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.