn. After an hour long rally on the gap lower opening, both markets declined throughout the rest of the day as Beans settled over 40 cents and Corn 20 cents lower.
Towards the latter half of last week it was apparent that there was a difference in the relationships from Commodity to Commodity. This divergence in the market correlations was larger than we have seen for several weeks. The larger moves were spurred by fund and big investment liquidation that was not fluent across the entire market. This makes trying to pick the best position for the day or even week more difficult. Figuring out when big money will take profits or exit the market involves much more guessing. For now the Grain markets look to be under the most pressure from the Asian demand story and more so than the Metals, Energies, or Equities. Keep an eye on the open interest for the markets to get a better idea whether money is actually exiting. Keep in mind though that until December options expire even the Open Interest can be deceiving with positions coming off the table via expiration.
Today
The market started out firmer last evening, but has sank into this morning. The S&P 500 initially rallied above my 1202 resistance, Silver above my $27.68 resistance, and the Euro well above 1.37. Without much standing in the markets way the trade looked to be highly constructive to begin the week. Since 5 am the market has especially declined though with the S&P 500 trading 13 points, Silver 70 cents, and the Euro 170 ticks off their highs late last evening. The Grains are the strength so far this morning along with the Swiss Franc, and the long end of the yield curve. I suspect that the Grains will not remain the leader for long though as they fall back in line after being closed for part of the decline. When the market has a clear path higher and reverses into the morning it has a tendency to follow this reversal for the rest of the day. I will be looking for opportunities to short the supportive markets and go with this morning's trend throughout the day.
My market beliefs were tested over the last few days, but this morning's reversal reaffirms my opinion that we are generally heading lower over the next several weeks before end of the year positioning. A Bullish head and shoulders pattern looks to be forming in the Dollar Index that I believe will initiate within the next week and a half and act as a catalyst for this macro move. The resilience displayed over the last few days makes me believe that this correction will not be too dramatic though, just a healthy and needed break from the 3 month Bull market.
Buys to Watch:
Sells to Watch:(NO more Bonds, No more Wheat)
Put on the Radar:
Australian Dollar Bearish Head and Shoulders- On the daily chart draw the trend lines from the low Oct. 27th - low Nov. 16th to produce the neckline. The pattern has a 5 point projection if it is initiated. The neckline value is .9715 today, so it will still be several days until it is potentially violated.
Dollar Index Bullish Head and Shoulders- To form the neckline draw a trend line on the daily chart from the high Oct. 19th - high Nov. 16th. There is at least one other possible way to draw this neckline, but for right now I am looking at this as the more accurate trend. The magnitude of the pattern once initiated would be 3.5 - 4 points depending on whether the spike low from November 3rd is taken into account. Like the Aussie Dollar, the 79.78 breakout value for today means it is unlikely that the pattern is initiated for several days.
Buy Gold vs. Sell Silver (Gold-Silver/2 to chart)- On Friday my initial entry attempt was stopped out by the late afternoon (I was actually out a bit earlier once it was clearly not constructive for the day) with a move below -$10. I can not and will not recommend any outright position in the Silver market right now due to volatility and inconsistency. This makes this spread, although especially frustrating at times, the best vehicle to trade a correction in the Metals. While Silver remains premium to Gold in this differential and huge support on the weekly chart at -$50 there is less risk and great potential here. That is why I think you still pick your spots and continue to look for opportunities.
Although I was stopped out below -$10 I actually feel even better about the trade this morning after the price action overnight. On the daily chart the low close from November 9th of -$35.2 was tested overnight and the spread found support near -$30 before rallying into this morning. This makes a potential Bullish cup and handle (or double bottom) pattern still in play as long as there is no trade below the Nov. 9th low. Pull up a 120 or 240 minute chart for this differential pattern to get a closer look. For this chart there not only is clearly a possible base forming, but there are also unanimous and confirmed buy signals for Stochastics, RSI, and MACD. I expect that this base overnight above the November 9th low will begin the Bullish double bottom pattern with a move above $87.8 providing an objective of roughly $200 (premium Gold).
This is a potentially huge risk/reward at this time, so I continue to throw out feeler positions to see if I can get an early leg in. I personally am long again from early this morning, but will leave the recommendation for the trade on the Radar for now and "proceed at your own risk".
Notes:
Wheat- The $6.70 1/2 - $6.76 1/2 higher volume resistance in Wheat still has not been tested and continues to hold. This keeps Wheat strictly as a short position in my opinion for now, but not necessarily the best today. The moves right now are coming in the markets where there is liquidation and it is clear from the Wheat open interest that there is not that ammo to move the price currently. Both Corn and Soybeans have been better shorts over the last week with Wheat trading in an idle range. My objective of $6.00 for the December contract and $6.40 for the March contract still are in play, but I recommend exiting the Wheat market for greener pastures right now. It could very well be a crawl lower, so there are better trades.
Bonds- The Bond market along with the rest of the Treasuries seems to have at least a temporary base. Furthermore, I am getting signs this morning that there is some money coming into the long end of the yield curve on a safety basis from the risk in Equities, Commodities, and therefore Europe. The Bonds still continue to gain on the 10 Year as well. This is too many symptoms of illness for me, so I recommend exiting short positions in the Bonds currently. 123.00 is still a valid objective, but there may need to be a further rally and a longer consolidation that I do not wish to sit through.
Friday, November 19, 2010
Friday 11/19/10 Commodity Ideas
Opening Note:
Yesterday
The market delivered a much needed rally after a week of liquidation yesterday. Excitement over the GM IPO and some European ease while Ireland met with the EU and IMF both fundamentally drove buying. On the stock market open there was a burst of buying for the first hour of trading with the Nasdaq leading the way. For the rest of the day though the Equity markets oddly fell into an extremely tight holding pattern in relation to the range for the day. Commodities across the board also got a boost yesterday as the Euro rallied, Silver went parabolic, Cotton settled limit up, and Crude finally got relief from its relentless fall. Overall it was a strong day across the entire market, but a pretty crappy trade for anybody trying to do anything after 9:30 am.
Today
Yesterday's price action among the supportive markets was good, but the reason that the holding pattern took over for the rest of the day is because the markets settled up against higher volume resistance and pivot points. These levels prevented further gains yesterday and their effect is apparent this morning. The market is only moderately weaker as of 7 am, but I suspect that this could worsen as the markets open. This morning the Euro is higher and the Dollar lower, yet this is not providing much in the way of support elsewhere. The Euro was trading on its lows for the session near 1.36 around 10 pm last evening while much of the market was holding up well. The 126 tick rally from the lows I presume would further support the other markets, but everything else has consistently sagged since the highs around 3 am.
I predicted yesterday morning that the current rally would last between 2 - 36 hours and I am pretty certain now that overnight we reached the highs in most markets before another round of liquidation and price decline. This morning China again raised the bank reserve rate in an effort to dampen inflation in the country. While China has mostly been talk, they are actually taking some real steps that should further pressure the Commodities with the strongest ties to Asian demand such as Crude Oil, Metals, and the Soybean Complex (regardless of the fact that I think their price manipulation will not work for more than the short term and is complete bullshit) I recommend looking to strictly sell rallies for the next few days at least in the supportive markets.
Buys to Watch:
Sells to Watch:
Wheat- Yesterday the Wheat market failed to rally within 15 cents of my $6.70 - $6.76 1/2 resistance level during the day session. This is good evidence for my Bearish stance, but did not allow for re-entry into the market for the time being. I think it is unlikely now that Wheat will reach this resistance level now before a further decline, so it may be necessary to get a bit more creative or just use a 15 minute chart to establish a top to sell. $6.43 - $6.45 is a pivot point for the December contract that now below should provide resistance again. I also am still using the trend line from the open Nov. 9th - open Nov. 12th with a value of $6.48 3/4 today. This line should be used as a basis for the daily settlement. The target is $6.00 still, but if Wheat holds below $6.43 then I can easily see a decline to just below $5.50 (or $5.90 for the March contract).
Bonds or 10 Year Notes (with some skepticism)- Overnight the resistance in the Bond market (now slightly extended) from 126.27 - 127.05 provided the highs for the market. While I still like the Bonds as a short position and believe the 123.00 target will soon be met I am beginning to lean towards the 10 Year Note as a better short. The daily trend is still in favor of a stronger 10 year in relation to Bonds, but there is a solid base that has formed that could produce a reversal in this relationship throughout the next week (Bonds*3 - Ten Year*5...check it out for yourself). The 10 Year Note projection is 122.16, which I believe will be met within the next week if you prefer this market as a short.
Because I am expecting further liquidation in the supportive markets during the next week I think it is important to keep a close eye on the Treasury price action versus that of the Physical Commodities and Equities. On Tuesday I believe that there was some buying that entered the Bond market as the supportive markets liquidated. I think that piling into Bonds as a "run to safety" right now is completely faulty. However, if you begin to see this type of relationship forming then give up on the Treasuries and go short some Bean Oil (or something).
Put on the Radar:
Sell Silver- After last evening's price action I am increasingly confident that Silver has now put in the highs prior to another sharp liquidation break in the market. The reason Silver has outperformed related products throughout the week is strictly based on short term traders picking the 3 month daily trend line, putting up a strong buying stance, and pushing the market higher with the help of high frequency. This has pushed Silver completely out of whack in relation to Gold, the rest of the Metals, and the entire broad market. Strong resistance from $27.24 - $27.68 finally stalled out gains in the market after yesterday's nearly $1.50 rally. Now I expect Silver to go battle this trend line near $25.10 today (not today, but next week) and eventually pullback on a correction into "The Box" between $22.20 - $23.56. I think that you can now begin to look at piecing into a position by selling rallies as a lower close today will prompt me to move Silver to the Sells Monday. Note of caution: Silver and Gold December options expire Tuesday. This is a very large contract for both Metals, so the options will effect the price action significantly Monday and Tuesday. I would not be surprised to see Silver settle near the higher volume $25.00 strike Tuesday.
Buy Gold vs. Sell Silver (Gold - Silver/2 to chart)- I have had this relationship on the radar many times over the last few weeks and I think it is finally very much in play. The weekly chart is firstly most important. The double top pattern in favor of Silver recently reached its objective of -$36. This is a HUGE move...I MEAN EXTRAORDINARY...that has occurred between the Metals over the last month and is due for a very significant correction. There is a whole lot of "Real" support on the weekly chart down to -$50 that should be the final stop loss on the trade, although I believe we will not see -$35 again.
As I believe Silver has now topped, I consequently believe that this relationship has bottomed overnight. I expect a large Bullish cup and handle pattern to form on the daily chart with the $76 close on November 15th the breakout level. If overnight was the base then the pattern would project a move to roughly $160 in favor of Gold over Silver. This morning I purchased an initial positon at $6 and so far it is profitable as a Bullish trend has formed for the spread since 3 am. My intention is to keep at least half of this position for the duration of the move with a stop loss below the overnight low of -$10. The trade is on the radar because it is still rather risky, but I think you can begin to buy the dips with small size and I would not be surprised to see the spread settle near $40 by today's 12:30 pm close. The execution ratio is Buy 1 Gold vs. Sell 1 Silver to make the ticks and contract size equal...easy peasy.
S&P 500 & Nasdaq- Yesterday the Nasdaq ticked above my 2136 - 2142 resistance level, but the S&P 500 held my 1197 - 1202 resistance levels. Both markets have sagged lower throughout the evening, so I am looking at these as highs. The next stop for the S&P 500 appears to be 1150. I think you can look to sell the rallies, with the Nasdaq the weaker of the two markets on the move.
Notes:
Possible Bullish Head and Shoulders Pattern Forming- Dollar Index daily chart.
Possible Bearish Head and Shoulders Pattern Forming- Australian Dollar daily chart, March Coffee daily chart
Yesterday
The market delivered a much needed rally after a week of liquidation yesterday. Excitement over the GM IPO and some European ease while Ireland met with the EU and IMF both fundamentally drove buying. On the stock market open there was a burst of buying for the first hour of trading with the Nasdaq leading the way. For the rest of the day though the Equity markets oddly fell into an extremely tight holding pattern in relation to the range for the day. Commodities across the board also got a boost yesterday as the Euro rallied, Silver went parabolic, Cotton settled limit up, and Crude finally got relief from its relentless fall. Overall it was a strong day across the entire market, but a pretty crappy trade for anybody trying to do anything after 9:30 am.
Today
Yesterday's price action among the supportive markets was good, but the reason that the holding pattern took over for the rest of the day is because the markets settled up against higher volume resistance and pivot points. These levels prevented further gains yesterday and their effect is apparent this morning. The market is only moderately weaker as of 7 am, but I suspect that this could worsen as the markets open. This morning the Euro is higher and the Dollar lower, yet this is not providing much in the way of support elsewhere. The Euro was trading on its lows for the session near 1.36 around 10 pm last evening while much of the market was holding up well. The 126 tick rally from the lows I presume would further support the other markets, but everything else has consistently sagged since the highs around 3 am.
I predicted yesterday morning that the current rally would last between 2 - 36 hours and I am pretty certain now that overnight we reached the highs in most markets before another round of liquidation and price decline. This morning China again raised the bank reserve rate in an effort to dampen inflation in the country. While China has mostly been talk, they are actually taking some real steps that should further pressure the Commodities with the strongest ties to Asian demand such as Crude Oil, Metals, and the Soybean Complex (regardless of the fact that I think their price manipulation will not work for more than the short term and is complete bullshit) I recommend looking to strictly sell rallies for the next few days at least in the supportive markets.
Buys to Watch:
Sells to Watch:
Wheat- Yesterday the Wheat market failed to rally within 15 cents of my $6.70 - $6.76 1/2 resistance level during the day session. This is good evidence for my Bearish stance, but did not allow for re-entry into the market for the time being. I think it is unlikely now that Wheat will reach this resistance level now before a further decline, so it may be necessary to get a bit more creative or just use a 15 minute chart to establish a top to sell. $6.43 - $6.45 is a pivot point for the December contract that now below should provide resistance again. I also am still using the trend line from the open Nov. 9th - open Nov. 12th with a value of $6.48 3/4 today. This line should be used as a basis for the daily settlement. The target is $6.00 still, but if Wheat holds below $6.43 then I can easily see a decline to just below $5.50 (or $5.90 for the March contract).
Bonds or 10 Year Notes (with some skepticism)- Overnight the resistance in the Bond market (now slightly extended) from 126.27 - 127.05 provided the highs for the market. While I still like the Bonds as a short position and believe the 123.00 target will soon be met I am beginning to lean towards the 10 Year Note as a better short. The daily trend is still in favor of a stronger 10 year in relation to Bonds, but there is a solid base that has formed that could produce a reversal in this relationship throughout the next week (Bonds*3 - Ten Year*5...check it out for yourself). The 10 Year Note projection is 122.16, which I believe will be met within the next week if you prefer this market as a short.
Because I am expecting further liquidation in the supportive markets during the next week I think it is important to keep a close eye on the Treasury price action versus that of the Physical Commodities and Equities. On Tuesday I believe that there was some buying that entered the Bond market as the supportive markets liquidated. I think that piling into Bonds as a "run to safety" right now is completely faulty. However, if you begin to see this type of relationship forming then give up on the Treasuries and go short some Bean Oil (or something).
Put on the Radar:
Sell Silver- After last evening's price action I am increasingly confident that Silver has now put in the highs prior to another sharp liquidation break in the market. The reason Silver has outperformed related products throughout the week is strictly based on short term traders picking the 3 month daily trend line, putting up a strong buying stance, and pushing the market higher with the help of high frequency. This has pushed Silver completely out of whack in relation to Gold, the rest of the Metals, and the entire broad market. Strong resistance from $27.24 - $27.68 finally stalled out gains in the market after yesterday's nearly $1.50 rally. Now I expect Silver to go battle this trend line near $25.10 today (not today, but next week) and eventually pullback on a correction into "The Box" between $22.20 - $23.56. I think that you can now begin to look at piecing into a position by selling rallies as a lower close today will prompt me to move Silver to the Sells Monday. Note of caution: Silver and Gold December options expire Tuesday. This is a very large contract for both Metals, so the options will effect the price action significantly Monday and Tuesday. I would not be surprised to see Silver settle near the higher volume $25.00 strike Tuesday.
Buy Gold vs. Sell Silver (Gold - Silver/2 to chart)- I have had this relationship on the radar many times over the last few weeks and I think it is finally very much in play. The weekly chart is firstly most important. The double top pattern in favor of Silver recently reached its objective of -$36. This is a HUGE move...I MEAN EXTRAORDINARY...that has occurred between the Metals over the last month and is due for a very significant correction. There is a whole lot of "Real" support on the weekly chart down to -$50 that should be the final stop loss on the trade, although I believe we will not see -$35 again.
As I believe Silver has now topped, I consequently believe that this relationship has bottomed overnight. I expect a large Bullish cup and handle pattern to form on the daily chart with the $76 close on November 15th the breakout level. If overnight was the base then the pattern would project a move to roughly $160 in favor of Gold over Silver. This morning I purchased an initial positon at $6 and so far it is profitable as a Bullish trend has formed for the spread since 3 am. My intention is to keep at least half of this position for the duration of the move with a stop loss below the overnight low of -$10. The trade is on the radar because it is still rather risky, but I think you can begin to buy the dips with small size and I would not be surprised to see the spread settle near $40 by today's 12:30 pm close. The execution ratio is Buy 1 Gold vs. Sell 1 Silver to make the ticks and contract size equal...easy peasy.
S&P 500 & Nasdaq- Yesterday the Nasdaq ticked above my 2136 - 2142 resistance level, but the S&P 500 held my 1197 - 1202 resistance levels. Both markets have sagged lower throughout the evening, so I am looking at these as highs. The next stop for the S&P 500 appears to be 1150. I think you can look to sell the rallies, with the Nasdaq the weaker of the two markets on the move.
Notes:
Possible Bullish Head and Shoulders Pattern Forming- Dollar Index daily chart.
Possible Bearish Head and Shoulders Pattern Forming- Australian Dollar daily chart, March Coffee daily chart
Thursday, November 18, 2010
Thursday 11/18/10 Commodity Ideas
Opening Note:
Yesterday
Beginning the morning only slightly stronger the market managed to make some noise, but basically settled back where it began the morning. The Equity futures all ended the afternoon just a smidge higher on the day as early gains were wiped out in the afternoon. The Euro also found the strength to reverse a tad higher to support Commodity and Equity prices. The outlier for the day was clearly Crude Oil and its Energy products. The 9:30 am EIA Inventories showed a surprisingly Bullish draw in supplies that produced a temporary rally. From 9:45 am through the close though January Crude fell over $2.25 to test the October low at $80.58. The Treasury markets were pressed up against strong resistance for several hours midday as The Fed purchased $8 Billion worth of 10 Year Notes. The resistance held though as Treasury prices declined into the close. Finally, the Grains made an impressive rebound to trade higher for at least part of the day after a terrible overnight session. This was likely overdue after two days nearly limit down out of the previous three.
Today
The risk trade is much higher this morning led by a strong Euro. Irish officials are meeting with the EU and IMF today in hopes to hash out a new bailout, providing some relief for the Euro. This morning is also the much anticipated GM IPO, which is also injecting some enthusiasm into the Equity markets. The laggard markets over the last week are the leaders this morning in many cases. For one because they probably need a bounce, and two because these were the best performers before the whole "sky is falling" liquidation began. The Metals are off to the races again, with Silver up over $1.00 already. Crude Oil has managed to hold support from its October lows and at least violate the nasty 60 minute chart downtrend that dominated for the last week. The Grains are also finding support and price stability again after volatile swings again overnight. The Dollar Index, Japanese Yen, Natural Gas, and the Treasuries are the only markets lower this morning so far. I expect that this rally in the risk trade will continue at least through the early part of the day and possibly into the end of the week.
While the media will likely boast today's recovery, I stress not to make too much of the rally and hold off the enthusiasm. Substantial damage was done over the last week to the majority of markets to end the Bull trends that have progressed over the last two and half months. Most of the relationships that have held true through the QE rally are now violated and reversing. Some individual markets still manage to cling to their old trends. I believe that the broad market is now past the point of continuation though and in need of several weeks of deeper correction and consolidation before creating healthy Bull markets again. Do not jump in too big at first because this bounce could last for anywhere from another 2 - 36 hours. But, pick your spots and look at the rally as an opportunity to re-establish short positions in the risk trade.
Buys to Watch:
Sells to Watch:
Bonds- The Treasuries found early support yesterday from The Fed purchase of Ten Year Notes, but once the buying was finished the markets reversed as I expected. The Bonds tested and held the higher volume resistance from 127.28 - 128.05 and the 10 Years similarly held below 125.06 - 125.13. Since yesterday's midday highs the Bonds have fallen two full handles and the 10 Years a full handle with the longer maturities re-establishing weakness in relation to the short end of the curve. Resistance for Bonds now lies from 126.27 - 127.02 as an area to enter short positions against and a stop loss on positions from yesterday. Take note though that there is stronger support from 125.16 - 126.00 from the lows earlier this week that the Bulls will try to hold, as they have this morning. The objective for Bonds remains 123.00 and the 10 Year 122.16, likely within the next week and a half. I still recommend looking at put options that are relatively cheap. From midday yesterday to this morning my 126 Puts suggestion is already worth 2.5 - 3 times the purchase price.
December Wheat- Yesterday morning I recommended taking some profits on short Wheat positions and waiting a day or two to re-establish them. So far my timing is lucky as the Wheat has rallied for the last 36 hours. The rally is now nearing some better resistance levels to re-establish the short positions on the draw lower towards the $6.00 objective for the December contract. The $6.45 swing low provided the highs yesterday, so I expect the $6.65 previous lows to also provide some resistance. I suspect that there will likely be at least a spike rally above this rally. There is some higher volume resistance from $6.70 - $6.76 1/2 that is a good level to enter short positions against with a stop loss just above this price level. After the strong rebound in Wheat I expect that the market will not put up much of a fight against this resistance. Keep an eye on the trend line from the open Nov. 9th - open Nov 12th at roughly $6.60 today. If the market continues to hold closes below this steep trend then this would be a great Bearish signal.
Put on the Radar:
Sell December Soybean Oil vs December Soybean Meal (Dec Oil - Dec Meal to chart)- Drawing a trend line from the September 3rd close to the October 12th close provides a value of 1687 today with the differential currently sitting below this level. Yesterday the spread made an initial settlement below this trend line and is looking for confirmation today. Not only would a violation of this trend be a Bearish signal for the Soybean complex and the Grains overall, but it could also be a good position trade for a week or two. I expect Grains to make new highs at some point today, which should test this trend again. There is moderate resistance from 1696 - 1706 that has produced the highs so far for the spread and is an area to watch. If the trend violation occurs then I will probably move the Oil ratio to the Sells column. The execution ratio is Sell 5 Bean Oil vs. Buy 3 Soy Meal, making the ticks $30 for this base ratio.
Nasdaq and S&P 500 Resistance- I believe that the stock market will rally on the open this morning and possibly throughout the entire day. GM has the market excited. The next stronger resistance levels are 2136 - 2142 for the Nasdaq and 1197 - 1202 for the S&P 500. I would hold off on entering shorts right away, but these should be the levels to enter a short position fade on this rally some time today or tomorrow.
Silver (and it's relationship to Gold)- Yesterday Silver found support on its 3 month Bullish trend line from the low August 24th - low October 22nd. Silver has exploded on a recovery higher today on fresh buying off of this trend. The trend value today is $25.07 today, which is inconsequential for now. I have a strong suspicion though that this trend is bound to fail within the next two weeks. During Tuesday's liquidation across the market Silver held up extraordinarily well strictly based off of buying on this trend. This has put Silver out of line with the rest of the Metals, the broad market, and especially versus Gold. On liquidation days the Gold - Silver differential (Gold - Silver/2) rallies in favor of Gold. However, on Tuesday the differential actually fell based purely on Silver trend buying. This means that both Silver and this relationship is over-inflated and due for a sharp correction in my opinion. There is some moderate resistance from $26.64 - $26.96 that has topped the market so far today, but I advise holding off on entering a short for the time being. I expect a correction in December Silver into the "Box" between $22.20 - $23.56 within the next few weeks. For now watch and wait. If this trend is violated there should be a fast liquidation down to this level.
Notes:
Dollar Index- Will the daily chart form a Bullish head and shoulders pattern? The right shoulder could be forming. A corrective rally to around 83 would follow.
March Coffee- Bearish Head and shoulders top forming?
Yesterday
Beginning the morning only slightly stronger the market managed to make some noise, but basically settled back where it began the morning. The Equity futures all ended the afternoon just a smidge higher on the day as early gains were wiped out in the afternoon. The Euro also found the strength to reverse a tad higher to support Commodity and Equity prices. The outlier for the day was clearly Crude Oil and its Energy products. The 9:30 am EIA Inventories showed a surprisingly Bullish draw in supplies that produced a temporary rally. From 9:45 am through the close though January Crude fell over $2.25 to test the October low at $80.58. The Treasury markets were pressed up against strong resistance for several hours midday as The Fed purchased $8 Billion worth of 10 Year Notes. The resistance held though as Treasury prices declined into the close. Finally, the Grains made an impressive rebound to trade higher for at least part of the day after a terrible overnight session. This was likely overdue after two days nearly limit down out of the previous three.
Today
The risk trade is much higher this morning led by a strong Euro. Irish officials are meeting with the EU and IMF today in hopes to hash out a new bailout, providing some relief for the Euro. This morning is also the much anticipated GM IPO, which is also injecting some enthusiasm into the Equity markets. The laggard markets over the last week are the leaders this morning in many cases. For one because they probably need a bounce, and two because these were the best performers before the whole "sky is falling" liquidation began. The Metals are off to the races again, with Silver up over $1.00 already. Crude Oil has managed to hold support from its October lows and at least violate the nasty 60 minute chart downtrend that dominated for the last week. The Grains are also finding support and price stability again after volatile swings again overnight. The Dollar Index, Japanese Yen, Natural Gas, and the Treasuries are the only markets lower this morning so far. I expect that this rally in the risk trade will continue at least through the early part of the day and possibly into the end of the week.
While the media will likely boast today's recovery, I stress not to make too much of the rally and hold off the enthusiasm. Substantial damage was done over the last week to the majority of markets to end the Bull trends that have progressed over the last two and half months. Most of the relationships that have held true through the QE rally are now violated and reversing. Some individual markets still manage to cling to their old trends. I believe that the broad market is now past the point of continuation though and in need of several weeks of deeper correction and consolidation before creating healthy Bull markets again. Do not jump in too big at first because this bounce could last for anywhere from another 2 - 36 hours. But, pick your spots and look at the rally as an opportunity to re-establish short positions in the risk trade.
Buys to Watch:
Sells to Watch:
Bonds- The Treasuries found early support yesterday from The Fed purchase of Ten Year Notes, but once the buying was finished the markets reversed as I expected. The Bonds tested and held the higher volume resistance from 127.28 - 128.05 and the 10 Years similarly held below 125.06 - 125.13. Since yesterday's midday highs the Bonds have fallen two full handles and the 10 Years a full handle with the longer maturities re-establishing weakness in relation to the short end of the curve. Resistance for Bonds now lies from 126.27 - 127.02 as an area to enter short positions against and a stop loss on positions from yesterday. Take note though that there is stronger support from 125.16 - 126.00 from the lows earlier this week that the Bulls will try to hold, as they have this morning. The objective for Bonds remains 123.00 and the 10 Year 122.16, likely within the next week and a half. I still recommend looking at put options that are relatively cheap. From midday yesterday to this morning my 126 Puts suggestion is already worth 2.5 - 3 times the purchase price.
December Wheat- Yesterday morning I recommended taking some profits on short Wheat positions and waiting a day or two to re-establish them. So far my timing is lucky as the Wheat has rallied for the last 36 hours. The rally is now nearing some better resistance levels to re-establish the short positions on the draw lower towards the $6.00 objective for the December contract. The $6.45 swing low provided the highs yesterday, so I expect the $6.65 previous lows to also provide some resistance. I suspect that there will likely be at least a spike rally above this rally. There is some higher volume resistance from $6.70 - $6.76 1/2 that is a good level to enter short positions against with a stop loss just above this price level. After the strong rebound in Wheat I expect that the market will not put up much of a fight against this resistance. Keep an eye on the trend line from the open Nov. 9th - open Nov 12th at roughly $6.60 today. If the market continues to hold closes below this steep trend then this would be a great Bearish signal.
Put on the Radar:
Sell December Soybean Oil vs December Soybean Meal (Dec Oil - Dec Meal to chart)- Drawing a trend line from the September 3rd close to the October 12th close provides a value of 1687 today with the differential currently sitting below this level. Yesterday the spread made an initial settlement below this trend line and is looking for confirmation today. Not only would a violation of this trend be a Bearish signal for the Soybean complex and the Grains overall, but it could also be a good position trade for a week or two. I expect Grains to make new highs at some point today, which should test this trend again. There is moderate resistance from 1696 - 1706 that has produced the highs so far for the spread and is an area to watch. If the trend violation occurs then I will probably move the Oil ratio to the Sells column. The execution ratio is Sell 5 Bean Oil vs. Buy 3 Soy Meal, making the ticks $30 for this base ratio.
Nasdaq and S&P 500 Resistance- I believe that the stock market will rally on the open this morning and possibly throughout the entire day. GM has the market excited. The next stronger resistance levels are 2136 - 2142 for the Nasdaq and 1197 - 1202 for the S&P 500. I would hold off on entering shorts right away, but these should be the levels to enter a short position fade on this rally some time today or tomorrow.
Silver (and it's relationship to Gold)- Yesterday Silver found support on its 3 month Bullish trend line from the low August 24th - low October 22nd. Silver has exploded on a recovery higher today on fresh buying off of this trend. The trend value today is $25.07 today, which is inconsequential for now. I have a strong suspicion though that this trend is bound to fail within the next two weeks. During Tuesday's liquidation across the market Silver held up extraordinarily well strictly based off of buying on this trend. This has put Silver out of line with the rest of the Metals, the broad market, and especially versus Gold. On liquidation days the Gold - Silver differential (Gold - Silver/2) rallies in favor of Gold. However, on Tuesday the differential actually fell based purely on Silver trend buying. This means that both Silver and this relationship is over-inflated and due for a sharp correction in my opinion. There is some moderate resistance from $26.64 - $26.96 that has topped the market so far today, but I advise holding off on entering a short for the time being. I expect a correction in December Silver into the "Box" between $22.20 - $23.56 within the next few weeks. For now watch and wait. If this trend is violated there should be a fast liquidation down to this level.
Notes:
Dollar Index- Will the daily chart form a Bullish head and shoulders pattern? The right shoulder could be forming. A corrective rally to around 83 would follow.
March Coffee- Bearish Head and shoulders top forming?
Wednesday, November 17, 2010
Wednesday 11/17/10 Commodity Ideas
Opening Note:
Yesterday
Like a dam bursting at the seams, the market was flooded with liquidation shortly after the stock market open yesterday morning. No Sector was really spared from the rush to the door, but the Metals, Grains, and Equities especially felt the heat. The Industrial Metals like Copper, Palladium, and Platinum (I'm only semi-grouping Silver here now) were the overall worst performers and should continue to be. The European default worries were the initial catalyst that got money rolling out of of Commodities, but the scare of Chinese policies to curb inflation really hit these over-subscribed markets that have depended on Asian demand and stockpiling. The Grain markets, especially Corn, Beans, and Bean Oil also tested and settled near limit down on similar fears that Chinese demand will wane in the coming months.
Most of the liquidation occurred in the market between 8:30 am - 12 pm, yet it was a late day Treasury and yield curve move that provided the biggest surprise in my opinion. The trend over the last couple months has been a steepening of the yield curve with the prices of the longer maturities falling in relation to the short end. Around 12 pm though the Bond market prices took off on a nearly 2 handle rally over the next two hours. Mind you, this was after the liquidation run across the market. My initial diagnosis is that this rally was a delayed and possibly faulty "run to safety" into the Treasury markets.
Today
There were some volatile moves and further liquidation overnight, but overall the market is slightly stronger this morning as of 6:45 am. The Soybean complex, Cotton, Crude Oil, and the Industrial Metals are the weaknesses again. In nearly every case though the markets are well off their overnight lows. The last three days were the largest group liquidation effort that we have seen across the market since May of this year, with yesterday particularly nasty. I expect that we could see a bit of a relief recovery for today. A number of markets have tested and held individual technical pivot points, which should aid in stopping the outflows or at worst slowing them over the next 12 hours.
The key word in the previous paragraph is a "bit" of a relief recovery for today though. I have little interest in trying to Buy and would rather wait for the opportunities to re-initiate shorts. The European debt situation and threats of Chinese policies to curb inflation are far from over and will likely still have a few jabs, if not uppercuts, to deliver to the market throughout the rest of the year. In today's letter I attempted to lay out some of the technical levels that will stall the liquidation effort temporarily. My belief though is that there more time and price decline needed before the market finds a base to assemble. The puking of the risk trade caught many large participants off guard this time again, and I have a feeling that after getting cut and bruised this year that many will say "enough" and hold off until January. Going forward for the next few weeks I advise taking a Bearish stance on the risk trade and using rallies as opportunities to short the market.
With a lack of patterns, mostly rough estimates for targets, and high volatility it is difficult for me to suggest individual Sales for the time being. However, I repeat my statement from yesterday "I believe Silver and the rest of the Industrial Metals, Cotton, Soybeans and Bean Oil, Nasdaq, Australian Dollar, and Crude Oil along with Heating Oil will be the biggest decliners over the next couple weeks" and I wish to add the Euro to this list as well.
Buys to Watch:
Sells to Watch:
Bonds- I lowered my stop loss on the trade suggestion yesterday morning to just above the resistance from 127.02 - 127.12. Yesterday afternoon's rally though ran straight through this resistance within 30 minutes as I painfully was forced to puke my outright position. This resistance was taken out, but after re-evaluation this morning I still feel strongly that Bonds are one of the best and most consistent sales among the market. I believe that this "run to safety" yesterday was not only delayed, but faulty in logic and an improper gut reaction that caused a sharp reversal in the yield curve.
First, the 10 Year Note has tested its individual resistance and breakout level several times now and has failed on each attempt. Below 125.015 the 10 Year has an objective of roughly 122.16. There is high volume resistance though from 125.06 - 125.13 that continues to stall out nearly four separate rally attempts so far. As long as this level holds then the Bonds should as well. The Bonds are now testing stronger resistance from 127.28 - 128.05 that has held up on multiple tests now as a top for the market as well. For now I recommend only initiating a smaller initial position against this resistance, but I highly suggest looking into the put options. There are December options that expire in 9 days with implied volatility that seems extremely cheap. Yesterday afternoon I purchased some 126 Puts, and while I am currently still out a little money on my initial purchase it would only take one or two days lower to make 3-4 times my risk on the trade. The target for the Bonds is 123.00 and I still see a strong possibility that they could reach this level by expiration next Friday.
Wheat (Take Some Profits Here, Hold Off a Day or Two for New Entry)- December Wheat has nearly reached my $6.00 target originally suggested only 6 days ago when the market was near $7.20. With substantial liquidation among the Grains over the last week and Wheat comparatively performing better than Beans and Corn over this time I think it is time to take some profits. As you will see below, I have both Corn and Beans reaching a technical support that should stall losses in the Grains for now. Above $6.37 for Wheat, which it is nearly at this morning, there is a definite lack of resistance as well. The $6.45 and $6.65 swing lows now become resistance, but yesterday's capitulation really only left higher volume resistance last at $6.70. Take some hopefully large profits for now and wait for a rebound rally prior to initiating a new short position.
Put on the Radar: (Some Technical Levels)
January Soybeans- Based on the base of the Summer rally from July 7th to the high November 12th the 38.2 % Fibonacci Retracement level is $11.80. Overnight the Soybeans found a base at $11.75 and recovered nearly 30 cents from this level into the morning. I expect this level to at least temporarily provide further support for price levels. However, I am not convinced that the Beans are finished liquidating. After such a sharp break I do not expect fund money to come sprinting back into the market to create a "real" base for Beans to build upon. The 50% level is $11.30 and I am looking for a decline to at least this level prior to looking at Beans as a Buy.
December Corn- From the base June 30th to the high November 9th the 38.2% Fibonacci Retracement level is $5.05 for the December contract. Corn found support at $5.09 overnight and has recovered like Beans. I expect less continued liquidation in Corn compared to Beans currently, so look for Corn to possibly find a base near $5.05.
January Crude Oil- Firstly, roll your Crude contract to January if you have not yet. Based on the low August 25th to the high November 11th the Fibonacci Retracement "Box" between the 50% and 61.8% levels is $81.11 - $79.23. Crude Oil has now violated the lowest Bull trend you can draw on the daily chart and repeatedly dismantled stronger support, so I would not look at Crude as a Buy until at least this level.
December Silver- Silver is now testing the Bull trend line from the low August 24th - October 26th that spans the entire 3 month rally. Yesterday this trend was $24.95 and supported a low near $24.98 and today's value is $25.07 to support a low of $25.015 so far. In addition, the 38.2% Fibonacci Retracement for the entire move falls at $24.92 1/2 to provide further temporary support. Silver was uncharacteristically strong yesterday though in relation to the Industrial Metals and versus what one would presume in its relation to Gold on a liquidation day. I think that the Bulls may be able to hold Silver above the trend for a day or two longer, but I strongly believe that it is due for a correction into the 50 - 61.8% Box between $22.20 - $23.56. This means that I believe Gold will also continue lower.
Swiss Franc- The Swiss Franc is testing a Bearish reversal breakout on its daily chart this morning. Below the real support at 1.0070 as well as the spike to 1.0031 the market has a conservative objective of .9770. If the Franc confirms this reversal then expect the Euro to follow along with a break of roughly 5 -7 points itself.
Notes:
Yesterday
Like a dam bursting at the seams, the market was flooded with liquidation shortly after the stock market open yesterday morning. No Sector was really spared from the rush to the door, but the Metals, Grains, and Equities especially felt the heat. The Industrial Metals like Copper, Palladium, and Platinum (I'm only semi-grouping Silver here now) were the overall worst performers and should continue to be. The European default worries were the initial catalyst that got money rolling out of of Commodities, but the scare of Chinese policies to curb inflation really hit these over-subscribed markets that have depended on Asian demand and stockpiling. The Grain markets, especially Corn, Beans, and Bean Oil also tested and settled near limit down on similar fears that Chinese demand will wane in the coming months.
Most of the liquidation occurred in the market between 8:30 am - 12 pm, yet it was a late day Treasury and yield curve move that provided the biggest surprise in my opinion. The trend over the last couple months has been a steepening of the yield curve with the prices of the longer maturities falling in relation to the short end. Around 12 pm though the Bond market prices took off on a nearly 2 handle rally over the next two hours. Mind you, this was after the liquidation run across the market. My initial diagnosis is that this rally was a delayed and possibly faulty "run to safety" into the Treasury markets.
Today
There were some volatile moves and further liquidation overnight, but overall the market is slightly stronger this morning as of 6:45 am. The Soybean complex, Cotton, Crude Oil, and the Industrial Metals are the weaknesses again. In nearly every case though the markets are well off their overnight lows. The last three days were the largest group liquidation effort that we have seen across the market since May of this year, with yesterday particularly nasty. I expect that we could see a bit of a relief recovery for today. A number of markets have tested and held individual technical pivot points, which should aid in stopping the outflows or at worst slowing them over the next 12 hours.
The key word in the previous paragraph is a "bit" of a relief recovery for today though. I have little interest in trying to Buy and would rather wait for the opportunities to re-initiate shorts. The European debt situation and threats of Chinese policies to curb inflation are far from over and will likely still have a few jabs, if not uppercuts, to deliver to the market throughout the rest of the year. In today's letter I attempted to lay out some of the technical levels that will stall the liquidation effort temporarily. My belief though is that there more time and price decline needed before the market finds a base to assemble. The puking of the risk trade caught many large participants off guard this time again, and I have a feeling that after getting cut and bruised this year that many will say "enough" and hold off until January. Going forward for the next few weeks I advise taking a Bearish stance on the risk trade and using rallies as opportunities to short the market.
With a lack of patterns, mostly rough estimates for targets, and high volatility it is difficult for me to suggest individual Sales for the time being. However, I repeat my statement from yesterday "I believe Silver and the rest of the Industrial Metals, Cotton, Soybeans and Bean Oil, Nasdaq, Australian Dollar, and Crude Oil along with Heating Oil will be the biggest decliners over the next couple weeks" and I wish to add the Euro to this list as well.
Buys to Watch:
Sells to Watch:
Bonds- I lowered my stop loss on the trade suggestion yesterday morning to just above the resistance from 127.02 - 127.12. Yesterday afternoon's rally though ran straight through this resistance within 30 minutes as I painfully was forced to puke my outright position. This resistance was taken out, but after re-evaluation this morning I still feel strongly that Bonds are one of the best and most consistent sales among the market. I believe that this "run to safety" yesterday was not only delayed, but faulty in logic and an improper gut reaction that caused a sharp reversal in the yield curve.
First, the 10 Year Note has tested its individual resistance and breakout level several times now and has failed on each attempt. Below 125.015 the 10 Year has an objective of roughly 122.16. There is high volume resistance though from 125.06 - 125.13 that continues to stall out nearly four separate rally attempts so far. As long as this level holds then the Bonds should as well. The Bonds are now testing stronger resistance from 127.28 - 128.05 that has held up on multiple tests now as a top for the market as well. For now I recommend only initiating a smaller initial position against this resistance, but I highly suggest looking into the put options. There are December options that expire in 9 days with implied volatility that seems extremely cheap. Yesterday afternoon I purchased some 126 Puts, and while I am currently still out a little money on my initial purchase it would only take one or two days lower to make 3-4 times my risk on the trade. The target for the Bonds is 123.00 and I still see a strong possibility that they could reach this level by expiration next Friday.
Wheat (Take Some Profits Here, Hold Off a Day or Two for New Entry)- December Wheat has nearly reached my $6.00 target originally suggested only 6 days ago when the market was near $7.20. With substantial liquidation among the Grains over the last week and Wheat comparatively performing better than Beans and Corn over this time I think it is time to take some profits. As you will see below, I have both Corn and Beans reaching a technical support that should stall losses in the Grains for now. Above $6.37 for Wheat, which it is nearly at this morning, there is a definite lack of resistance as well. The $6.45 and $6.65 swing lows now become resistance, but yesterday's capitulation really only left higher volume resistance last at $6.70. Take some hopefully large profits for now and wait for a rebound rally prior to initiating a new short position.
Put on the Radar: (Some Technical Levels)
January Soybeans- Based on the base of the Summer rally from July 7th to the high November 12th the 38.2 % Fibonacci Retracement level is $11.80. Overnight the Soybeans found a base at $11.75 and recovered nearly 30 cents from this level into the morning. I expect this level to at least temporarily provide further support for price levels. However, I am not convinced that the Beans are finished liquidating. After such a sharp break I do not expect fund money to come sprinting back into the market to create a "real" base for Beans to build upon. The 50% level is $11.30 and I am looking for a decline to at least this level prior to looking at Beans as a Buy.
December Corn- From the base June 30th to the high November 9th the 38.2% Fibonacci Retracement level is $5.05 for the December contract. Corn found support at $5.09 overnight and has recovered like Beans. I expect less continued liquidation in Corn compared to Beans currently, so look for Corn to possibly find a base near $5.05.
January Crude Oil- Firstly, roll your Crude contract to January if you have not yet. Based on the low August 25th to the high November 11th the Fibonacci Retracement "Box" between the 50% and 61.8% levels is $81.11 - $79.23. Crude Oil has now violated the lowest Bull trend you can draw on the daily chart and repeatedly dismantled stronger support, so I would not look at Crude as a Buy until at least this level.
December Silver- Silver is now testing the Bull trend line from the low August 24th - October 26th that spans the entire 3 month rally. Yesterday this trend was $24.95 and supported a low near $24.98 and today's value is $25.07 to support a low of $25.015 so far. In addition, the 38.2% Fibonacci Retracement for the entire move falls at $24.92 1/2 to provide further temporary support. Silver was uncharacteristically strong yesterday though in relation to the Industrial Metals and versus what one would presume in its relation to Gold on a liquidation day. I think that the Bulls may be able to hold Silver above the trend for a day or two longer, but I strongly believe that it is due for a correction into the 50 - 61.8% Box between $22.20 - $23.56. This means that I believe Gold will also continue lower.
Swiss Franc- The Swiss Franc is testing a Bearish reversal breakout on its daily chart this morning. Below the real support at 1.0070 as well as the spike to 1.0031 the market has a conservative objective of .9770. If the Franc confirms this reversal then expect the Euro to follow along with a break of roughly 5 -7 points itself.
Notes:
Tuesday, November 16, 2010
Tuesday 11/16/10 Commodity Ideas
Opening Note:
Yesterday
The "sticky" zones that I listed on my radar yesterday were areas that provided an early base for the market. At first it appeared likely that with bases in place that some constructive price action would follow throughout the day. Previously strong markets like Crude Oil, Nasdaq, and Gold floundered throughout the morning though and declined further into the afternoon stock market close. The Treasury markets were definitely the laggard Sector of the day with the Ten Year Note falling a full handle and Bonds trading a full 2 handles lower by the 3 pm stock market close.
Today
Everything other than the Euro, Sugar, and the Treasury markets is lower this morning at least moderately. The previously strong Metal Sector, Cotton, Silver, Nasdaq, and Soybean markets are the largest decliners as of 6:45 am. Most of this move can be tied to concern over Asian demand with South Korea cutting rates overnight and fear that China will enact further policies to curb inflation. The Euro is relatively stable though this morning around 1.36 again. At least the European default story is not completely running away or else the markets could be very ugly.
The "sticky" levels I described yesterday were broken on subsequent tests overnight in most cases (Sugar is good though). In addition, some of the relationships that produced trends over the market rally since early June have now violated their trends or reversed with vigor. The Canadian Dollar/Australian Dollar has violated, the Nasdaq/S&P 500 is on a very strong test and near violating, and Gold/Silver will likely confirm a violation with today's close (not a bad idea to look at these relationships as trade ideas for a weaker market). All of theses signals lead me to believe that the current correction will continue for at least another couple weeks. This will produce an end to most of the individual market Bull trends over the last few months that are still intact. The leader markets over the rally are also now the laggards as liquidation is larger and the correction will need to be deeper.
When I make a buy or sell suggestion I like to provide a clear profit target and entry suggestions. Most of the supportive markets now have strong reversal tops, but in most cases all I can provide are vague areas where I expect the markets to decline to. I can and will say that I believe Silver and the rest of the Industrial Metals, Cotton, Soybeans and Bean Oil, Nasdaq, Australian Dollar, and Crude Oil along with Heating Oil will be the biggest decliners over the next couple weeks. However, for the Sells to Watch I will only keep trades that I feel are less risky and more consistent. I recommend looking to go with the market break for now and at least until the S&P 500 declines to around 1150. With the reversals just beginning and the pivot bases failing the Bears should continue to dominate the trade. Look to sell the rallies and go with.
Buys to Watch:
Sells to Watch:
Bonds- In the morning yesterday the 10 Year Note made a brief fake out on its Bearish reversal breakout causing a bit of confusion in the Bond market. This early attempt failed though and the Bonds recovered slightly on a rally to 127.16. This level did not reach what I would deem an acceptable level to initiate a short position based on the resistance from 127.27 - 128.05. Later at 1:15 pm though the 10 year established its own Bearish breakout with the Bonds trading near 126.24. Over the next two hours the Bonds declined over a full handle further to make the daily move over 2 full handles by the stock market close.
This morning the Bonds are almost a full handle off their lows from yesterday's afternoon close. You can usually expect a rebound when you get such a drastic move. I still believe the Bonds are a great sale though on continuation towards their 123.00 reversal objective. There is a bit more room to rally, but the next high volume resistance level is from 127.02 - 127.12 as an area to enter a short position against with stop placement above. For the long term trade I recommend using a stop loss above this level as well. It is possible that a rally to this level may not occur until this evening or tomorrow, so be patient because it could be a 36 - 48 hour recovery rally. Also keep an eye on the 10 Year Note. The breakout level for the 10 Year was 125.015 with a rough objective near 122.16. It is possible that the 10 Year at least temporarily negates the reversal, but there is higher volume resistance from 125.06 - 125.13 that I believe will provide at top for the market.
December Wheat- Around 11:15 am yesterday the Wheat market tested my higher volume resistance level from $6.85 - $6.90 1/2. $6.85 proceeded to be the high tick for yesterday's session as the resistance held perfectly for new short entry with a settlement of $6.72 3/4 for the December contract in the afternoon. This morning Wheat is already over 7 cents lower and is testing the $6.65 support level from an earlier swing low again. Both Beans and Corn are weaker than Wheat this morning. As I have noted though, I believe that while Beans may have stronger liquidation potential the Wheat will be the better short position to sit with. You had to sit through a 50 cent rally off yesterday's overnight lows in Beans to hold a short while you only had to give 15 cents in the Wheat. Wheat should be the consistent decliner with a less volatile demand story for the time being.
Today there is higher volume resistance from $6.72 1/2 - $6.76 1/2 leftover from yesterday's session that is a good level to enter a short position against on a rally. Stop placement should be made above $6.76 1/2 on short entry today and for short positions from yesterday I recommend moving up the stop loss to this same level to lock in profits. The longer term target (within the next 3-4 weeks) is $6.00 for the December contract and $6.40 for the March contract on the Bearish triangle breakout. It is also still possible to look at Wheat as a sideways item, so expect support buying to enter at today's $6.65 level and near the $6.43 1/2 low on the Fall range for December Wheat.
Put on the Radar:
Notes:
Yesterday
The "sticky" zones that I listed on my radar yesterday were areas that provided an early base for the market. At first it appeared likely that with bases in place that some constructive price action would follow throughout the day. Previously strong markets like Crude Oil, Nasdaq, and Gold floundered throughout the morning though and declined further into the afternoon stock market close. The Treasury markets were definitely the laggard Sector of the day with the Ten Year Note falling a full handle and Bonds trading a full 2 handles lower by the 3 pm stock market close.
Today
Everything other than the Euro, Sugar, and the Treasury markets is lower this morning at least moderately. The previously strong Metal Sector, Cotton, Silver, Nasdaq, and Soybean markets are the largest decliners as of 6:45 am. Most of this move can be tied to concern over Asian demand with South Korea cutting rates overnight and fear that China will enact further policies to curb inflation. The Euro is relatively stable though this morning around 1.36 again. At least the European default story is not completely running away or else the markets could be very ugly.
The "sticky" levels I described yesterday were broken on subsequent tests overnight in most cases (Sugar is good though). In addition, some of the relationships that produced trends over the market rally since early June have now violated their trends or reversed with vigor. The Canadian Dollar/Australian Dollar has violated, the Nasdaq/S&P 500 is on a very strong test and near violating, and Gold/Silver will likely confirm a violation with today's close (not a bad idea to look at these relationships as trade ideas for a weaker market). All of theses signals lead me to believe that the current correction will continue for at least another couple weeks. This will produce an end to most of the individual market Bull trends over the last few months that are still intact. The leader markets over the rally are also now the laggards as liquidation is larger and the correction will need to be deeper.
When I make a buy or sell suggestion I like to provide a clear profit target and entry suggestions. Most of the supportive markets now have strong reversal tops, but in most cases all I can provide are vague areas where I expect the markets to decline to. I can and will say that I believe Silver and the rest of the Industrial Metals, Cotton, Soybeans and Bean Oil, Nasdaq, Australian Dollar, and Crude Oil along with Heating Oil will be the biggest decliners over the next couple weeks. However, for the Sells to Watch I will only keep trades that I feel are less risky and more consistent. I recommend looking to go with the market break for now and at least until the S&P 500 declines to around 1150. With the reversals just beginning and the pivot bases failing the Bears should continue to dominate the trade. Look to sell the rallies and go with.
Buys to Watch:
Sells to Watch:
Bonds- In the morning yesterday the 10 Year Note made a brief fake out on its Bearish reversal breakout causing a bit of confusion in the Bond market. This early attempt failed though and the Bonds recovered slightly on a rally to 127.16. This level did not reach what I would deem an acceptable level to initiate a short position based on the resistance from 127.27 - 128.05. Later at 1:15 pm though the 10 year established its own Bearish breakout with the Bonds trading near 126.24. Over the next two hours the Bonds declined over a full handle further to make the daily move over 2 full handles by the stock market close.
This morning the Bonds are almost a full handle off their lows from yesterday's afternoon close. You can usually expect a rebound when you get such a drastic move. I still believe the Bonds are a great sale though on continuation towards their 123.00 reversal objective. There is a bit more room to rally, but the next high volume resistance level is from 127.02 - 127.12 as an area to enter a short position against with stop placement above. For the long term trade I recommend using a stop loss above this level as well. It is possible that a rally to this level may not occur until this evening or tomorrow, so be patient because it could be a 36 - 48 hour recovery rally. Also keep an eye on the 10 Year Note. The breakout level for the 10 Year was 125.015 with a rough objective near 122.16. It is possible that the 10 Year at least temporarily negates the reversal, but there is higher volume resistance from 125.06 - 125.13 that I believe will provide at top for the market.
December Wheat- Around 11:15 am yesterday the Wheat market tested my higher volume resistance level from $6.85 - $6.90 1/2. $6.85 proceeded to be the high tick for yesterday's session as the resistance held perfectly for new short entry with a settlement of $6.72 3/4 for the December contract in the afternoon. This morning Wheat is already over 7 cents lower and is testing the $6.65 support level from an earlier swing low again. Both Beans and Corn are weaker than Wheat this morning. As I have noted though, I believe that while Beans may have stronger liquidation potential the Wheat will be the better short position to sit with. You had to sit through a 50 cent rally off yesterday's overnight lows in Beans to hold a short while you only had to give 15 cents in the Wheat. Wheat should be the consistent decliner with a less volatile demand story for the time being.
Today there is higher volume resistance from $6.72 1/2 - $6.76 1/2 leftover from yesterday's session that is a good level to enter a short position against on a rally. Stop placement should be made above $6.76 1/2 on short entry today and for short positions from yesterday I recommend moving up the stop loss to this same level to lock in profits. The longer term target (within the next 3-4 weeks) is $6.00 for the December contract and $6.40 for the March contract on the Bearish triangle breakout. It is also still possible to look at Wheat as a sideways item, so expect support buying to enter at today's $6.65 level and near the $6.43 1/2 low on the Fall range for December Wheat.
Put on the Radar:
Notes:
Monday, November 15, 2010
Monday 11/15/10 Commodity Ideas
Opening Note:
Yesterday
Concerns that China will take further action to curb inflation and European default worries continued to pressure the market throughout the U.S. session Friday. Commodities with the strongest Chinese demand saw the largest declines with Crude falling nearly $3, Silver down almost $1.50, and both Soybeans and Corn settling limit down. This sell off was not limited though to just markets related to Asian demand as contagion spread across all of the supportive markets. In many cases it was actually the best performers over the a last months and weeks that saw the largest decline as investors that drove the market could not get to the exit door quick enough.
The most interesting bit Friday was that for all of this market sell off the Euro was actually trading higher on the day. There has become almost a culture of acceptance and belief among the media, and often times in the market, that the correlation between Dollar and Commodity prices is in stone and can therefore be extrapolated down to a weekly, daily, or even hourly section of time. It is pretty clear though that if you hold the microscope up to the relationship that it is a lot more loose than others may have you believe. The relationship is real and holds up over time, but try to avoid the the trap of breaking it down too micro.
Today
Most of the supportive markets are at least slightly higher this morning. The Euro is lower however, helping to further confuse those looking to the Dollar/Commodities relationship for answers. The Treasury market prices are significantly weaker across the entire curve with Ten Year Note testing a key Bearish reversal level this morning. Most of the markets in free fall Friday have found stability overnight and into the morning with some even managing recovery rallies.
I have more details on the Radar, but barring horrible Economic data this morning I believe that there are a number of supportive markets that have capitulated to price levels that should find support. We have confirmation so far that the puking of positions has at least stalled for now, so I expect that there should be some recovery for the next couple days at least. Despite the Euro's weakness and the fundamental concern over Chinese demand, I still believe that the Physical Commodity, Equity, and Foreign Currency markets wish to proceed higher over the next several months based on Quantitative Easing and positioning for the inflation that may come down the road from the package.
Buys to Watch:
Sells to Watch:
Bonds- After a fake out rally Thursday evening the Bonds finally displayed strong confirmation Friday of its Bearish reversal. Below 129.05 the reversal now has a longer term (over the next couple weeks) objective of 123.00. This morning the Bonds are already significantly lower, but there are two different strategies that I am looking at for new entry or to add to the position. First, there is higher volume resistance from 127.27 - 128.05 as an area to sell against with stop placement just above. If this rally does not happen though then it is important to pay attention to the 10 Year Note. The 10 Year has violated its long term Bullish trend and is testing its own Bearish reversal level this morning. Below 125.015 the 10 Yr. projects a move to around 122.16. If the 10 Year does confirm a move below this level then the Bonds can be sold based upon this action. This morning there has been a lot of chop in the Treasuries, so be patient and wait for the opportunity rather than just jumping in.
Wheat- The sell off in the Grains Friday set off the Bearish triangle pattern in the Wheat market below $6.86. The December contract now has a target around $6.00 ($6.40 for March) with the pattern trendline at $6.89 1/2 today. Beans and Corn were weaker on Friday, but I again believe that this was more based on Chinese demand concerns and liquidation in the stronger markets. Wheat has generally been the laggard of the Grains and should be the consistent weakness still despite Chinese concerns.
For new short entry there is a low volume zone between $6.77 1/2 - $6.85 with higher volume resistance from $6.85 1/2 - $6.90 1/2 for stop placement above. If the December contract trades above $6.90 1/2 again then I no longer advise holding a short position in the market. While holding a short position it is also important to keep an eye on the support levels as areas to temporarily take profits or reduce position size. It looks like buying interest is viewing the Wheat market as possibly a sideways item with support near $6.65 and $6.43 1/2 on a range trade. It may be wise to trade in and out of the Wheat market around these levels rather than holding just for the longer move.
Put on the Radar:
Sticky Levels After the Capitulation Friday
S&P 500- Although the Nasdaq was unable to hold its own key support the S&P 500 has now established support at 1192 on three separate tests. Over the last 6 six sessions the stock market has consistently declined and now looks positioned for a recovery rally over the next 2 - 3 sessions. I believe the Nasdaq is generally the better buy among the Equities still off of this S&P 500 support.
Crude Oil- The December contract settled nearly $3 lower on Friday to bring the market back on a test of the original $84.50 Bullish breakout level on the range. Like the Equities, Crude has found support on multiple tests of the $84.50 level. The technicals still show negative momentum after Friday, but I believe this level can be looked at as a base for a 2-3 day recovery rally as well.
Gold- $1356 - $1360 is the base that Gold will look to build upon for short term recovery.
Sugar- From Wednesday's settlement Sugar declined 20% through Friday's close. This morning the market looks to be establishing at least a base to hold off further liquidation. On three separate tests near 25.50 cents/lb. the draw downs have stalled, so look at this level as well for a short term recovery base.
Euro- I still believe the next downside target for the Euro is between 1.32 and 1.33. For now 1.36 has established itself as a sticking point that could support gains at least temporarily. As the Euro is a weakness this morning this is my least favorite of the short term buys, but worth noting at least as an indicator for the others.
Notes:
Yesterday
Concerns that China will take further action to curb inflation and European default worries continued to pressure the market throughout the U.S. session Friday. Commodities with the strongest Chinese demand saw the largest declines with Crude falling nearly $3, Silver down almost $1.50, and both Soybeans and Corn settling limit down. This sell off was not limited though to just markets related to Asian demand as contagion spread across all of the supportive markets. In many cases it was actually the best performers over the a last months and weeks that saw the largest decline as investors that drove the market could not get to the exit door quick enough.
The most interesting bit Friday was that for all of this market sell off the Euro was actually trading higher on the day. There has become almost a culture of acceptance and belief among the media, and often times in the market, that the correlation between Dollar and Commodity prices is in stone and can therefore be extrapolated down to a weekly, daily, or even hourly section of time. It is pretty clear though that if you hold the microscope up to the relationship that it is a lot more loose than others may have you believe. The relationship is real and holds up over time, but try to avoid the the trap of breaking it down too micro.
Today
Most of the supportive markets are at least slightly higher this morning. The Euro is lower however, helping to further confuse those looking to the Dollar/Commodities relationship for answers. The Treasury market prices are significantly weaker across the entire curve with Ten Year Note testing a key Bearish reversal level this morning. Most of the markets in free fall Friday have found stability overnight and into the morning with some even managing recovery rallies.
I have more details on the Radar, but barring horrible Economic data this morning I believe that there are a number of supportive markets that have capitulated to price levels that should find support. We have confirmation so far that the puking of positions has at least stalled for now, so I expect that there should be some recovery for the next couple days at least. Despite the Euro's weakness and the fundamental concern over Chinese demand, I still believe that the Physical Commodity, Equity, and Foreign Currency markets wish to proceed higher over the next several months based on Quantitative Easing and positioning for the inflation that may come down the road from the package.
Buys to Watch:
Sells to Watch:
Bonds- After a fake out rally Thursday evening the Bonds finally displayed strong confirmation Friday of its Bearish reversal. Below 129.05 the reversal now has a longer term (over the next couple weeks) objective of 123.00. This morning the Bonds are already significantly lower, but there are two different strategies that I am looking at for new entry or to add to the position. First, there is higher volume resistance from 127.27 - 128.05 as an area to sell against with stop placement just above. If this rally does not happen though then it is important to pay attention to the 10 Year Note. The 10 Year has violated its long term Bullish trend and is testing its own Bearish reversal level this morning. Below 125.015 the 10 Yr. projects a move to around 122.16. If the 10 Year does confirm a move below this level then the Bonds can be sold based upon this action. This morning there has been a lot of chop in the Treasuries, so be patient and wait for the opportunity rather than just jumping in.
Wheat- The sell off in the Grains Friday set off the Bearish triangle pattern in the Wheat market below $6.86. The December contract now has a target around $6.00 ($6.40 for March) with the pattern trendline at $6.89 1/2 today. Beans and Corn were weaker on Friday, but I again believe that this was more based on Chinese demand concerns and liquidation in the stronger markets. Wheat has generally been the laggard of the Grains and should be the consistent weakness still despite Chinese concerns.
For new short entry there is a low volume zone between $6.77 1/2 - $6.85 with higher volume resistance from $6.85 1/2 - $6.90 1/2 for stop placement above. If the December contract trades above $6.90 1/2 again then I no longer advise holding a short position in the market. While holding a short position it is also important to keep an eye on the support levels as areas to temporarily take profits or reduce position size. It looks like buying interest is viewing the Wheat market as possibly a sideways item with support near $6.65 and $6.43 1/2 on a range trade. It may be wise to trade in and out of the Wheat market around these levels rather than holding just for the longer move.
Put on the Radar:
Sticky Levels After the Capitulation Friday
S&P 500- Although the Nasdaq was unable to hold its own key support the S&P 500 has now established support at 1192 on three separate tests. Over the last 6 six sessions the stock market has consistently declined and now looks positioned for a recovery rally over the next 2 - 3 sessions. I believe the Nasdaq is generally the better buy among the Equities still off of this S&P 500 support.
Crude Oil- The December contract settled nearly $3 lower on Friday to bring the market back on a test of the original $84.50 Bullish breakout level on the range. Like the Equities, Crude has found support on multiple tests of the $84.50 level. The technicals still show negative momentum after Friday, but I believe this level can be looked at as a base for a 2-3 day recovery rally as well.
Gold- $1356 - $1360 is the base that Gold will look to build upon for short term recovery.
Sugar- From Wednesday's settlement Sugar declined 20% through Friday's close. This morning the market looks to be establishing at least a base to hold off further liquidation. On three separate tests near 25.50 cents/lb. the draw downs have stalled, so look at this level as well for a short term recovery base.
Euro- I still believe the next downside target for the Euro is between 1.32 and 1.33. For now 1.36 has established itself as a sticking point that could support gains at least temporarily. As the Euro is a weakness this morning this is my least favorite of the short term buys, but worth noting at least as an indicator for the others.
Notes:
Friday, November 12, 2010
Friday 11/12/10 Commodity Ideas
Opening Note:
Yesterday
The market began the morning weaker on continued European Debt worries and the continuation of the precipitous fall in the Euro. The Euro eventually succumbed to the pressure after a second battle with the key 1.37 level to settle at 1.3659. While the Euro ground lower throughout the day, many Commodity markets and especially the Equities performed above expectations comparatively. Following an early sell off across the board on the stock market open, the Equities actually formed a Bullish intraday trend with the worst of the other markets only trending slightly lower.
The Grain markets and inter-crop spreads were especially interesting yesterday following Informa's planting expectations for 2011. The numbers showed Corn garnering more acres from Beans than expected. This produced a sharp rally in the July'11 - Dec'11 Corn spread while the front month Dec'10 contract was lower on the day and a break in the July'11 - Nov'11 Bean spread while the front month Jan'11 contract was moderately higher on the day. This relationship between the spreads and outrights was tricky and counter-intuitive, yet explainable as the 2011 crop was the story in the spreads.
Today
Asian Sell Off
Tempered disaster struck last night at 7 pm (we'll call it a tropical storm compared to the flash crash's Category 5) when the Asian market opened. In unison it looks like the continent decided that the Irish contagion risk was too high and dumped a significant amount of Commodity positions. Markets that have stronger fundamental ties to Asian demand like the Metals, Crude Oil, Soybeans, and Bean Oil saw the sharpest declines. It just so happens though that most of these markets were also the comparative strengths and best performers amongst the broad market over the last several weeks or months. (Leader? Laggard? Who knows, but I understand why some of these hedge fund managers that have been successful for decades are deciding they have enough money to retire this year.) The break in the market until the European open was rather relentless as well. Since short term statistical trading programs have flooded the market there is usually a fade that comes into to chop out the bandwagon money riding the short term wave. This was not the case last night though as these programs were run over as the selling came fast at first and then appeared to almost wait for bids to enter to take them out.
Euro Higher?
The most curious thing this morning is that the only markets higher on my board as of 7 am are the Treasuries, Swiss Franc, Yen, and THE EURO. Since 1:30 am the Euro has actually formed a Bullish 15 minute chart trend to carry the market back above 1.37 at least temporarily. Meanwhile most of the troubled markets from last evening have stabilized, but not rebounded much. This tells me that while the driver for the move was based on European risk it was more of a long term fundamental puke-job rather than a move based on the news of the hour or day. This makes the market right now, as Bernacke put it, "Unusually Uncertain". If the Euro continues to strengthen along this trend then we could actually see markets exceptionally lower that are nothing but buys for the rest of the day.
Less Probability of Market Capitulation
The Euro has again become a significant driver in the market meaning that the outlook and game plan has changed. In both January and May of this year it was the buildup of a falling Euro that eventually led to the fast market sell offs. If the Euro continues its descent then there is the definite possibility of this occurring for the 3rd time this year. The supportive Physical Commodity, Equity, and Currency markets continue to hold up relatively well compared to the Euro. For right now though I am taking the stance that the market fundamentals and sentiment are different this time around. In January and May the U.S. economy was running on the fumes of government stimulus while a new package has been established and has yet to even begin. Furthermore, The Fed has pretty much decided that their game plan is to no only infuse inflation into the Economy, but to hopefully enact the "Wealth Effect" by targeting a higher stock market as well. We have yet to see how tight The Fed policy will be for the market, but I would rather pick my spots to buy rather than fight the Fed. While there is the possibility that there could be another sharp break prior to Fed intervention, I am not trading on this philosophy for now and would rather be on the sidelines than exposed to the risk of Government intervention.
Buys to Watch: (No Buys, Just a Helpful Tip)
Keep Up Charts of Commodities in Euros- I get asked all the time how I keep track of the diverse markets. The answer is organization by sorting the markets into Sectors, eliminating the ones without a story, and establishing the leader and laggard of each Sector daily to minimize the focus. Since the beginning of the year I have had an entire sector (or row on my quote board) devoted strictly to individual Commodity markets versus the Euro. This means I have each Grain, Equity Index, Crude Oil, Metal, and Currency divided by the Euro to establish the ratio. Right now the Quantitative Easing trade is generally holding up the physical Commodities (other than last evening), making it appear that with the Euro out of the equation they would prefer to rally. While this relationship may shift and the Commodities may begin to sag on their own, this means that a long position may still be profitable. While the Euro is a story I think you need to at least take a look at the Commodity vs. Euro chart prior to execution to establish whether the Euro risk is something that should be hedged or reduced. I have found some great individual relationship trades strictly based on these charts that I would not have normally found as well. If you are shorting a market I see no reason to take the Euro into account, but prior to Longs see if a short Euro would add to the trade.
Sells to Watch:
Bonds- I am giving the Bonds another shot in the Sells despite the overnight spike rally. I believe this rally was based on "run to safety" buying in response to the Asian sell off, but a move that was clearly wrong so far. This rally continued up to my next resistance level from 129.22 - 129.27 prior to reversing and actually trading lower again this morning. With the market back below the 129.05 breakout I believe that you can enter a minimal short position again based off the resistance from 128.24 - 129.06. If this resistance is violated again then it is time to hold off and wait for a test of the Bearish daily chart trend from the high Oct. 12th - Nov. 5th to be re-tested. The longer term objective remains 123.00 on the reversal pattern.
Put on the Radar:
Sell Wheat- Overnight the Wheat market fell along with all of the other Grains. The Beans and Corn were both weaker though with the Wheat the strength though. Unless proved otherwise I am concluding that this move was a liquidation of positions based on Asian demand, so it would make absolute sense that Wheat was not the weakness as Corn and Beans have more interest and demand story for now. This means I am still looking at Wheat as the best short, and likely most consistent, among the Grains. After touching the top of the triangle overnight Wednesday evening the market has fallen back to the Oct 4th - Oct 22nd base trend at $6.88 today. Below this level the market has a rough projection of $6.00 for the Dec contract ($6.40 for March). The apex is nearing for the triangle, so I think that it is important that this breakout is established by Monday at the latest. Otherwise, I expect more of a sideways decline rather than liquidation with momentum.
S&P 500 & Nasdaq- In relation to some of the other markets the Equities actually held up rather well last evening. The spike lows for each market held critical support with 1192.50 for the S&P 500 and 2142 for the Nasdaq. I think that you can continue to look at the stock market as a buy above these levels, with a move below likely producing a correction that could last several weeks.
Notes:
Canadian Dollar vs Australian Dollar (Canadian/Aussie to chart)- The Bearish trendline for the chart since early June has been violated over the last 3 days. Since the flash crash and market plummet in May the supportive markets established at least a base in early June with many of the physical Commodity markets actually rallying with strength since this date (Metals, Grains). It is no coincidence that this Currency relationship has followed the same move and the violation of this trend is a warning signal for the Commodity rally. The Aussie tends to have more volatility than the Canuck and moves directionally more during times of weakness or strength. I think it is wise to hold off for now, but long Canadian vs. Short Aussie could be a good longer term Currency trade on the horizon.
Crude Oil- There was some large liquidation in the Crude Oil market last night that took out my $86.45 stop loss level for the long position. During times when people "just want to get out" the volume based support and resistance levels are rendered basically useless, as is the case over the last 14 hours. I think Crude is way to unpredictable right now to hold a position in either direction. The trend continues to look constructive, but Bullish momentum has flagged and outright price has not rallied as much as I would expect in relation to the gains in open interest. The longer term target for Crude near $95 is still in play, but the indecision, volatility, and subdued momentum make Crude an undesirable long for right now.
Yesterday
The market began the morning weaker on continued European Debt worries and the continuation of the precipitous fall in the Euro. The Euro eventually succumbed to the pressure after a second battle with the key 1.37 level to settle at 1.3659. While the Euro ground lower throughout the day, many Commodity markets and especially the Equities performed above expectations comparatively. Following an early sell off across the board on the stock market open, the Equities actually formed a Bullish intraday trend with the worst of the other markets only trending slightly lower.
The Grain markets and inter-crop spreads were especially interesting yesterday following Informa's planting expectations for 2011. The numbers showed Corn garnering more acres from Beans than expected. This produced a sharp rally in the July'11 - Dec'11 Corn spread while the front month Dec'10 contract was lower on the day and a break in the July'11 - Nov'11 Bean spread while the front month Jan'11 contract was moderately higher on the day. This relationship between the spreads and outrights was tricky and counter-intuitive, yet explainable as the 2011 crop was the story in the spreads.
Today
Asian Sell Off
Tempered disaster struck last night at 7 pm (we'll call it a tropical storm compared to the flash crash's Category 5) when the Asian market opened. In unison it looks like the continent decided that the Irish contagion risk was too high and dumped a significant amount of Commodity positions. Markets that have stronger fundamental ties to Asian demand like the Metals, Crude Oil, Soybeans, and Bean Oil saw the sharpest declines. It just so happens though that most of these markets were also the comparative strengths and best performers amongst the broad market over the last several weeks or months. (Leader? Laggard? Who knows, but I understand why some of these hedge fund managers that have been successful for decades are deciding they have enough money to retire this year.) The break in the market until the European open was rather relentless as well. Since short term statistical trading programs have flooded the market there is usually a fade that comes into to chop out the bandwagon money riding the short term wave. This was not the case last night though as these programs were run over as the selling came fast at first and then appeared to almost wait for bids to enter to take them out.
Euro Higher?
The most curious thing this morning is that the only markets higher on my board as of 7 am are the Treasuries, Swiss Franc, Yen, and THE EURO. Since 1:30 am the Euro has actually formed a Bullish 15 minute chart trend to carry the market back above 1.37 at least temporarily. Meanwhile most of the troubled markets from last evening have stabilized, but not rebounded much. This tells me that while the driver for the move was based on European risk it was more of a long term fundamental puke-job rather than a move based on the news of the hour or day. This makes the market right now, as Bernacke put it, "Unusually Uncertain". If the Euro continues to strengthen along this trend then we could actually see markets exceptionally lower that are nothing but buys for the rest of the day.
Less Probability of Market Capitulation
The Euro has again become a significant driver in the market meaning that the outlook and game plan has changed. In both January and May of this year it was the buildup of a falling Euro that eventually led to the fast market sell offs. If the Euro continues its descent then there is the definite possibility of this occurring for the 3rd time this year. The supportive Physical Commodity, Equity, and Currency markets continue to hold up relatively well compared to the Euro. For right now though I am taking the stance that the market fundamentals and sentiment are different this time around. In January and May the U.S. economy was running on the fumes of government stimulus while a new package has been established and has yet to even begin. Furthermore, The Fed has pretty much decided that their game plan is to no only infuse inflation into the Economy, but to hopefully enact the "Wealth Effect" by targeting a higher stock market as well. We have yet to see how tight The Fed policy will be for the market, but I would rather pick my spots to buy rather than fight the Fed. While there is the possibility that there could be another sharp break prior to Fed intervention, I am not trading on this philosophy for now and would rather be on the sidelines than exposed to the risk of Government intervention.
Buys to Watch: (No Buys, Just a Helpful Tip)
Keep Up Charts of Commodities in Euros- I get asked all the time how I keep track of the diverse markets. The answer is organization by sorting the markets into Sectors, eliminating the ones without a story, and establishing the leader and laggard of each Sector daily to minimize the focus. Since the beginning of the year I have had an entire sector (or row on my quote board) devoted strictly to individual Commodity markets versus the Euro. This means I have each Grain, Equity Index, Crude Oil, Metal, and Currency divided by the Euro to establish the ratio. Right now the Quantitative Easing trade is generally holding up the physical Commodities (other than last evening), making it appear that with the Euro out of the equation they would prefer to rally. While this relationship may shift and the Commodities may begin to sag on their own, this means that a long position may still be profitable. While the Euro is a story I think you need to at least take a look at the Commodity vs. Euro chart prior to execution to establish whether the Euro risk is something that should be hedged or reduced. I have found some great individual relationship trades strictly based on these charts that I would not have normally found as well. If you are shorting a market I see no reason to take the Euro into account, but prior to Longs see if a short Euro would add to the trade.
Sells to Watch:
Bonds- I am giving the Bonds another shot in the Sells despite the overnight spike rally. I believe this rally was based on "run to safety" buying in response to the Asian sell off, but a move that was clearly wrong so far. This rally continued up to my next resistance level from 129.22 - 129.27 prior to reversing and actually trading lower again this morning. With the market back below the 129.05 breakout I believe that you can enter a minimal short position again based off the resistance from 128.24 - 129.06. If this resistance is violated again then it is time to hold off and wait for a test of the Bearish daily chart trend from the high Oct. 12th - Nov. 5th to be re-tested. The longer term objective remains 123.00 on the reversal pattern.
Put on the Radar:
Sell Wheat- Overnight the Wheat market fell along with all of the other Grains. The Beans and Corn were both weaker though with the Wheat the strength though. Unless proved otherwise I am concluding that this move was a liquidation of positions based on Asian demand, so it would make absolute sense that Wheat was not the weakness as Corn and Beans have more interest and demand story for now. This means I am still looking at Wheat as the best short, and likely most consistent, among the Grains. After touching the top of the triangle overnight Wednesday evening the market has fallen back to the Oct 4th - Oct 22nd base trend at $6.88 today. Below this level the market has a rough projection of $6.00 for the Dec contract ($6.40 for March). The apex is nearing for the triangle, so I think that it is important that this breakout is established by Monday at the latest. Otherwise, I expect more of a sideways decline rather than liquidation with momentum.
S&P 500 & Nasdaq- In relation to some of the other markets the Equities actually held up rather well last evening. The spike lows for each market held critical support with 1192.50 for the S&P 500 and 2142 for the Nasdaq. I think that you can continue to look at the stock market as a buy above these levels, with a move below likely producing a correction that could last several weeks.
Notes:
Canadian Dollar vs Australian Dollar (Canadian/Aussie to chart)- The Bearish trendline for the chart since early June has been violated over the last 3 days. Since the flash crash and market plummet in May the supportive markets established at least a base in early June with many of the physical Commodity markets actually rallying with strength since this date (Metals, Grains). It is no coincidence that this Currency relationship has followed the same move and the violation of this trend is a warning signal for the Commodity rally. The Aussie tends to have more volatility than the Canuck and moves directionally more during times of weakness or strength. I think it is wise to hold off for now, but long Canadian vs. Short Aussie could be a good longer term Currency trade on the horizon.
Crude Oil- There was some large liquidation in the Crude Oil market last night that took out my $86.45 stop loss level for the long position. During times when people "just want to get out" the volume based support and resistance levels are rendered basically useless, as is the case over the last 14 hours. I think Crude is way to unpredictable right now to hold a position in either direction. The trend continues to look constructive, but Bullish momentum has flagged and outright price has not rallied as much as I would expect in relation to the gains in open interest. The longer term target for Crude near $95 is still in play, but the indecision, volatility, and subdued momentum make Crude an undesirable long for right now.
Thursday, November 11, 2010
Thursday 11/11/10 Commodity Ideas
Opening Note:
Yesterday
The market set a weaker tone early and through the first hour after the stock market open led by a rally in the Dollar. From 8:45 - 10 am the Euro faced a strong test of the critical 1.37 level near the bottom of its month long range. The Euro eventually proved true though as its recovery over the rest of the day encouraged rallies in the Equities, Energies, and for at least a while in the Metals. The day after the November Grain Report there was a continued slide in both Wheat and Corn prices.
Today
The Euro is again testing its critical 1.37 level this morning, giving back all of yesterday's recovery overnight. While my confidence was fairly high yesterday that the Euro would find support, I am less confident this morning even though the test has been slow. The Commodity and Equity markets have performed reasonably well despite a sharp Euro sell off over the last week. However, if the flood gates open below 1.37 then I expect the supportive markets to also be pulled along. The Metals are the clear strength as of 6:30 am, but as many of the individual markets are in a volatile parabolic phase this could just as easily change as hold true for the rest of the day. The Energies are definitely the strength sector other than the Metals as Crude Oil continues to crawl to new highs while correlated markets have failed.
Below 1.37 in the Euro I expect a continued correction to 1.32 - 1.33. It is highly possible that momentum on the break would stay at a similar fast pace. Because I am looking at this as a critical point for the entire market I think it is wise to dial it back for today until the Euro gives a clear definition on its direction over the next week. If the Euro does fail I suspect that the Metals might lead a liquidation sell off, but if it holds true then I still like Crude Oil the best and most consistent. I believe the path of least resistance will be to follow the Euro in the other supportive markets, so I recommend going with rather than fighting.
I want to send a special thank you and a Happy Veterans Day to all the Veterans and Active Servicemen. Bond markets are closed for the holiday, so expect slower trade in the treasury markets. No pertinent Economic Data until Monday, so look for the battle of the European Debt versus Quantitative Easing to take the focus of the market for the next two days.
Buys to Watch:
Crude Oil- A surprising Bullish draw in Crude supplies for the EIA number yesterday sparked a midday rally in Crude. The December contract finally rallied and settled above the pesky $87.50 resistance that had stalled the market for 3 1/2 days. The intermediate profit target is still the psychological $90 level, with the long term target still from $94.95 - $96.55. Now that Crude has rallied above its smaller consolidation I am moving up the stop loss on the Long position to just below $86.45, meaning a move below this level would prompt me to exit and re-evaluate. I would view the December contract holding above $87.70 as a good signal for faster continuation. If it does not though there is a lower volume zone from $87.10 - $87.64 to buy against the support below this level to the $86.45 stop level.
Sells to Watch:
Bonds (but with some concerns)- Yesterday's close (although rather weak) confirmed the breakout below 129.05 on the Bearish reversal pattern. I realize I made an error in yesterday's letter on the Bond market Auction schedule as the auction actually took place yesterday at noon. A sharp sell off immediately followed the auction, but quickly rebounded to settle back near the highs for the session near the breakout level (a bit concerning). Today there is higher volume resistance from 128.24 - 129.06 as an area to enter a short position against with a stop loss just above this range. I recommend beginning with minimal size for entry today as a feeler with the idea of adding to the position once it establishes better Bearish momentum on pullbacks. I think it is smart to keep a tight stop on current entry because above 129.06 the next resistance zone is from 129.22 - 129.27 and above that the next is 130.16 - 130.28. If the market decides to rally above 129.06 then there will be ample opportunity to get into the market at a better price, so no reason to throw the boat at the market for now. The reversal objective for the market is 123.00.
Put on the Radar:
Buy S&P 500 & Nasdaq- First I wanted to point out the daily chart for the Nasdaq/S&P 500 ratio. The Quantitative Easing trade really began early September and the Bullish trendline for the ratio from Sept 1st - Oct. 6th is being tested currently. The Euro's test of 1.37 will likely play an integral part in whether this trend holds or fails, but a weakening of the Nasdaq in relation to the S&P 500 is a Bearish signal for the stock market. If you are trading Equities I think it is smart to keep a close eye on the Euro for the next few days.
While the Euro is testing this morning the Equities have acutally descended near or into decent zones for long entry. In the S&P 500 there is a lower volume zone from 1198.50 - 1202 with support below to 1192.50 for stop placement below. The market briefly dipped into this zone and found immediate support yesterday. For the Nasdaq there is a low volume zone from 2153 - 2159.50 with higher volume support below to 2148 for stop placement below. I think it is critical that both markets hold the 1192.50 and 2148 support levels respectively to continue holding a long position in either Index. If either fails then I expect a larger correction in the stock market over the next several weeks. Although the Nasdaq is the weaker of the two markets over the last week I believe that it is the better buy at these levels, as if the ratio trend holds and stocks rally then the Nasdaq should be the better performer.
Sell Wheat- The December Wheat contract has now traded back into the triangle range that I originally was using as a Bullish pattern breakout. The trendline from the high October 11th - November 1st sits at $7.21 3/4 today and provided resistance for the high on the overnight session. With the Bearish reaction in both Corn and Wheat following the Tuesday report I expect further pressure in both markets with Wheat the weaker of the two. I believe you can look to fade rallies against this trend for the time being.
The bigger move on the horizon though is a Bearish breakout from this same triangle pattern after shaking the tree with a Bullish move prior to the report. The base trendline is drawn from the low October 4th - October 22nd providing a value of $6.86 1/2. A Bearish breakout would produce a target near $6.00 for the December contract. I think that the RSI for the daily chart may also give an early indication whether the Wheat market will initiate this Bearish move. By drawing a Bullish trendline on the RSI from the same low October 4th you can see that the trend almost has a confirmed violation well before the Wheat prices reflect this violation. If RSI provides confirmation then I think you can begin piecing into a short position in anticipation of the longer term move.
Notes:
Yesterday
The market set a weaker tone early and through the first hour after the stock market open led by a rally in the Dollar. From 8:45 - 10 am the Euro faced a strong test of the critical 1.37 level near the bottom of its month long range. The Euro eventually proved true though as its recovery over the rest of the day encouraged rallies in the Equities, Energies, and for at least a while in the Metals. The day after the November Grain Report there was a continued slide in both Wheat and Corn prices.
Today
The Euro is again testing its critical 1.37 level this morning, giving back all of yesterday's recovery overnight. While my confidence was fairly high yesterday that the Euro would find support, I am less confident this morning even though the test has been slow. The Commodity and Equity markets have performed reasonably well despite a sharp Euro sell off over the last week. However, if the flood gates open below 1.37 then I expect the supportive markets to also be pulled along. The Metals are the clear strength as of 6:30 am, but as many of the individual markets are in a volatile parabolic phase this could just as easily change as hold true for the rest of the day. The Energies are definitely the strength sector other than the Metals as Crude Oil continues to crawl to new highs while correlated markets have failed.
Below 1.37 in the Euro I expect a continued correction to 1.32 - 1.33. It is highly possible that momentum on the break would stay at a similar fast pace. Because I am looking at this as a critical point for the entire market I think it is wise to dial it back for today until the Euro gives a clear definition on its direction over the next week. If the Euro does fail I suspect that the Metals might lead a liquidation sell off, but if it holds true then I still like Crude Oil the best and most consistent. I believe the path of least resistance will be to follow the Euro in the other supportive markets, so I recommend going with rather than fighting.
I want to send a special thank you and a Happy Veterans Day to all the Veterans and Active Servicemen. Bond markets are closed for the holiday, so expect slower trade in the treasury markets. No pertinent Economic Data until Monday, so look for the battle of the European Debt versus Quantitative Easing to take the focus of the market for the next two days.
Buys to Watch:
Crude Oil- A surprising Bullish draw in Crude supplies for the EIA number yesterday sparked a midday rally in Crude. The December contract finally rallied and settled above the pesky $87.50 resistance that had stalled the market for 3 1/2 days. The intermediate profit target is still the psychological $90 level, with the long term target still from $94.95 - $96.55. Now that Crude has rallied above its smaller consolidation I am moving up the stop loss on the Long position to just below $86.45, meaning a move below this level would prompt me to exit and re-evaluate. I would view the December contract holding above $87.70 as a good signal for faster continuation. If it does not though there is a lower volume zone from $87.10 - $87.64 to buy against the support below this level to the $86.45 stop level.
Sells to Watch:
Bonds (but with some concerns)- Yesterday's close (although rather weak) confirmed the breakout below 129.05 on the Bearish reversal pattern. I realize I made an error in yesterday's letter on the Bond market Auction schedule as the auction actually took place yesterday at noon. A sharp sell off immediately followed the auction, but quickly rebounded to settle back near the highs for the session near the breakout level (a bit concerning). Today there is higher volume resistance from 128.24 - 129.06 as an area to enter a short position against with a stop loss just above this range. I recommend beginning with minimal size for entry today as a feeler with the idea of adding to the position once it establishes better Bearish momentum on pullbacks. I think it is smart to keep a tight stop on current entry because above 129.06 the next resistance zone is from 129.22 - 129.27 and above that the next is 130.16 - 130.28. If the market decides to rally above 129.06 then there will be ample opportunity to get into the market at a better price, so no reason to throw the boat at the market for now. The reversal objective for the market is 123.00.
Put on the Radar:
Buy S&P 500 & Nasdaq- First I wanted to point out the daily chart for the Nasdaq/S&P 500 ratio. The Quantitative Easing trade really began early September and the Bullish trendline for the ratio from Sept 1st - Oct. 6th is being tested currently. The Euro's test of 1.37 will likely play an integral part in whether this trend holds or fails, but a weakening of the Nasdaq in relation to the S&P 500 is a Bearish signal for the stock market. If you are trading Equities I think it is smart to keep a close eye on the Euro for the next few days.
While the Euro is testing this morning the Equities have acutally descended near or into decent zones for long entry. In the S&P 500 there is a lower volume zone from 1198.50 - 1202 with support below to 1192.50 for stop placement below. The market briefly dipped into this zone and found immediate support yesterday. For the Nasdaq there is a low volume zone from 2153 - 2159.50 with higher volume support below to 2148 for stop placement below. I think it is critical that both markets hold the 1192.50 and 2148 support levels respectively to continue holding a long position in either Index. If either fails then I expect a larger correction in the stock market over the next several weeks. Although the Nasdaq is the weaker of the two markets over the last week I believe that it is the better buy at these levels, as if the ratio trend holds and stocks rally then the Nasdaq should be the better performer.
Sell Wheat- The December Wheat contract has now traded back into the triangle range that I originally was using as a Bullish pattern breakout. The trendline from the high October 11th - November 1st sits at $7.21 3/4 today and provided resistance for the high on the overnight session. With the Bearish reaction in both Corn and Wheat following the Tuesday report I expect further pressure in both markets with Wheat the weaker of the two. I believe you can look to fade rallies against this trend for the time being.
The bigger move on the horizon though is a Bearish breakout from this same triangle pattern after shaking the tree with a Bullish move prior to the report. The base trendline is drawn from the low October 4th - October 22nd providing a value of $6.86 1/2. A Bearish breakout would produce a target near $6.00 for the December contract. I think that the RSI for the daily chart may also give an early indication whether the Wheat market will initiate this Bearish move. By drawing a Bullish trendline on the RSI from the same low October 4th you can see that the trend almost has a confirmed violation well before the Wheat prices reflect this violation. If RSI provides confirmation then I think you can begin piecing into a short position in anticipation of the longer term move.
Notes:
Wednesday, November 10, 2010
Wednesday 11/10/10 Commodity Ideas
Opening Note:
Yesterday
Early stability in the markets held throughout the first half of the day, but an afternoon sell off followed among the supportive markets. The battle over the last 3 days has been a strengthening Dollar versus Commodity and Equity markets that still want to trend higher. The Dollar began a trending rally from 6:30 am that continued throughout the rest of the day and finally toppled the supportive markets around noon. Crude Oil broke $1.75 and the S&P 500 fell 13 points from noon until the close, but none of this compares to what happened in the Metals. The Metals settlement is established at 12:30 pm (CT) each day and is usually followed by dried up volume and volatility. From 12 pm until the 3 pm stock market close though Gold fell $42 from its highs and Silver an astounding $2.93, or exactly a 10% break top to bottom (in less than 3 hours!!!). The supportive markets have held up relatively well throughout the 3 day Dollar rally and I believe this afternoon break was clogged up momentum between the Dollar and Commodity market relationships that was overdue for a correction.
While the Grain Report yesterday morning was constructive for Soybeans, Corn and Wheat, it was only Soybeans that benefited. All three markets opened significantly higher than the previous day's and the 7:15 am close. My opinion going in was that we would see continued support in all 3 markets, but this was quickly dismantled on the open. Both Corn and Wheat plummeted within the first 5 minutes to establish a trend that would continue throughout the day to lower settlements for each market. Beans on the other hand made an impressive close 55 cents higher. Unwinding of Long Corn versus Short Bean and Short Wheat positions contributed to the movement, but the overall fundamental feeling is that the demand over the next several months will be stronger in Beans with much of the story already priced into both Wheat and Corn. More analysis to come in the Notes section.
Today
The supportive markets are relatively unchanged this morning with a "calm after the storm" vibe. The settlements in the Metals are deceiving today because they are taken from 12:30 pm rather than 2 or 3 like the rest of the markets. I guarantee you will hear on CNBC today that the "Metals plummet continues again today" (or something of that sort). In actuality though, the Metals might be the strongest Sector along with Energies since 3 pm yesterday and have managed gains rather than losses since that time.
I give better details below, but right now I believe the Euro (and therefore the Dollar) is the key market that will determine what happens over the next week. If the Euro confirms a move below 1.37 then there will likely be another 4 points on the correction with Commodity and Equity prices dragged along with it. However, if the Euro maintains at least a range above 1.37, as it has so far, then the Energies, Equities, and even the Metals look like they have corrected into areas that could support rallies over the short term.
For right now I am going to focus more on a 1 - 2 weeks out approach rather than over the next month or several. Each time that the market provides what appear to be clear and consistent signals we seem to run into either extended consolidation with 2 sided volatility, or a sharp reversal. My general opinion still is constructive markets over at least the next month, but for now I think this idea needs to be taken under a microscope to stay profitable, in the market, and most importantly sane.
Buys to Watch:
Crude Oil- Each time I suggest an entry level in Crude it seems to get run over within the next 24 hours. So, I am going to generalize and say that while the December contract hangs above $84.50 I view Crude as a buy and one of the best markets to hold a long position in. $87.50 has acted as resistance for the last four sessions to stall the market as it has consolidated. The technicals on the daily chart though all still remain in a positive mode and constructive. Yesterday's sharp break may be what the market needed to push out some of the longs and re-invigorate the rally. Intermediate target is still $90 psychological resistance with the longer term objective range from $94.95 - $96.55.
Sells to Watch:
Bonds (Wait until tomorrow for safety)- Yesterday the Bonds established a settlement below the 129.05 reversal breakout level. While the market is seeking a confirmation close today I recommend waiting until tomorrow or at least this evening before looking for entry. All technical indicators are in a negative mode, but there also is very little in the way of resistance for short entry against. Above 129.05, which was the high overnight, there really is not good volume resistance until 129.22 - 129.27. Hopefully today's trade produces some better entry parameters for later. This Bearish breakout also works well cyclically as the last 30 year auction was November 3rd with the next not until December 2nd. After the auctions the Bonds have typically declined for at least 2 weeks, so there is at least another 1 - 2 weeks of fundamental decline ahead. The reversal objective for the Bonds is 123.00 on the dot.
Put on the Radar:
Metals...What to Really Watch...Near a Top- If you are trading Gold, Silver, or any Metal for that matter you need to keep up with the Gold - Silver differential (Gold - Silver/2) and the Gold / Silver ratio (Gold/Silver). In yesterday's notes section I detailed my objectives for these weekly charts saying that these are the charts that will tell when the Metal trade tops, likely within the month and possibly within the week. The outrageous Silver rally in comparison to the smaller Gold rally early yesterday actually moved the Gold - Silver differential to my -$36 objective for the spread (way before I was expecting it to reach). At this point I luckily bought the Gold and Sold the Silver with strong support down to -$50 and what followed was a $100 rally in the spread over the next 3 hours on the $3 Silver break (literally equivalent to a $100 Gold move in 3 hours). I believe that while this was a fast reversal spike we will likely see a bottom form on the trade, which is why I am out and looking for re-entry later. This differential level clearly is "REAL" support on the weekly chart and will probably show when the Metal markets are topping rather than using the flexible technicals or market fundamentals. My guess is that this occurs within the next 2 weeks and that we will not see Silver hang above $30 for long if at all or Gold reach $1500 before there is a large correction. For now I am not suggesting the Metals as a short position, but I would hold off on new long entry for the time being as a reversal looks near based on the relationships.
Currencies (Euro & Yen)- Overnight the Euro tested the 1.37 level that has acted as a bottom on the trading range over the last month. Although the decline in the market has been sharp over the last 3 days I am looking for this level to hold for the time being. Below 1.37 a further correction between 1.32 - 1.33 is in order, which would likely mean further pressure on the supportive markets and a larger correction across the broad market. The Japanese Yen has broken out on a Bearish reversal from its own consolidation range over the same time frame this morning. Below 122.02 the market has a small reversal projection to roughly 119.62 (not a strong pattern). Looking at the Euro/Yen chart it looks like it has room to rally in the range, so it is still possible that the Yen produces this pullback while the Euro holds 1.37.
Notes:
Australian Dollar- With yesterday's set back and today's inability to recover the Aussie is off the Radar and the Buys sections. The Aussie nearly reached its pattern objective of 1.0204 - 1.0237, but proved difficult for entry and position maintenance. I think there are better markets and trades for now.
Grains- Beans up 55 cents, Corn down 8 cents, and Wheat down 14 cents paints the picture from yesterday pretty well. The Bean report was the most supportive and a bigger surprise than the others, but much of this move was relationship based and not on poor Corn or Wheat fundamentals. All of the Grains should be viewed as long term Bullish, but for the next couple months the Corn and Wheat look like the news is priced in the market without strong enough demand to be a Bullish catalyst for now. This means that I am removing my Buy suggestion on both Wheat and the July'11 - Dec'11 Corn Spread for the time being. The Soybean complex will have the best demand story in the coming months and should continue to gain in relation to Corn and Wheat. However, the charts technically have reached most of the objectives with further gains looking difficult and slow in the outright markets for now. The July'11 - Nov'11 Bean spread was a big winner yesterday up 21 cents and settling near 98 cents. This will be a spread to revisit in a couple months, but my 3rd leg objective for the spread is from $1.05 - $1.10. This makes current entry undesirable with heavy resistance at $1.00 and on a risk/reward basis for the trade.
Yesterday
Early stability in the markets held throughout the first half of the day, but an afternoon sell off followed among the supportive markets. The battle over the last 3 days has been a strengthening Dollar versus Commodity and Equity markets that still want to trend higher. The Dollar began a trending rally from 6:30 am that continued throughout the rest of the day and finally toppled the supportive markets around noon. Crude Oil broke $1.75 and the S&P 500 fell 13 points from noon until the close, but none of this compares to what happened in the Metals. The Metals settlement is established at 12:30 pm (CT) each day and is usually followed by dried up volume and volatility. From 12 pm until the 3 pm stock market close though Gold fell $42 from its highs and Silver an astounding $2.93, or exactly a 10% break top to bottom (in less than 3 hours!!!). The supportive markets have held up relatively well throughout the 3 day Dollar rally and I believe this afternoon break was clogged up momentum between the Dollar and Commodity market relationships that was overdue for a correction.
While the Grain Report yesterday morning was constructive for Soybeans, Corn and Wheat, it was only Soybeans that benefited. All three markets opened significantly higher than the previous day's and the 7:15 am close. My opinion going in was that we would see continued support in all 3 markets, but this was quickly dismantled on the open. Both Corn and Wheat plummeted within the first 5 minutes to establish a trend that would continue throughout the day to lower settlements for each market. Beans on the other hand made an impressive close 55 cents higher. Unwinding of Long Corn versus Short Bean and Short Wheat positions contributed to the movement, but the overall fundamental feeling is that the demand over the next several months will be stronger in Beans with much of the story already priced into both Wheat and Corn. More analysis to come in the Notes section.
Today
The supportive markets are relatively unchanged this morning with a "calm after the storm" vibe. The settlements in the Metals are deceiving today because they are taken from 12:30 pm rather than 2 or 3 like the rest of the markets. I guarantee you will hear on CNBC today that the "Metals plummet continues again today" (or something of that sort). In actuality though, the Metals might be the strongest Sector along with Energies since 3 pm yesterday and have managed gains rather than losses since that time.
I give better details below, but right now I believe the Euro (and therefore the Dollar) is the key market that will determine what happens over the next week. If the Euro confirms a move below 1.37 then there will likely be another 4 points on the correction with Commodity and Equity prices dragged along with it. However, if the Euro maintains at least a range above 1.37, as it has so far, then the Energies, Equities, and even the Metals look like they have corrected into areas that could support rallies over the short term.
For right now I am going to focus more on a 1 - 2 weeks out approach rather than over the next month or several. Each time that the market provides what appear to be clear and consistent signals we seem to run into either extended consolidation with 2 sided volatility, or a sharp reversal. My general opinion still is constructive markets over at least the next month, but for now I think this idea needs to be taken under a microscope to stay profitable, in the market, and most importantly sane.
Buys to Watch:
Crude Oil- Each time I suggest an entry level in Crude it seems to get run over within the next 24 hours. So, I am going to generalize and say that while the December contract hangs above $84.50 I view Crude as a buy and one of the best markets to hold a long position in. $87.50 has acted as resistance for the last four sessions to stall the market as it has consolidated. The technicals on the daily chart though all still remain in a positive mode and constructive. Yesterday's sharp break may be what the market needed to push out some of the longs and re-invigorate the rally. Intermediate target is still $90 psychological resistance with the longer term objective range from $94.95 - $96.55.
Sells to Watch:
Bonds (Wait until tomorrow for safety)- Yesterday the Bonds established a settlement below the 129.05 reversal breakout level. While the market is seeking a confirmation close today I recommend waiting until tomorrow or at least this evening before looking for entry. All technical indicators are in a negative mode, but there also is very little in the way of resistance for short entry against. Above 129.05, which was the high overnight, there really is not good volume resistance until 129.22 - 129.27. Hopefully today's trade produces some better entry parameters for later. This Bearish breakout also works well cyclically as the last 30 year auction was November 3rd with the next not until December 2nd. After the auctions the Bonds have typically declined for at least 2 weeks, so there is at least another 1 - 2 weeks of fundamental decline ahead. The reversal objective for the Bonds is 123.00 on the dot.
Put on the Radar:
Metals...What to Really Watch...Near a Top- If you are trading Gold, Silver, or any Metal for that matter you need to keep up with the Gold - Silver differential (Gold - Silver/2) and the Gold / Silver ratio (Gold/Silver). In yesterday's notes section I detailed my objectives for these weekly charts saying that these are the charts that will tell when the Metal trade tops, likely within the month and possibly within the week. The outrageous Silver rally in comparison to the smaller Gold rally early yesterday actually moved the Gold - Silver differential to my -$36 objective for the spread (way before I was expecting it to reach). At this point I luckily bought the Gold and Sold the Silver with strong support down to -$50 and what followed was a $100 rally in the spread over the next 3 hours on the $3 Silver break (literally equivalent to a $100 Gold move in 3 hours). I believe that while this was a fast reversal spike we will likely see a bottom form on the trade, which is why I am out and looking for re-entry later. This differential level clearly is "REAL" support on the weekly chart and will probably show when the Metal markets are topping rather than using the flexible technicals or market fundamentals. My guess is that this occurs within the next 2 weeks and that we will not see Silver hang above $30 for long if at all or Gold reach $1500 before there is a large correction. For now I am not suggesting the Metals as a short position, but I would hold off on new long entry for the time being as a reversal looks near based on the relationships.
Currencies (Euro & Yen)- Overnight the Euro tested the 1.37 level that has acted as a bottom on the trading range over the last month. Although the decline in the market has been sharp over the last 3 days I am looking for this level to hold for the time being. Below 1.37 a further correction between 1.32 - 1.33 is in order, which would likely mean further pressure on the supportive markets and a larger correction across the broad market. The Japanese Yen has broken out on a Bearish reversal from its own consolidation range over the same time frame this morning. Below 122.02 the market has a small reversal projection to roughly 119.62 (not a strong pattern). Looking at the Euro/Yen chart it looks like it has room to rally in the range, so it is still possible that the Yen produces this pullback while the Euro holds 1.37.
Notes:
Australian Dollar- With yesterday's set back and today's inability to recover the Aussie is off the Radar and the Buys sections. The Aussie nearly reached its pattern objective of 1.0204 - 1.0237, but proved difficult for entry and position maintenance. I think there are better markets and trades for now.
Grains- Beans up 55 cents, Corn down 8 cents, and Wheat down 14 cents paints the picture from yesterday pretty well. The Bean report was the most supportive and a bigger surprise than the others, but much of this move was relationship based and not on poor Corn or Wheat fundamentals. All of the Grains should be viewed as long term Bullish, but for the next couple months the Corn and Wheat look like the news is priced in the market without strong enough demand to be a Bullish catalyst for now. This means that I am removing my Buy suggestion on both Wheat and the July'11 - Dec'11 Corn Spread for the time being. The Soybean complex will have the best demand story in the coming months and should continue to gain in relation to Corn and Wheat. However, the charts technically have reached most of the objectives with further gains looking difficult and slow in the outright markets for now. The July'11 - Nov'11 Bean spread was a big winner yesterday up 21 cents and settling near 98 cents. This will be a spread to revisit in a couple months, but my 3rd leg objective for the spread is from $1.05 - $1.10. This makes current entry undesirable with heavy resistance at $1.00 and on a risk/reward basis for the trade.
Tuesday, November 9, 2010
Tuesday 11/9/10 Commodity Ideas
Opening Note:
Yesterday
Concerns over European PIIGS countries default has taken over the spotlight again the last couple sessions. The Euro settled over a full point lower for the second consecutive day leading the Dollar higher and changing the market landscape across the board. With the Euro the stand out laggard market it was not difficult to outperform, but taking into account the Euro sell off the market was actually impressively firm. The other foreign Currencies, Equities, and Energies all ended the day only slightly lower to unchanged, defying the strong inverse correlation between the U.S. Dollar and the supportive markets. The Metals were off in their own universe yet again as Silver settled over 60 cents higher and Gold above $1400 as the entire sector posted impressive gains. Lastly, Wheat led the Grain sector as the market confirmed it's Bullish technical breakout with an impressive close prior to today's report.
Today
Every supportive market is higher this morning as of 7:15 am, but in most cases only slightly. The Euro is again the laggard of the Currencies and possibly the entire market. The Euro consistently seems to find pressure on nearly every rally attempt. The inablility of the Euro to rally has seeped over into the Equity and Energy markets to produce only small gains thus far in markets that, all outside markets neutral, still look like they want to continue higher. The Metals are near Jupiter again. Much is made about Gold, but Silver, Copper, and Palladium are off to the races. Silver is trading over $28 this morning, and if you recall, was trading below $24 for a brief period just Wednesday of last week. Finally, the Grain markets found support overnight on a steady climb higher into this morning's report. The trade definitely is anticipating supportive data as each market and the spreads has made the rally.
Grain Report: The Grain Report is out and I would call it moderately Bullish at least for Corn, Soybeans, and Wheat. Both the Corn and Bean production and yield numbers fell slightly below the average estimate, but still within the range (Bullish). The Soybeans actually are the slightest bit more Bullish than the Corn overall. Ending Stocks for Corn, Beans, and Wheat all fell below the average trade guess, but again still within the range of estimates (Again Bullish). All of these ending stocks numbers imply tightness in the respective markets globally going forward with demand strong.
I expect the grains to get a big boost on the open this morning with Beans and Wheat leading the sector. The Wheat Call spread and the July '11 - Dec'11 Corn spread I suggested the last few days should both see gains throughout the day.
Buys to Watch:
Crude Oil- Although the indicators are nearly unanimously in overbought territory Crude Oil remains in a constructive mode across the board still. The long term range target of $94.95 - $96.55 is still in good standing with intermediate resistance around $90 as a potential rest stop to take profits and reassess. The Metals are the decided leading sector among the market over the last week, but Crude Oil and the Energies are definitely in second over this time period in spite of the Dollar rally. Today there is not a great specific level for new entry, but after finding support near $85.90 on consecutive days I expect higher volume support from $86.46 - $87.10 to hold. This is a good area intraday to enter a long position against with a stop below. Crude Oil has traded in a range over the last 48 hours with $87.40 - $87.50 continuously posing resistance. After this consolidation I expect Crude to finally rally above this range by this afternoon's close.
July'11 - Dec'11 Corn Spread- With confirmed support near 50 cents and the Bullish report this morning the spread now has the base and catalyst to rally. Now that the Dec'10 - Dec'11 Deutsche Bank Corn roll is officially over there will be less resistance on the spread and should unleash some coiling Bullish momentum. I do not have a reasonable guess right now where the spread will open this morning, so providing entry parameters is difficult. I do think that if you buy the open though you will come out a winner by the end of the day. The 3rd leg objective for the spread is $1.10. For today it may also be a better idea to look at buying the Dec'10 - Dec'11 spread. The Dec'10 - July'11 portion of the spread will likely also come in as Bear spreaders doing the roll will likely puke this morning to add a few cents to the position.
Wheat (All of the Grains)- All of the Grains are probably a buy on the open this morning, but technically over the next couple weeks I still like the Wheat chart the most. Yesterday's close above $7.24 confirmed the Bullish triangle pattern and market objective of $8.20. I believe $8.20 is a minimum on the move for the time being. This objective is based just on the smaller portion of the wedge/triangle pattern over the last few weeks and does not take into account the consolidation over the previous month. $8.60 is a reasonable possibility based on this longer term pattern. Buy the open.
Sells to Watch:
Put on the Radar:
Euro- The Euro looks like it could be a chop job over the next couple weeks as Quantitative Easing and European Default Risk battles it out fundamentally. The technicals and volume support/resistance levels have basically been ignored this for the last few days, so I consider the Euro neither a buy nor a sell until there is more clarity. The Euro settled below the Oct. 15th - Oct. 25th triangle pattern breakout trendline yesterday, but looks to have recovered above today's 1.3918 level. Keep an eye on today's settlement, but I recommend staying out of the Euro and focusing elsewhere for today.
Australian Dollar- The Bullish cup and handle pattern has an objective range of 1.0204 - 1.0237 still for the short term move. Yet again today there is not a good setup for new long entry. As the Aussie is now nearing this objective, advising new entry is awfully difficult as well. This is one of those trades where you are right on the move, but can not get in or hold it. Hopefully better luck next time.
Notes:
When Will the Metal Rally End?- Screw the fundamentals. Screw the technicals for the individual charts. Screw the long term Bull Market. I am keeping my eye on 3 charts right now that should provide an accurate picture of when the 3 month rally is ending.
Number one is the Gold- Silver differential weekly chart (Gold - Silver/2 to chart). On August 16th the differential was up near $325 premium the Gold, but as of today has moved all the way to a slight premium Silver. The weekly chart has a large double top that was set off on this fast Silver rally that has a projection of roughly -$36 (meaning premium Silver) for the pattern. As the spread has already moved $325 another $36 is not that big of a move left with a large amount of old support falling from -$50 to $0 to further support this final objective.
Number two is Gold/Silver, again as a weekly chart. A couple months ago the chart set off a continuation triangle pattern in favor of Silver that has supported the move over the last few months. I am again looking for old support from 45 - 50 providing support with the pattern objective of roughly 47.5 adding to the case.
Number three is Gold/Euro. Looking at a daily chart over the last year you can see that the spread bounced off of the longer term trendline for the last year once again. If this trendline is violated then I expect liquidation out of this long term position that has been touted by the likes of Gartman since the beginning of the year.
All of this considered I think that the Metals only have until the end of the month at most (if not only another week). I am looking at $30 in Silver as an area to watch the price action around as this could be the psychological resistance that reverses the rally. For now I am still Bullish for Gold, Silver, and the rest of the Metals technically, fundamentally, and market relationship-based. However, once some of these indicator charts reach there objectives I think it is time to look at the Metals with a bit more skepticism.
Yesterday
Concerns over European PIIGS countries default has taken over the spotlight again the last couple sessions. The Euro settled over a full point lower for the second consecutive day leading the Dollar higher and changing the market landscape across the board. With the Euro the stand out laggard market it was not difficult to outperform, but taking into account the Euro sell off the market was actually impressively firm. The other foreign Currencies, Equities, and Energies all ended the day only slightly lower to unchanged, defying the strong inverse correlation between the U.S. Dollar and the supportive markets. The Metals were off in their own universe yet again as Silver settled over 60 cents higher and Gold above $1400 as the entire sector posted impressive gains. Lastly, Wheat led the Grain sector as the market confirmed it's Bullish technical breakout with an impressive close prior to today's report.
Today
Every supportive market is higher this morning as of 7:15 am, but in most cases only slightly. The Euro is again the laggard of the Currencies and possibly the entire market. The Euro consistently seems to find pressure on nearly every rally attempt. The inablility of the Euro to rally has seeped over into the Equity and Energy markets to produce only small gains thus far in markets that, all outside markets neutral, still look like they want to continue higher. The Metals are near Jupiter again. Much is made about Gold, but Silver, Copper, and Palladium are off to the races. Silver is trading over $28 this morning, and if you recall, was trading below $24 for a brief period just Wednesday of last week. Finally, the Grain markets found support overnight on a steady climb higher into this morning's report. The trade definitely is anticipating supportive data as each market and the spreads has made the rally.
Grain Report: The Grain Report is out and I would call it moderately Bullish at least for Corn, Soybeans, and Wheat. Both the Corn and Bean production and yield numbers fell slightly below the average estimate, but still within the range (Bullish). The Soybeans actually are the slightest bit more Bullish than the Corn overall. Ending Stocks for Corn, Beans, and Wheat all fell below the average trade guess, but again still within the range of estimates (Again Bullish). All of these ending stocks numbers imply tightness in the respective markets globally going forward with demand strong.
I expect the grains to get a big boost on the open this morning with Beans and Wheat leading the sector. The Wheat Call spread and the July '11 - Dec'11 Corn spread I suggested the last few days should both see gains throughout the day.
Buys to Watch:
Crude Oil- Although the indicators are nearly unanimously in overbought territory Crude Oil remains in a constructive mode across the board still. The long term range target of $94.95 - $96.55 is still in good standing with intermediate resistance around $90 as a potential rest stop to take profits and reassess. The Metals are the decided leading sector among the market over the last week, but Crude Oil and the Energies are definitely in second over this time period in spite of the Dollar rally. Today there is not a great specific level for new entry, but after finding support near $85.90 on consecutive days I expect higher volume support from $86.46 - $87.10 to hold. This is a good area intraday to enter a long position against with a stop below. Crude Oil has traded in a range over the last 48 hours with $87.40 - $87.50 continuously posing resistance. After this consolidation I expect Crude to finally rally above this range by this afternoon's close.
July'11 - Dec'11 Corn Spread- With confirmed support near 50 cents and the Bullish report this morning the spread now has the base and catalyst to rally. Now that the Dec'10 - Dec'11 Deutsche Bank Corn roll is officially over there will be less resistance on the spread and should unleash some coiling Bullish momentum. I do not have a reasonable guess right now where the spread will open this morning, so providing entry parameters is difficult. I do think that if you buy the open though you will come out a winner by the end of the day. The 3rd leg objective for the spread is $1.10. For today it may also be a better idea to look at buying the Dec'10 - Dec'11 spread. The Dec'10 - July'11 portion of the spread will likely also come in as Bear spreaders doing the roll will likely puke this morning to add a few cents to the position.
Wheat (All of the Grains)- All of the Grains are probably a buy on the open this morning, but technically over the next couple weeks I still like the Wheat chart the most. Yesterday's close above $7.24 confirmed the Bullish triangle pattern and market objective of $8.20. I believe $8.20 is a minimum on the move for the time being. This objective is based just on the smaller portion of the wedge/triangle pattern over the last few weeks and does not take into account the consolidation over the previous month. $8.60 is a reasonable possibility based on this longer term pattern. Buy the open.
Sells to Watch:
Put on the Radar:
Euro- The Euro looks like it could be a chop job over the next couple weeks as Quantitative Easing and European Default Risk battles it out fundamentally. The technicals and volume support/resistance levels have basically been ignored this for the last few days, so I consider the Euro neither a buy nor a sell until there is more clarity. The Euro settled below the Oct. 15th - Oct. 25th triangle pattern breakout trendline yesterday, but looks to have recovered above today's 1.3918 level. Keep an eye on today's settlement, but I recommend staying out of the Euro and focusing elsewhere for today.
Australian Dollar- The Bullish cup and handle pattern has an objective range of 1.0204 - 1.0237 still for the short term move. Yet again today there is not a good setup for new long entry. As the Aussie is now nearing this objective, advising new entry is awfully difficult as well. This is one of those trades where you are right on the move, but can not get in or hold it. Hopefully better luck next time.
Notes:
When Will the Metal Rally End?- Screw the fundamentals. Screw the technicals for the individual charts. Screw the long term Bull Market. I am keeping my eye on 3 charts right now that should provide an accurate picture of when the 3 month rally is ending.
Number one is the Gold- Silver differential weekly chart (Gold - Silver/2 to chart). On August 16th the differential was up near $325 premium the Gold, but as of today has moved all the way to a slight premium Silver. The weekly chart has a large double top that was set off on this fast Silver rally that has a projection of roughly -$36 (meaning premium Silver) for the pattern. As the spread has already moved $325 another $36 is not that big of a move left with a large amount of old support falling from -$50 to $0 to further support this final objective.
Number two is Gold/Silver, again as a weekly chart. A couple months ago the chart set off a continuation triangle pattern in favor of Silver that has supported the move over the last few months. I am again looking for old support from 45 - 50 providing support with the pattern objective of roughly 47.5 adding to the case.
Number three is Gold/Euro. Looking at a daily chart over the last year you can see that the spread bounced off of the longer term trendline for the last year once again. If this trendline is violated then I expect liquidation out of this long term position that has been touted by the likes of Gartman since the beginning of the year.
All of this considered I think that the Metals only have until the end of the month at most (if not only another week). I am looking at $30 in Silver as an area to watch the price action around as this could be the psychological resistance that reverses the rally. For now I am still Bullish for Gold, Silver, and the rest of the Metals technically, fundamentally, and market relationship-based. However, once some of these indicator charts reach there objectives I think it is time to look at the Metals with a bit more skepticism.
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