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: