Opening Note:
Over the Christmas holiday China finally raised interest rates 1/4 percent to back up months of speculation on the issue. This was an intentionally sneaky move as hints have been leaked for weeks to brace the market and minimal damage was done over the slow weekend. Most of the market is lower still at noon today, but I am very impressed with the price action following the news. The Energies, Equities, Metals, and Foreign Currencies are only slightly lower overall. Meanwhile, the Grain Sector is strong thanks to the Soybean market amid Argentinian weather concerns.
For months, if not years, I have read analysts that predicted this Chinese "bubble" burst as the next catalyst to for another Bearish global market wash lower. The rationale made sense to me on a certain level along with the some of the evidence provided. I have to say that I am completely underwhelmed by the market reaction thus far though. The first stone has dropped and the market could not be less concerned.
I am adamantly Bullish on Physical Commodities for the coming 2011 year, especially Soybeans and Grains in general. I was actually hoping for maybe a 50 cent break in Beans once China did begin to raise rates to piece into some July call options. The Soybean market has instead rallied off of the news with Beans trading 25 cents higher mid-day. Until the market reacts differently to Chinese inflation curbing I believe that you must trade the Commodity and Equity markets with a Bullish bias once 2011 begins. To begin the year I believe that the Energy (minus Natural Gas) and Grain Sectors will be the leaders.
For this week the market will be slow with the possibility for some rogue moves. Most trade ideas are on the radar for now. I will write again later this week if I have new observations or trade ideas, but this may be the letter for the week.
Buys to Watch:
March'11 - May'11 Soybean Spread (May-July Too)- Last Monday I called for the March - May Soybean spread to find a bottom between (-8) - (-9). On Tuesday the spread widened to -8 1/4 cents, but this was the low tick as the market has since reversed. Bullish fundamentals based on Argentinian weather, increased export sales, and supply concerns for the coming year have caused the outright Bean market to rally and this spread to come in recently. There is also sentiment that the USDA will tighten supplies on the upcoming Jan. 12th crop report. I still believe that his March - May as well as the May - July spread is a great vehicle to play the Bullish Soybean story for the 2011 year. I do not believe that March - May will widen past -8 again in the near term and will come in to at least -2 within the next month. The May - July should not widen past -3 1/4 as well and will likely at least test the November 12th high of 3 cents inverted. Continue piecing into Bull spreads each time they widen.
Sells to Watch:
Put on the Radar:
Weekly Soybean Chart- Last week the front month January Soybean contract made a second consecutive close above the $12.91 1/4 high from 2009. The weekly chart now has an objective of $17.03, which will likely be reached by July of 2011. The technicals combined with the fundamentals of the Soybean market combine to make a very strong Bullish case over the spring and summer of the coming year. I believe that Beans will at least reach $18 if not more before all is said and done in 2011. Now that there is technical confirmation I recommend building a Bullish options position on breaks in the market. I personally like the $16 - $18 July call spread trading roughly 30 cents as of today. I believe there is a strong possibility to triple or quadruple this initial risk.
Possible Gold Bearish Head and Shoulders- The daily Gold chart has now ditched its Bullish trend line and is trading in more of a sideways range over the last couple months. From the low on Nov. 26 - Dec. 16 there is a neckline for a Bearish head and shoulders pattern at $1356.7 today. Clearly it will not be initiated today, but the pattern projects a move of $75.9 from the breakout level.
Buy Crude Oil- I now have a 2nd leg target of $97.71 for February Crude Oil based on the daily chart. I believe that Crude will be the one of the strongest performers to begin the new year as new allocation flows into the lagging sector. A breakout below the 4 month range in the Gold/Crude Oil chart technically supports this theory as well. There is some moderate volume support from $90.18 - $90.44 that the market found a base near this morning prior to reversing. Any pullback based on China looks like a good opportunity to buy this market, so if there is another test of this support I believe it is worth an initial position.
Buy Yield Curve Flattening (Buy Bonds vs. Sell 5 Years)- To chart this spread enter (Bonds*3 - 5 Years *7). The daily chart is nearing a Bullish cup and handle breakout above -457.03 that projects a move to -451.15. The execution ratio for the trade is Long 3 Bonds vs. Short 7 Five Year Notes. Because this is nearly 1:2 you can also use this execution ratio for smaller positions if you convert the chart to (Bonds - 5 Year Notes *2). It is prudent to wait for 2 consecutive closes above the breakout for confirmation prior to entry so just keep this trade on the radar for now.
Notes:
Euro Has Not Made New Lows- For all the talk of a weak Euro or a 3rd leg lower the market still has not made a new low below the November 30th 1.2963 trade. Momentum now looks to possibly turn Bullish for the Euro with Stochastics and RSI both nearing buy signals on the daily chart. I am not looking at the Euro as a buy just yet, but I am definitely avoiding a short bias for now on this possible reversal. If the Euro trades above 1.35 within the next couple weeks then expect a move back to 1.40.
Monday, December 27, 2010
Monday, December 20, 2010
Monday 12/20/10 Commodity Ideas
Opening Note:
Trade Light
Talking about what happened yesterday or the day prior is less useful right now. What the markets are showing is an unclear picture that is full of chop day to day. The relationships between the markets make sense one morning, but little the next. The technicals and chart patterns are difficult because of the vast amount of reversals. And, there are many battling fundamental stories yet not one real one to override them all. There is a reason I have only had a couple trade suggestions for the entire month. As the second half of December begins I expect that the randomness will increase rather than retreat. I think it is smart to tighten up the reins now and make sure that this rangy December does not hit the account too hard before a fresh 2011 begins.
Treasury Talk
The one thing that is clear over the last month is that the Treasury markets are getting annihilated, with Bonds taking the biggest hit. I began calling for a technical top on the Bonds the latter half of October, but I was not expecting this much liquidation before the end of the year. A lot of big money was certainly caught off guard by the the violent reversal from the prevailing trend since April. The Bulls thinking was The Fed is continuing to purchase Treasuries with the intention of keeping rates low to stimulate the economy, therefore prices will rise. This logic has proved faulty over the last two months though and there are a number of reasons this could be.
First is the theory that interest rates are rising because we are seeing real improvement in the economy. As someone that studies the market relationships, I had a difficult time over the summer substantiating why exactly the Bond market was rallying out of "fear" yet the stock market and Commodities held their value relatively well at the same time. It is possible that this relationship is finally snapping back into line with the stock market prevailing. I definitely think that this is part of the story, but I have a difficult time buying into this as the driving idea until the data and Unemployment show bigger signs of growth. Second is the thought that comparatively the Treasury markets have less value at current levels than Commodities, Equities, or other assets. I agree with this assumption. However, since early November when Treasuries initiated their top we have not seen dramatic inflows into Equities, Commodities, or even the Dollar. Comparative value makes sense, but it is not the culprit here.
The third theory (and the one I buy the most for the current move) is that the outstanding U.S. debt has now reached a level that the Treasury markets are beginning to price in more risk. Fundamental analysts have predicted this scenario for years, but with QE 2 underway and the possibility of QE 3, 4, or 5 in the future the vigilantes might have finally woken up. If this turns out to be the real reason for the move then some interesting relationship reversals would occur in the market. Instead of the inverse relationship between Treasury prices and Equities we would likely see the two travel more in unison (U.S. debt concerns would likely mean weaker Equity markets). This would also be interesting for Commodity prices, which could rise as interest rates do on inflationary pressures. Treasury Prices Down, Equity Prices Down, Commodity Prices Up could be the new relationship standard...hmm.
Nothing is certain for now and I am just speculating. It is surely some combination of all 3 theories (and others) causing the current Treasury liquidation. The Treasuries are the sector to watch going forward though. I believe they will be the guide to the new market relationships once we get a better understanding of the driving factor for these Treasury moves.
Today
Nearly all of the markets are higher on the day, including even the risk aversion category. Cotton is already locked limit up as it has advanced to new yearly highs. The Grain markets are strong across the board after constructive closes in both Corn and Beans last week. The Euro is the clear laggard of the entire market this morning as it tests the lower end of its recent range. The Euro is the only market lower as of 7:30 am. After watching the Metal open this morning I also am underwhelmed by Silver's performance so far. It is still higher, but it is lagging to Gold. I expect Silver to be much stronger on a morning when my entire board is green, although it is still early.
Buys to Watch:
March '11 - May '11 Soybean Spread- The consensus believes that you begin bull spreading the Grain delivery spreads on the 3rd or 4th day of the Goldman Roll, which was around December 10th this month. Many spread traders began bull spreading the Jan/March spread from (-9) - (-10) and some of the bold ones have added more from (-10) - (-11). Now that it has leaked out past -11 though and out to -12 there is a lot of puking going on. It appears that many traders loaded their full position on this spread too early and are now running over each other to reduce the position size.
A perfect storm of cash, fundamentals, and over-subscription caused the Jan/Mch to move out so far. China dried up in the market and wants to stall cargo, cold weather has stalled the pipeline, overall exports continue to fall below expectations, and the commercials have not stepped in to cash in their profit yet . I think this is one of those times every couple years that if you sit out of the spreads that you can take advantage of an unusual opportunity.
Because Jan/March goes into delivery at the end of December, traders that are not on a membership can not take this position. If this is the case then bull spreading March/May is the way to take advantage. The same guys that are overloaded on the Jan/Mch are overloaded on the Mch/May as well and are puking as it moves further out than expected. We know though that China will come back into the market at some point despite their recent withdrawal and any sort of weather problems in South America or a Bullish Jan. Crop Report should bring Mch/May in. Technically this leg lower for the spread projects to - 8 1/2 and I expect that (-8) - (-9) will be the range where this spread bottoms out. For now I recommend piecing into the position between this range with the goal of putting half of a full position size on, or what you would feel comfortable holding for possibly several weeks. The spread is still in free fall, so it is wise to keep some ammo in case it does move out further. I believe that the prospect of a move in to -2 or better is likely over the next month and a half with a number of possible Bullish catalysts over that time frame.
Sells to Watch:
Put on the Radar:
January Soybean Meal Bullish Pattern- Two consecutive settlements above $353.8 for the January Soy Meal contract projects a move to new yearly highs of $374.6. Over the Soybean Bull trend the Bean Oil has outperformed the Meal, but for now the differential between the two products is correcting and does not favor the Oil. Daily chart Stochastics produced a Bullish cross over Friday and MACD looks like it may also produce a buy signal with a strong close today.
Gold Trend Violation...Or Not- The Bullish trend line on the daily chart for Gold from the low July 28- Nov. 16 was violated with two consecutive settlements lower Thursday and Friday. Despite hitting some patches of Bearish stops over the last two days the market has held up relatively well though. This morning Gold is trading back above the trend value of $1382.3 today. It looks like it is a waiting game for Gold now before a possible price correction. The trend continues to climb higher and the price of Gold will have to as well to avoid some liquidation. $1300 is near the 50% reatracement for the entire move since late July and is a likely target for a pullback if it occurs.
Silver Trend Still Strong, But Gaining- Gold's trend has been violated, but Silver's is still intact. Silver has adopted the trend from the low Nov. 17 - Nov. 29 that is sitting at $29.19 today. The major trend on the daily chart from the low Aug. 24 - Oct. 22 at $27.84 is also in good standing. For now it looks like the next short term move in Silver will be higher with an advance above $29.985 projecting to $31.62. However, if the price does decline below the recent $28.01 swing low then it would produce an objective of $26.04 and likely violate the major trend. Like Gold, Silver is a waiting game for now. The Bullish trend has extended for such a long time that the market is well overdue for a correction. Until a move outside the trading range is established though it is best to just watch and wait.
Gold/Silver Bear Trend Nearly Over- I have discussed the differential between Gold and Silver in the past, but since it has run through support I have removed it from my radar. The important chart for the Metals is now the ratio between the Gold and Silver. The bear trend from the high Aug. 23 - Oct. 22 sits at 47.24 today with today's settlement possibly violating this line for the first time since it was established. If this trend does end then it is a signal that the correction in Metals is on the horizon.
Notes:
Soybean Weekly Chart- For the first time this year Soybeans have made a front month contract weekly close above the $12.91 1/4 swing high from June 2009. On Friday the January contract settled at $12.98 3/4 in spite of a Bearish Informa report that predicted an increase in planted Bean acres versus Corn acres for 2011. A second consecutive weekly close above this level Friday would produce the longer term objective of $17.03 for Soybeans, likely some time in the Summer of 2011.
Trade Light
Talking about what happened yesterday or the day prior is less useful right now. What the markets are showing is an unclear picture that is full of chop day to day. The relationships between the markets make sense one morning, but little the next. The technicals and chart patterns are difficult because of the vast amount of reversals. And, there are many battling fundamental stories yet not one real one to override them all. There is a reason I have only had a couple trade suggestions for the entire month. As the second half of December begins I expect that the randomness will increase rather than retreat. I think it is smart to tighten up the reins now and make sure that this rangy December does not hit the account too hard before a fresh 2011 begins.
Treasury Talk
The one thing that is clear over the last month is that the Treasury markets are getting annihilated, with Bonds taking the biggest hit. I began calling for a technical top on the Bonds the latter half of October, but I was not expecting this much liquidation before the end of the year. A lot of big money was certainly caught off guard by the the violent reversal from the prevailing trend since April. The Bulls thinking was The Fed is continuing to purchase Treasuries with the intention of keeping rates low to stimulate the economy, therefore prices will rise. This logic has proved faulty over the last two months though and there are a number of reasons this could be.
First is the theory that interest rates are rising because we are seeing real improvement in the economy. As someone that studies the market relationships, I had a difficult time over the summer substantiating why exactly the Bond market was rallying out of "fear" yet the stock market and Commodities held their value relatively well at the same time. It is possible that this relationship is finally snapping back into line with the stock market prevailing. I definitely think that this is part of the story, but I have a difficult time buying into this as the driving idea until the data and Unemployment show bigger signs of growth. Second is the thought that comparatively the Treasury markets have less value at current levels than Commodities, Equities, or other assets. I agree with this assumption. However, since early November when Treasuries initiated their top we have not seen dramatic inflows into Equities, Commodities, or even the Dollar. Comparative value makes sense, but it is not the culprit here.
The third theory (and the one I buy the most for the current move) is that the outstanding U.S. debt has now reached a level that the Treasury markets are beginning to price in more risk. Fundamental analysts have predicted this scenario for years, but with QE 2 underway and the possibility of QE 3, 4, or 5 in the future the vigilantes might have finally woken up. If this turns out to be the real reason for the move then some interesting relationship reversals would occur in the market. Instead of the inverse relationship between Treasury prices and Equities we would likely see the two travel more in unison (U.S. debt concerns would likely mean weaker Equity markets). This would also be interesting for Commodity prices, which could rise as interest rates do on inflationary pressures. Treasury Prices Down, Equity Prices Down, Commodity Prices Up could be the new relationship standard...hmm.
Nothing is certain for now and I am just speculating. It is surely some combination of all 3 theories (and others) causing the current Treasury liquidation. The Treasuries are the sector to watch going forward though. I believe they will be the guide to the new market relationships once we get a better understanding of the driving factor for these Treasury moves.
Today
Nearly all of the markets are higher on the day, including even the risk aversion category. Cotton is already locked limit up as it has advanced to new yearly highs. The Grain markets are strong across the board after constructive closes in both Corn and Beans last week. The Euro is the clear laggard of the entire market this morning as it tests the lower end of its recent range. The Euro is the only market lower as of 7:30 am. After watching the Metal open this morning I also am underwhelmed by Silver's performance so far. It is still higher, but it is lagging to Gold. I expect Silver to be much stronger on a morning when my entire board is green, although it is still early.
Buys to Watch:
March '11 - May '11 Soybean Spread- The consensus believes that you begin bull spreading the Grain delivery spreads on the 3rd or 4th day of the Goldman Roll, which was around December 10th this month. Many spread traders began bull spreading the Jan/March spread from (-9) - (-10) and some of the bold ones have added more from (-10) - (-11). Now that it has leaked out past -11 though and out to -12 there is a lot of puking going on. It appears that many traders loaded their full position on this spread too early and are now running over each other to reduce the position size.
A perfect storm of cash, fundamentals, and over-subscription caused the Jan/Mch to move out so far. China dried up in the market and wants to stall cargo, cold weather has stalled the pipeline, overall exports continue to fall below expectations, and the commercials have not stepped in to cash in their profit yet . I think this is one of those times every couple years that if you sit out of the spreads that you can take advantage of an unusual opportunity.
Because Jan/March goes into delivery at the end of December, traders that are not on a membership can not take this position. If this is the case then bull spreading March/May is the way to take advantage. The same guys that are overloaded on the Jan/Mch are overloaded on the Mch/May as well and are puking as it moves further out than expected. We know though that China will come back into the market at some point despite their recent withdrawal and any sort of weather problems in South America or a Bullish Jan. Crop Report should bring Mch/May in. Technically this leg lower for the spread projects to - 8 1/2 and I expect that (-8) - (-9) will be the range where this spread bottoms out. For now I recommend piecing into the position between this range with the goal of putting half of a full position size on, or what you would feel comfortable holding for possibly several weeks. The spread is still in free fall, so it is wise to keep some ammo in case it does move out further. I believe that the prospect of a move in to -2 or better is likely over the next month and a half with a number of possible Bullish catalysts over that time frame.
Sells to Watch:
Put on the Radar:
January Soybean Meal Bullish Pattern- Two consecutive settlements above $353.8 for the January Soy Meal contract projects a move to new yearly highs of $374.6. Over the Soybean Bull trend the Bean Oil has outperformed the Meal, but for now the differential between the two products is correcting and does not favor the Oil. Daily chart Stochastics produced a Bullish cross over Friday and MACD looks like it may also produce a buy signal with a strong close today.
Gold Trend Violation...Or Not- The Bullish trend line on the daily chart for Gold from the low July 28- Nov. 16 was violated with two consecutive settlements lower Thursday and Friday. Despite hitting some patches of Bearish stops over the last two days the market has held up relatively well though. This morning Gold is trading back above the trend value of $1382.3 today. It looks like it is a waiting game for Gold now before a possible price correction. The trend continues to climb higher and the price of Gold will have to as well to avoid some liquidation. $1300 is near the 50% reatracement for the entire move since late July and is a likely target for a pullback if it occurs.
Silver Trend Still Strong, But Gaining- Gold's trend has been violated, but Silver's is still intact. Silver has adopted the trend from the low Nov. 17 - Nov. 29 that is sitting at $29.19 today. The major trend on the daily chart from the low Aug. 24 - Oct. 22 at $27.84 is also in good standing. For now it looks like the next short term move in Silver will be higher with an advance above $29.985 projecting to $31.62. However, if the price does decline below the recent $28.01 swing low then it would produce an objective of $26.04 and likely violate the major trend. Like Gold, Silver is a waiting game for now. The Bullish trend has extended for such a long time that the market is well overdue for a correction. Until a move outside the trading range is established though it is best to just watch and wait.
Gold/Silver Bear Trend Nearly Over- I have discussed the differential between Gold and Silver in the past, but since it has run through support I have removed it from my radar. The important chart for the Metals is now the ratio between the Gold and Silver. The bear trend from the high Aug. 23 - Oct. 22 sits at 47.24 today with today's settlement possibly violating this line for the first time since it was established. If this trend does end then it is a signal that the correction in Metals is on the horizon.
Notes:
Soybean Weekly Chart- For the first time this year Soybeans have made a front month contract weekly close above the $12.91 1/4 swing high from June 2009. On Friday the January contract settled at $12.98 3/4 in spite of a Bearish Informa report that predicted an increase in planted Bean acres versus Corn acres for 2011. A second consecutive weekly close above this level Friday would produce the longer term objective of $17.03 for Soybeans, likely some time in the Summer of 2011.
Tuesday, December 14, 2010
Tuesday 12/14/10 Commodity Ideas...Late Post
Opening Note:
Yesterday
In spite of the market strength yesterday an afternoon sell off in the Nasdaq caused the Equity Indices to settle near unchanged, or slightly lower for the session in the Nasdaq's case. The weekend news that China refrained from raising interest rates to curb inflation induced a bid in the risk trade. The Metals, Grains (especially Soybeans and Bean Oil), and the Australian Dollar all posted impressive gains with their higher correlations to Chinese demand. Both the Euro and Swiss Franc also moved significantly higher as short covering fueled the rally. The troublesome Commodity for the day proved to be Crude Oil and the rest of the Energies. Crude had a nice run to start the month of December, but continues to be a difficult long position to hold and a laggard in relation to the other Commodities.
Today
Yesterday's strength in the risk trade looked like it would continue early this morning. However, since 7 am the market has come under pressure. Of particular worry is the sell off on the open of the nearly always strong Silver, especially in relation to Gold. The Equity markets remain in slightly positive territory, but the weak Crude Oil and British Pound markets from yesterday have already reversed lower like Silver. The Foreign Currencies as a Sector appear to be the overall strength with the Australian Dollar, Euro, and Swiss Franc leading the gainers.
This afternoon is the FOMC meeting. Little is expected to develop as far as policy or interest rate change, but the focus will be on the language of the statement. I believe that there is very little chance the Fed delivers anything resembling Bearish news for the time being. They have already said that boosting the stock market to induce the wealth effect is something they are aiming for. It still appears that there is profit taking and position reduction going on in advance of the meeting. I am looking at this morning's correction as an opportunity though to possibly enter long positions in the strength markets of the Euro, Australian Dollar, Swiss Franc, or Equities. I also suggest still looking to buy the dips in the risk trade. For today I say this with trepidation though as the pullback looks like it could extend further this morning.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Australian Dollar Bullish Head and Shoulders- Yesterday the Australian Dollar settled above the .9825 lower breakout level and today is seeking an advance above the higher neckline value of .9864. If initiated and confirmed then the Aussie would have a projection range of 1.0226 - 1.0282 on the pattern. Overnight the Aussie found support right near this lower neckline and produced a base to rally from. Although the pattern is not confirmed there is a low risk entry setup today that I believe is worth a shot on an initial position. From .9830 - .9868 there is higher volume support for stop placement below with the low volume zone from .9870 - .9876 providing a good level for long entry.
Euro and Swiss Franc Bullish Targets- The Swiss Franc eclipsed its own swing high of 1.0293 to produce an objective of 1.0490. There is higher volume support in the Franc from 1.0338 - 1.0362 as a level to initiate long positions against today. The Euro however has travelled back below its swing high this morning on a possible reversal. Above 1.3428 the Euro has an objective of 1.3799. There is higher volume support from 1.3374 - 1.3992, but with a strong test already done this morning and a blip of trade below this I recommend holding off for today. The Aussie and Swiss Franc look like better trades at least for today with their entry parameters.
Dollar Index Bearish Head and Shoulders- The reason you see so many potential Currency buys right now is because the Dollar Index initiated its own Bearish head and shoulders pattern yesterday. The neckline for the pattern extends from the low Nov. 22 - Dec. 7 with a value of 80.05 yesterday. This neckline has an up slope making it unlikely that it is rejected, but for today the value is 80.15 for reference. Like the Euro, the entry parameters for the Dollar Index today are not looking great. It is wise to hold off until tomorrow for entry now. The long term objective for the pattern is 77.20.
Notes:
Yesterday
In spite of the market strength yesterday an afternoon sell off in the Nasdaq caused the Equity Indices to settle near unchanged, or slightly lower for the session in the Nasdaq's case. The weekend news that China refrained from raising interest rates to curb inflation induced a bid in the risk trade. The Metals, Grains (especially Soybeans and Bean Oil), and the Australian Dollar all posted impressive gains with their higher correlations to Chinese demand. Both the Euro and Swiss Franc also moved significantly higher as short covering fueled the rally. The troublesome Commodity for the day proved to be Crude Oil and the rest of the Energies. Crude had a nice run to start the month of December, but continues to be a difficult long position to hold and a laggard in relation to the other Commodities.
Today
Yesterday's strength in the risk trade looked like it would continue early this morning. However, since 7 am the market has come under pressure. Of particular worry is the sell off on the open of the nearly always strong Silver, especially in relation to Gold. The Equity markets remain in slightly positive territory, but the weak Crude Oil and British Pound markets from yesterday have already reversed lower like Silver. The Foreign Currencies as a Sector appear to be the overall strength with the Australian Dollar, Euro, and Swiss Franc leading the gainers.
This afternoon is the FOMC meeting. Little is expected to develop as far as policy or interest rate change, but the focus will be on the language of the statement. I believe that there is very little chance the Fed delivers anything resembling Bearish news for the time being. They have already said that boosting the stock market to induce the wealth effect is something they are aiming for. It still appears that there is profit taking and position reduction going on in advance of the meeting. I am looking at this morning's correction as an opportunity though to possibly enter long positions in the strength markets of the Euro, Australian Dollar, Swiss Franc, or Equities. I also suggest still looking to buy the dips in the risk trade. For today I say this with trepidation though as the pullback looks like it could extend further this morning.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Australian Dollar Bullish Head and Shoulders- Yesterday the Australian Dollar settled above the .9825 lower breakout level and today is seeking an advance above the higher neckline value of .9864. If initiated and confirmed then the Aussie would have a projection range of 1.0226 - 1.0282 on the pattern. Overnight the Aussie found support right near this lower neckline and produced a base to rally from. Although the pattern is not confirmed there is a low risk entry setup today that I believe is worth a shot on an initial position. From .9830 - .9868 there is higher volume support for stop placement below with the low volume zone from .9870 - .9876 providing a good level for long entry.
Euro and Swiss Franc Bullish Targets- The Swiss Franc eclipsed its own swing high of 1.0293 to produce an objective of 1.0490. There is higher volume support in the Franc from 1.0338 - 1.0362 as a level to initiate long positions against today. The Euro however has travelled back below its swing high this morning on a possible reversal. Above 1.3428 the Euro has an objective of 1.3799. There is higher volume support from 1.3374 - 1.3992, but with a strong test already done this morning and a blip of trade below this I recommend holding off for today. The Aussie and Swiss Franc look like better trades at least for today with their entry parameters.
Dollar Index Bearish Head and Shoulders- The reason you see so many potential Currency buys right now is because the Dollar Index initiated its own Bearish head and shoulders pattern yesterday. The neckline for the pattern extends from the low Nov. 22 - Dec. 7 with a value of 80.05 yesterday. This neckline has an up slope making it unlikely that it is rejected, but for today the value is 80.15 for reference. Like the Euro, the entry parameters for the Dollar Index today are not looking great. It is wise to hold off until tomorrow for entry now. The long term objective for the pattern is 77.20.
Notes:
Monday, December 13, 2010
Monday 12/13/10 Commodity Ideas
Opening Note:
Yesterday
For the third straight day the Equity markets sold off for the first 30 minutes of trading, but managed to find support and rally throughout the rest of the day. Closing higher for the fourth straight day the S&P 500 established a new daily and weekly high close for the recovery. The Grain report Friday fell spot on with expectations across the board. It appears that the market was skewed for the possibility of a Bullish report though as the initial open was lower than the 7:15 am pre-report close. The recent strength in Wheat saw the most profit taking settling 13 cents lower, Beans 8 1/2 cents lower, and Corn unchanged. These are pretty uneventful moves in comparison to other report days, so I think the main takeaway is the Grains did not find their Bullish catalyst Friday. Crude Oil and both Gold and Silver were the weaknesses for the day. The latter two however pared losses after finding support around 9:30 am when the stock market did.
Today
The macro market is moderately stronger this morning with nearly every supportive market higher as of 6:50 am. The rumor mill was abuzz last week with rumors that China may initiate a tougher stance to curb inflation after moving the announcement forward a few days. Over the weekend though China refrained from raising interest rates and suggested that they will maintain a strong growth policy despite high inflation. Any weakness felt in advance of this announcement has corrected this morning as the Metal and Energy Sectors are unanimously the leaders. The one exception to the strength is the British Pound, which is a significant outlier trading 80 ticks lower on the session.
As you will garner from the Radar and Notes sections, I believe that the potential money will be made this week trading the supportive markets from the long side. Profit taking and short positioning in advance of the Chinese announcement has proved invalid, so look for short covering and fresh allocation as the week begins. The Metal, Energy, and Grain Sectors most dependent on Chinese demand should receive the biggest boost as current fears have been alleviated. Many of the potential trades on my radar are smaller intermediate swings, so I believe that if initiated we should see anywhere from 5-7 days of strength among the risk markets.
**Make sure you have rolled all Equity, Treasury, and Currency markets to the March contract. I will be using the March contract for reference today and forward.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Australian Dollar Bullish Formation- The Australian Dollar has the strongest correlation to the Chinese economy among the Currencies and therefore the most volatile reaction to the country's economic news. The decision over the weekend to hold interest rates steady should inspire a bid in the Aussie. There is a Bullish head and shoulders pattern that has formed on the daily chart for the Aussie near initiation now. There are two possible necklines for the pattern. The first from the high Nov. 22 - Dec. 7 has a value of .9860 today and the second from the high Nov. 22 - Dec. 3 has a value of .9825 after eliminating the spike from the Dec. 7th high. The pattern projects a rally between .401 - .418 once initiated. Wait for the breakout and confirmation for today.
Euro and Swiss Franc Look Constructive- The Euro has been the dog of the Currencies over the last month. With today's rally though and momentum unanimously remaining in a positive mode on the daily chart, the Euro may be positioned for another leg higher on a rally correction. Above 1.3428 the Euro would have an objective of 1.3799 as it cleans out some of the market shorts. The Swiss Franc continues to outperform the Euro and is closer to its own previous swing high. A move above 1.0293 would project a move to 1.0490 back near the yearly highs. A rally in either Currency would obviously boost both the Commodity and Equity markets as well.
Euro/Yen Bullish Head and shoulders (Euro/Yen to chart)- I would call the head and shoulders pattern crude because the shoulders are relatively small. Regardless, the neckline from the high Nov. 25 - Dec. 8 has a breakout value of 111.39 today with a projection of 114.49 if initiated today. As of 7:30 am the cross is trading right at this neckline breakout. The Euro/Yen is a good indicator for the risk trade, so a rally would also be supportive of the Equity and Commodity markets as well. If this pattern is initiated in conjunction with the Swiss Franc pattern above then I suggest looking at possibly a Long 1 Euro, Long 1 Swiss, Short 1 Yen combo trade that skews profits toward a Currency rally.
Silver Finds Another Trend- The draw downs in Silver are very volatile, but so are the upswings. On Friday Silver encountered and found support on another Bullish trend line from the low Nov. 17 - Nov. 29. I still have a 3rd leg objective for Silver of $32.17 that has yet to be reached. Deciding on entry parameters for Silver is difficult right now as the higher volume support/resistance levels are continuously run through. I will just leave the 3rd leg objective out there to do with it as you please or simply use it as an indicator.
Notes:
Copper- Copper established a new daily and weekly high close for the year on Friday. Copper tends to track similar to the Equity markets and sometimes ahead of them. Copper is in open water and continues to make new highs, which is a positive signal for the Equity market's continuation. Look for the S&P 500 to at least test 1250 this week and probably continue higher.
Bonds- The Bond market made new lows this morning on the recent move. The weakness this morning is likely accentuated by the strength of the risk trade though. I still believe that Bonds are oversold right now and will form a base and subsequent rally correction over the short term. For now I believe there are better positions than continuing to hold a short in the Bonds. The weekly chart leads me to believe that there will be another leg lower on the move, but there should be an interim recovery to relieve the oversold market status.
Yesterday
For the third straight day the Equity markets sold off for the first 30 minutes of trading, but managed to find support and rally throughout the rest of the day. Closing higher for the fourth straight day the S&P 500 established a new daily and weekly high close for the recovery. The Grain report Friday fell spot on with expectations across the board. It appears that the market was skewed for the possibility of a Bullish report though as the initial open was lower than the 7:15 am pre-report close. The recent strength in Wheat saw the most profit taking settling 13 cents lower, Beans 8 1/2 cents lower, and Corn unchanged. These are pretty uneventful moves in comparison to other report days, so I think the main takeaway is the Grains did not find their Bullish catalyst Friday. Crude Oil and both Gold and Silver were the weaknesses for the day. The latter two however pared losses after finding support around 9:30 am when the stock market did.
Today
The macro market is moderately stronger this morning with nearly every supportive market higher as of 6:50 am. The rumor mill was abuzz last week with rumors that China may initiate a tougher stance to curb inflation after moving the announcement forward a few days. Over the weekend though China refrained from raising interest rates and suggested that they will maintain a strong growth policy despite high inflation. Any weakness felt in advance of this announcement has corrected this morning as the Metal and Energy Sectors are unanimously the leaders. The one exception to the strength is the British Pound, which is a significant outlier trading 80 ticks lower on the session.
As you will garner from the Radar and Notes sections, I believe that the potential money will be made this week trading the supportive markets from the long side. Profit taking and short positioning in advance of the Chinese announcement has proved invalid, so look for short covering and fresh allocation as the week begins. The Metal, Energy, and Grain Sectors most dependent on Chinese demand should receive the biggest boost as current fears have been alleviated. Many of the potential trades on my radar are smaller intermediate swings, so I believe that if initiated we should see anywhere from 5-7 days of strength among the risk markets.
**Make sure you have rolled all Equity, Treasury, and Currency markets to the March contract. I will be using the March contract for reference today and forward.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Australian Dollar Bullish Formation- The Australian Dollar has the strongest correlation to the Chinese economy among the Currencies and therefore the most volatile reaction to the country's economic news. The decision over the weekend to hold interest rates steady should inspire a bid in the Aussie. There is a Bullish head and shoulders pattern that has formed on the daily chart for the Aussie near initiation now. There are two possible necklines for the pattern. The first from the high Nov. 22 - Dec. 7 has a value of .9860 today and the second from the high Nov. 22 - Dec. 3 has a value of .9825 after eliminating the spike from the Dec. 7th high. The pattern projects a rally between .401 - .418 once initiated. Wait for the breakout and confirmation for today.
Euro and Swiss Franc Look Constructive- The Euro has been the dog of the Currencies over the last month. With today's rally though and momentum unanimously remaining in a positive mode on the daily chart, the Euro may be positioned for another leg higher on a rally correction. Above 1.3428 the Euro would have an objective of 1.3799 as it cleans out some of the market shorts. The Swiss Franc continues to outperform the Euro and is closer to its own previous swing high. A move above 1.0293 would project a move to 1.0490 back near the yearly highs. A rally in either Currency would obviously boost both the Commodity and Equity markets as well.
Euro/Yen Bullish Head and shoulders (Euro/Yen to chart)- I would call the head and shoulders pattern crude because the shoulders are relatively small. Regardless, the neckline from the high Nov. 25 - Dec. 8 has a breakout value of 111.39 today with a projection of 114.49 if initiated today. As of 7:30 am the cross is trading right at this neckline breakout. The Euro/Yen is a good indicator for the risk trade, so a rally would also be supportive of the Equity and Commodity markets as well. If this pattern is initiated in conjunction with the Swiss Franc pattern above then I suggest looking at possibly a Long 1 Euro, Long 1 Swiss, Short 1 Yen combo trade that skews profits toward a Currency rally.
Silver Finds Another Trend- The draw downs in Silver are very volatile, but so are the upswings. On Friday Silver encountered and found support on another Bullish trend line from the low Nov. 17 - Nov. 29. I still have a 3rd leg objective for Silver of $32.17 that has yet to be reached. Deciding on entry parameters for Silver is difficult right now as the higher volume support/resistance levels are continuously run through. I will just leave the 3rd leg objective out there to do with it as you please or simply use it as an indicator.
Notes:
Copper- Copper established a new daily and weekly high close for the year on Friday. Copper tends to track similar to the Equity markets and sometimes ahead of them. Copper is in open water and continues to make new highs, which is a positive signal for the Equity market's continuation. Look for the S&P 500 to at least test 1250 this week and probably continue higher.
Bonds- The Bond market made new lows this morning on the recent move. The weakness this morning is likely accentuated by the strength of the risk trade though. I still believe that Bonds are oversold right now and will form a base and subsequent rally correction over the short term. For now I believe there are better positions than continuing to hold a short in the Bonds. The weekly chart leads me to believe that there will be another leg lower on the move, but there should be an interim recovery to relieve the oversold market status.
Thursday, December 9, 2010
Thursday 12/9/10 Commodity Ideas
Opening Note:
Yesterday
Yesterday turned out to be a pretty mixed bag. The Treasury market was the biggest story as the wipe out from the previous day continued. The Ten Year Note especially was the loser of the Sector as long term Bulls capitulated and opportunists ran the market lower. This was strictly a Treasury story though as the rest of the markets were less volatile. Despite some weakness following the stock market open the S&P 500 managed to finally settle above the 1225 magnet level. The Grain markets also finished the day positive after overnight weakness. Corn led the Grains higher on positive ethanol numbers and positioning prior to Friday's report. Finally, the Metals (other than Copper) were definitely the laggards of the day. Both Gold and Silver not only held the previous days losses but proceeded to new lows for the session.
Today
The market is modestly higher overall with the Equities leading the charge. The Treasury markets have at least found a temporary base after yesterday's liquidation spike and seem to be creeping higher. The Metals also have found a base to stall the price leaking. Other than that everything is pretty much quiet on the front.
I do not have much in the way of non-repetitive observations for this morning, so today's letter is rather short. I still believe that the Equity markets are starting a trend where they will continue to gain on the Physical Commodities in general. With yesterday's close above 1225 I also believe that the S&P 500 will continue towards a test of 1250. Expect the move to be more of a crawl though. And, I actually have some trade suggestions this morning...Hey Yo!
Buys to Watch:
Japanese Yen- I go into detail on the Fixed Income markets in the Notes section, but briefly I believe that they will form a base and rally from this level after yesterday's capitulation. The Japanese Yen has a fairly tight correlation to the Fixed Income Sector and tends to move in a similar direction. Rather than messing around trying to pick a bottom or the right market to trade a Fixed Income bottom the Yen actually has a good setup right now to play the trade. The Yen already has a base to enter long positions against with high volume support ranging from 118.68 - 119.06. Below 118.68 I think it is time to exit the position. The Yen technically still appears that it wants to rally and that the sharp two day pullback was more related to the Fixed Income move than anything else. I am looking for a move at least back to the 121.46 high from Tuesday. This is just below the 50% retracement level from the November high at 121.52. I think looking for a rally into the "Box" between 121.52 - 122.26 is a reasonable objective for the trade.
Natural Gas- The move is un-confirmed until today's settlement, but above $4.515 the January Natural Gas has an objective of $4.904. Open Interest appears to be working in favor of this Bullish advance and I suspect there are still a number of long term shorts that have yet to clear our of the market. I would usually suggest waiting for today's close prior to entry, but there is a low risk entry setup that the market is trading in this morning. There is higher volume support from yesterday's trade between $4.522 - 4.554 with a low volume zone from 4.554 - 4.584 for optimal entry. Below 4.522 I believe the market could decline back below the 4.515 breakout level so I recommend a tight stop loss below the mentioned support.
Sells to Watch:
Put on the Radar:
Buy Cocoa- Cocoa made a 3 day pullback into this morning following Monday's sharp breakout rally. The March contract still has an objective of $3217 based on the rally above the $2973 old swing high. There is a decent entry setup today with support from 2990 - 3022. This support was tested and has held so far this morning to reverse the price. Before entering I think it is wise to do your own research into the market. The brief fundamental story as I understand is based on political unrest in some of the African territories that grow Cocoa, which is good enough for me. Recall that the Softs can be volatile and thin, so only use a moderate size for entry if you decide to.
Notes:
Fixed Income- The Bonds have reached and exceeded my 122 objective and the Ten Year Note has met and exceeded my 121.16 objective for their large topping patterns. The media really grabbed hold of yesterday's break, making it the lead story. When the media and the general public catches on is usually when the trade is nearly over. I believe that yesterday was the final capitulation prior to the Sector finding a base and correcting higher. Throughout the Fixed Income decline it has been a steepening of the yield curve that has dominated the move. This also looks to be reversing though, providing further evidence for a base. For now I like playing this idea in the Japanese Yen market, but the Bonds may soon be on the Radar or the Buys section.
Yesterday
Yesterday turned out to be a pretty mixed bag. The Treasury market was the biggest story as the wipe out from the previous day continued. The Ten Year Note especially was the loser of the Sector as long term Bulls capitulated and opportunists ran the market lower. This was strictly a Treasury story though as the rest of the markets were less volatile. Despite some weakness following the stock market open the S&P 500 managed to finally settle above the 1225 magnet level. The Grain markets also finished the day positive after overnight weakness. Corn led the Grains higher on positive ethanol numbers and positioning prior to Friday's report. Finally, the Metals (other than Copper) were definitely the laggards of the day. Both Gold and Silver not only held the previous days losses but proceeded to new lows for the session.
Today
The market is modestly higher overall with the Equities leading the charge. The Treasury markets have at least found a temporary base after yesterday's liquidation spike and seem to be creeping higher. The Metals also have found a base to stall the price leaking. Other than that everything is pretty much quiet on the front.
I do not have much in the way of non-repetitive observations for this morning, so today's letter is rather short. I still believe that the Equity markets are starting a trend where they will continue to gain on the Physical Commodities in general. With yesterday's close above 1225 I also believe that the S&P 500 will continue towards a test of 1250. Expect the move to be more of a crawl though. And, I actually have some trade suggestions this morning...Hey Yo!
Buys to Watch:
Japanese Yen- I go into detail on the Fixed Income markets in the Notes section, but briefly I believe that they will form a base and rally from this level after yesterday's capitulation. The Japanese Yen has a fairly tight correlation to the Fixed Income Sector and tends to move in a similar direction. Rather than messing around trying to pick a bottom or the right market to trade a Fixed Income bottom the Yen actually has a good setup right now to play the trade. The Yen already has a base to enter long positions against with high volume support ranging from 118.68 - 119.06. Below 118.68 I think it is time to exit the position. The Yen technically still appears that it wants to rally and that the sharp two day pullback was more related to the Fixed Income move than anything else. I am looking for a move at least back to the 121.46 high from Tuesday. This is just below the 50% retracement level from the November high at 121.52. I think looking for a rally into the "Box" between 121.52 - 122.26 is a reasonable objective for the trade.
Natural Gas- The move is un-confirmed until today's settlement, but above $4.515 the January Natural Gas has an objective of $4.904. Open Interest appears to be working in favor of this Bullish advance and I suspect there are still a number of long term shorts that have yet to clear our of the market. I would usually suggest waiting for today's close prior to entry, but there is a low risk entry setup that the market is trading in this morning. There is higher volume support from yesterday's trade between $4.522 - 4.554 with a low volume zone from 4.554 - 4.584 for optimal entry. Below 4.522 I believe the market could decline back below the 4.515 breakout level so I recommend a tight stop loss below the mentioned support.
Sells to Watch:
Put on the Radar:
Buy Cocoa- Cocoa made a 3 day pullback into this morning following Monday's sharp breakout rally. The March contract still has an objective of $3217 based on the rally above the $2973 old swing high. There is a decent entry setup today with support from 2990 - 3022. This support was tested and has held so far this morning to reverse the price. Before entering I think it is wise to do your own research into the market. The brief fundamental story as I understand is based on political unrest in some of the African territories that grow Cocoa, which is good enough for me. Recall that the Softs can be volatile and thin, so only use a moderate size for entry if you decide to.
Notes:
Fixed Income- The Bonds have reached and exceeded my 122 objective and the Ten Year Note has met and exceeded my 121.16 objective for their large topping patterns. The media really grabbed hold of yesterday's break, making it the lead story. When the media and the general public catches on is usually when the trade is nearly over. I believe that yesterday was the final capitulation prior to the Sector finding a base and correcting higher. Throughout the Fixed Income decline it has been a steepening of the yield curve that has dominated the move. This also looks to be reversing though, providing further evidence for a base. For now I like playing this idea in the Japanese Yen market, but the Bonds may soon be on the Radar or the Buys section.
Wednesday, December 8, 2010
Wednesday 12/8/10 Commodity Ideas
Opening Note:
Yesterday
Early morning yesterday the market was full of green shoots. The Equities were making new yearly highs, Gold and Silver were on a tear, and even the Euro did not look that bad. News was recently released, confirming that Obama would push to extend the Bush tax cuts. What could go wrong? Well, I am not sure you can exactly pin the sell off on one factor, but straight from the Crude Oil open at 8 am it was clear that something was amiss. Macro liquidation continued throughout the morning and again in the last hour of stock market trading. From 8:30 am - 3 pm the laggard sectors were the Energies and Metals, with Silver and Crude Oil the worst performers. Of further interest was the awful performance by the Treasury markets. Often the run to safety on macro liquidation, the Treasuries were weak throughout the morning and putrid after the 3 year note auction at noon.
I want to make sure that I make special note of what could be the beginning of a trend between the Physical Commodities and the Equities. The Physical Commodities experienced strong liquidation in the morning, with almost all of the previously strong gains of the session turning into losses. While all this was happening though the Equity markets merely shrugged and held at least moderate gains well after noon. Granted the Equities finally fell apart around 1:45 pm, but their fall was minor in comparison to the other Sectors. There are a number of fundamental reasons this relationship shift could occur such as the stock market is under-invested in portfolios, China truly takes steps to curb inflation, or Commodities are flat out overbought on stimulus money. Regardless though, the truth is that Commodities move much more than the stock market on a percentage basis over almost any period of time, especially daily. I think that it will be important from today to keep a close eye on the idea of going long Equities versus a short position in the weaker Commodity markets.
A month ago when the Euro began falling apart I suggested setting a row on your quote board devoted to Individual Commodities vs. the Euro. I now recommend also adding a row of Individual Commodities vs. the S&P 500 or Nasdaq (S&P 500/Commodity to chart). These ratio charts follow the Commodity market chart more closely, but are still different in nature. I am already very interested in the rangy S&P 500/Crude Oil as well as the possible negation of the long trend on the S&P 500/Silver.
Today
When I woke up this morning the market was rather weak, but has now turned into sort of a modestly weaker mixed bag. The Equity markets are clinging to the slimmest gains while the Physical Commodities are lower in general (I'm noticing a trend here...). Gold and Silver appear to be the laggards based on their 12:30 pm settlement yesterday, but most of this damage was done yesterday afternoon between the Metal settlement and the stock market settlement. The Bond market has rebounded from its plummet and is now higher on the day as the yield curve is shifting today in favor of the long end. Lastly, the Dollar is higher currently on a slightly lower Euro. I want to make certain though that yesterday's liquidation, nor today's movement was led by or caused by the Dollar. The Euro was one of the last market's to break significantly. If anybody tells you different put in your ear plugs or change the channel.
The beauty about writing my own solo newsletter is I have the freedom to change my mind whenever I see fit. Yesterday I said I believed the rally would last another 7-10 days. This was after the previous week I believed that we would trend lower. I do not regret either call because that is honestly what the market was saying. The market has flip-flopped the range with volatility several times the last few weeks, but I now have concerning technical signals that span across nearly every Sector. I am not going to say that we move a particular direction with conviction, but there are enough red flags for the macro market right now that I no longer feel comfortable holding long positions for an extended period of time. I will detail below, but I have a multitude of daily chart Stochastics crossovers that are near or already confirmed in and around overbought territory. The market will obviously waver back and forth, but I am more concerned about a break in prices across the board heading forward.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Markets Near or With Daily Stochastics Crossovers- Every Grain market (including the whole Soybean Complex), Every domestic Equity Index, Every Metal (Gold, Silver, Copper, Palladium, Platinum), Sugar, Australian & Canadian Dollars. Nearly all of these are in or near overbought territory. They also are rather strong swings in the Stochastics cross that are less likely to produce fake outs when initiated (lets exclude the above Currencies from this statement for now. Soybean Meal, Crude Oil, and both Gold and Silver are already crossing this morning. They could become the first confirmed sell signals as well as the initial laggard markets.
Bonds, Reached the Objective...Reversal?- The Bonds made quick work of reaching my 122.00 objective and have since found some support around this level. The Treasury markets are weaker in general today, but the Bonds are the leader market among the sector by a mile. I recommend taking profits and no longer holding a short position in the market. I believe that the Bonds will produce a reversal bottom around this level, so the next recommendation on the horizon will be a Buy.
S&P 500 Loves 1225- 1225 is the magnet that the market keeps coming back to. Four days in a row now the market has either found a high or spiked around this level, yet can not seem to settle higher. This is also the same level from early November that produced a 3 day high and subsequent price reversal. The Bulls NEED to get a settlement above this level or find a fresh catalyst soon because the time window on the rally is closing. The technical indicators are very near producing sell signals and possibly will by tomorrow. I am clearly concerned about the Physical Commodities ability to hold prices and this also goes for outright positions in the stock market. I still like this as a possible long position as a spread against a weak Commodity though.
Grain Markets Closely Tracking Macro Direction- This usually happens more when we get out of growing season. With long term issues with the Grain Supply/Demand though the Grains have followed their own stories for most of the Fall and Winter. Yesterday though I observed two instances on both the morning and evening close when the Grains appeared in tune with the macro story. Because the Grains are closed between 7:15 -9:30 am and 1:15 - 6 pm, when most other markets are open, there is a window of time that the Grains are unable to account for the macro picture. I speculate that both breaks on the Grain opens yesterday were caused by large price breaks among the rest of the market while the Grains were closed.
One of the driving fundamental reasons this correlation to the outside sectors to the Grains has tightened is that Chinese demand for Grains is probably the largest price driver for the Grains currently. Now that Chinese inflation policies are widely affecting the broad market the correlation has tightened. When this correlation is tight and there are large moves in Equities, Crude, and Metals while the Grains are closed this turns into literally an 80+% trade. If the others liquidate huge then sell the Grain open and take profits 5- 30 minutes later...it's that easy sometimes. It is not in play this morning so far, but watch for it in the coming weeks.
Notes:
Yesterday
Early morning yesterday the market was full of green shoots. The Equities were making new yearly highs, Gold and Silver were on a tear, and even the Euro did not look that bad. News was recently released, confirming that Obama would push to extend the Bush tax cuts. What could go wrong? Well, I am not sure you can exactly pin the sell off on one factor, but straight from the Crude Oil open at 8 am it was clear that something was amiss. Macro liquidation continued throughout the morning and again in the last hour of stock market trading. From 8:30 am - 3 pm the laggard sectors were the Energies and Metals, with Silver and Crude Oil the worst performers. Of further interest was the awful performance by the Treasury markets. Often the run to safety on macro liquidation, the Treasuries were weak throughout the morning and putrid after the 3 year note auction at noon.
I want to make sure that I make special note of what could be the beginning of a trend between the Physical Commodities and the Equities. The Physical Commodities experienced strong liquidation in the morning, with almost all of the previously strong gains of the session turning into losses. While all this was happening though the Equity markets merely shrugged and held at least moderate gains well after noon. Granted the Equities finally fell apart around 1:45 pm, but their fall was minor in comparison to the other Sectors. There are a number of fundamental reasons this relationship shift could occur such as the stock market is under-invested in portfolios, China truly takes steps to curb inflation, or Commodities are flat out overbought on stimulus money. Regardless though, the truth is that Commodities move much more than the stock market on a percentage basis over almost any period of time, especially daily. I think that it will be important from today to keep a close eye on the idea of going long Equities versus a short position in the weaker Commodity markets.
A month ago when the Euro began falling apart I suggested setting a row on your quote board devoted to Individual Commodities vs. the Euro. I now recommend also adding a row of Individual Commodities vs. the S&P 500 or Nasdaq (S&P 500/Commodity to chart). These ratio charts follow the Commodity market chart more closely, but are still different in nature. I am already very interested in the rangy S&P 500/Crude Oil as well as the possible negation of the long trend on the S&P 500/Silver.
Today
When I woke up this morning the market was rather weak, but has now turned into sort of a modestly weaker mixed bag. The Equity markets are clinging to the slimmest gains while the Physical Commodities are lower in general (I'm noticing a trend here...). Gold and Silver appear to be the laggards based on their 12:30 pm settlement yesterday, but most of this damage was done yesterday afternoon between the Metal settlement and the stock market settlement. The Bond market has rebounded from its plummet and is now higher on the day as the yield curve is shifting today in favor of the long end. Lastly, the Dollar is higher currently on a slightly lower Euro. I want to make certain though that yesterday's liquidation, nor today's movement was led by or caused by the Dollar. The Euro was one of the last market's to break significantly. If anybody tells you different put in your ear plugs or change the channel.
The beauty about writing my own solo newsletter is I have the freedom to change my mind whenever I see fit. Yesterday I said I believed the rally would last another 7-10 days. This was after the previous week I believed that we would trend lower. I do not regret either call because that is honestly what the market was saying. The market has flip-flopped the range with volatility several times the last few weeks, but I now have concerning technical signals that span across nearly every Sector. I am not going to say that we move a particular direction with conviction, but there are enough red flags for the macro market right now that I no longer feel comfortable holding long positions for an extended period of time. I will detail below, but I have a multitude of daily chart Stochastics crossovers that are near or already confirmed in and around overbought territory. The market will obviously waver back and forth, but I am more concerned about a break in prices across the board heading forward.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Markets Near or With Daily Stochastics Crossovers- Every Grain market (including the whole Soybean Complex), Every domestic Equity Index, Every Metal (Gold, Silver, Copper, Palladium, Platinum), Sugar, Australian & Canadian Dollars. Nearly all of these are in or near overbought territory. They also are rather strong swings in the Stochastics cross that are less likely to produce fake outs when initiated (lets exclude the above Currencies from this statement for now. Soybean Meal, Crude Oil, and both Gold and Silver are already crossing this morning. They could become the first confirmed sell signals as well as the initial laggard markets.
Bonds, Reached the Objective...Reversal?- The Bonds made quick work of reaching my 122.00 objective and have since found some support around this level. The Treasury markets are weaker in general today, but the Bonds are the leader market among the sector by a mile. I recommend taking profits and no longer holding a short position in the market. I believe that the Bonds will produce a reversal bottom around this level, so the next recommendation on the horizon will be a Buy.
S&P 500 Loves 1225- 1225 is the magnet that the market keeps coming back to. Four days in a row now the market has either found a high or spiked around this level, yet can not seem to settle higher. This is also the same level from early November that produced a 3 day high and subsequent price reversal. The Bulls NEED to get a settlement above this level or find a fresh catalyst soon because the time window on the rally is closing. The technical indicators are very near producing sell signals and possibly will by tomorrow. I am clearly concerned about the Physical Commodities ability to hold prices and this also goes for outright positions in the stock market. I still like this as a possible long position as a spread against a weak Commodity though.
Grain Markets Closely Tracking Macro Direction- This usually happens more when we get out of growing season. With long term issues with the Grain Supply/Demand though the Grains have followed their own stories for most of the Fall and Winter. Yesterday though I observed two instances on both the morning and evening close when the Grains appeared in tune with the macro story. Because the Grains are closed between 7:15 -9:30 am and 1:15 - 6 pm, when most other markets are open, there is a window of time that the Grains are unable to account for the macro picture. I speculate that both breaks on the Grain opens yesterday were caused by large price breaks among the rest of the market while the Grains were closed.
One of the driving fundamental reasons this correlation to the outside sectors to the Grains has tightened is that Chinese demand for Grains is probably the largest price driver for the Grains currently. Now that Chinese inflation policies are widely affecting the broad market the correlation has tightened. When this correlation is tight and there are large moves in Equities, Crude, and Metals while the Grains are closed this turns into literally an 80+% trade. If the others liquidate huge then sell the Grain open and take profits 5- 30 minutes later...it's that easy sometimes. It is not in play this morning so far, but watch for it in the coming weeks.
Notes:
Tuesday, December 7, 2010
Tuesday 12/7/10 Commodity Ideas
Opening Note:
Yesterday
Yesterday was very quiet with the majority of the market lulling in a sideways pattern. The largest winners for the day, Cocoa and Natural Gas, were actually two of the quietest markets over the last several months. Wheat was also strong in relation to both Corn and Soybean markets that struggled out of the morning open. The Euro was the overall weakness and helped stall the 3 days of strong gains across the market since the beginning of the month. I look at yesterday as a win actually for the supportive markets. Given an unchanged Euro I believe that most of these markets would have settled well higher.
Today
The news of the morning is that a deal is under way to extend the Bush tax cuts another 2 years and Jobless benefits another 13 months. Big news, but it looks like the extensions are mostly baked into the cake already. That is not to say that the market is not strong though. Every market on my board (literally every) other than the safety Treasuries and Dollar Index are higher on the day as of 7 am. The Metals are the strongest of the Sectors once again, with Copper and Silver the leaders. The Equity Sector is also notably higher, with the Nasdaq leading. The only Sector I would single out as a laggard right now is the Foreign Currencies. The Euro is higher, but not necessarily as much as I would expect in relation to the rest of the market.
November 17- 18th look like the days that you can single out as the beginning of this recent advance for many of the individual markets. That puts the current rally at 14 - 15 days. Taking into account the 20 day move idea and some of the 3rd leg and extended projections I have for individual markets, I am estimating that there is still another 7-10 days left on the move. While I unfortunately do not have short term entry or trade suggestions for the time being, I recommend focusing on the long side of the trade for the supportive markets over this period.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Euro, Hold Off On Selling- I am still looking for a potential 3rd leg lower for the Euro, or correction to sell for a larger move lower. However, there are too many Bullish signals for the time being. All of the momentum indicators for the daily chart remain in a positive mode and well below overbought territory. The bearish trend line since early November is also in danger of a second violation in the last 3 days with a close above 1.3334 today. Finally, with the risk trade on full blast for December, I believe that the Euro will continue to get some sympathy buying and short covering. From the November 4th high to the November 30th low the 50% retracement is 1.3622. There is also some resistance from 1.3575 - 1.3625, so wait until this level before re-evaluating a possible short position.
Short Bonds, An Indicator- The daily chart is a spiky jumble over the last few weeks with odd reactions to reports and swings in relation to the risk trade. This caused me to cover my short position a couple weeks ago and well before the market reached its objective. Today's weakness though has brought the Bonds to new lows on the move and towards the rough 122.00 objective for the March contract. I have no suggestion for short entry now and would only recommend a small position with most of the move concluded. This 122 level though is one of the individual indicators that I am using to gauge when the risk trade may begin to reverse.
Long Silver, An Indicator- Like the Bonds above, I do not recommend jumping into a long Silver (especially with the volatility and over 90 cents higher today). However, I am looking for Silver to rally further towards the $32.16 3rd leg projection. Most of the move has concluded, but this is another indicator level to begin looking for a macro reversal on the risk trade.
Buy Natural Gas- Last week I noted the weekly Bearish trend line for Natural Gas that extends throughout the 2010 year. Natural Gas failed to settle above this trend last week, but it does have a good opportunity to this week. This trend value is $4.452. The weekly chart is beginning to look overextended and may need another price break before becoming a long term buy. But, short term I have a small projection of $4.904 with a confirmed move above $4.515. Natural Gas can be extremely fickle with its continuation beyond range levels, although it can also have some extra fire power to continue well beyond objectives. Because of this volatility it is wise to wait until there is confirmation on the advance.
Notes:
Cocoa- It only took about 3 months of waiting through an extremely sideways pattern, but Cocoa finally rallied above this range in violent fashion yesterday. The March contract daily chart has an objective of $3217, which has nearly been met by within the last 24 hours. This daily chart pattern is the short term, but the weekly chart is the important thing to note on the move. Yesterday's rally jumped Cocoa straight above the Bearish trend that has lasted entirely throughout 2010. If this violation above roughly $2980 holds, then I expect Cocoa to continue towards the high of $3510 in a quick manner on this weekly chart. Look for temporary resistance to come in around the $3217 objective, but keep Cocoa on the radar as a longer term buy on a pullback from this level.
Grain Spreads- The Goldman Roll begins today for January Soybeans. This will put pressure on the Jan'11-Mch'11 spread. Around Day 4 of the roll though I think it is time to look at buying (bull spreading) the Jan and selling the March. Short term Chinese demand could easily come into the market and with clear support there will likely be limited risk for the position. I will review this trade in a few days. I also still recommend keeping an eye on the March'11 - May'11 Wheat spread. I am not necessarily set on this exact spread, so look for revised suggestions in the future. Russian and European demand for the higher quality U.S. Wheat will continue to be a story. Australian Wheat quality has suffered and demand for the Wheat at the Chicago & Kansas City Board of Trades and Minnesota Grain Exchange should make old crop Wheat a good bull spread position over the coming months.
Yesterday
Yesterday was very quiet with the majority of the market lulling in a sideways pattern. The largest winners for the day, Cocoa and Natural Gas, were actually two of the quietest markets over the last several months. Wheat was also strong in relation to both Corn and Soybean markets that struggled out of the morning open. The Euro was the overall weakness and helped stall the 3 days of strong gains across the market since the beginning of the month. I look at yesterday as a win actually for the supportive markets. Given an unchanged Euro I believe that most of these markets would have settled well higher.
Today
The news of the morning is that a deal is under way to extend the Bush tax cuts another 2 years and Jobless benefits another 13 months. Big news, but it looks like the extensions are mostly baked into the cake already. That is not to say that the market is not strong though. Every market on my board (literally every) other than the safety Treasuries and Dollar Index are higher on the day as of 7 am. The Metals are the strongest of the Sectors once again, with Copper and Silver the leaders. The Equity Sector is also notably higher, with the Nasdaq leading. The only Sector I would single out as a laggard right now is the Foreign Currencies. The Euro is higher, but not necessarily as much as I would expect in relation to the rest of the market.
November 17- 18th look like the days that you can single out as the beginning of this recent advance for many of the individual markets. That puts the current rally at 14 - 15 days. Taking into account the 20 day move idea and some of the 3rd leg and extended projections I have for individual markets, I am estimating that there is still another 7-10 days left on the move. While I unfortunately do not have short term entry or trade suggestions for the time being, I recommend focusing on the long side of the trade for the supportive markets over this period.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Euro, Hold Off On Selling- I am still looking for a potential 3rd leg lower for the Euro, or correction to sell for a larger move lower. However, there are too many Bullish signals for the time being. All of the momentum indicators for the daily chart remain in a positive mode and well below overbought territory. The bearish trend line since early November is also in danger of a second violation in the last 3 days with a close above 1.3334 today. Finally, with the risk trade on full blast for December, I believe that the Euro will continue to get some sympathy buying and short covering. From the November 4th high to the November 30th low the 50% retracement is 1.3622. There is also some resistance from 1.3575 - 1.3625, so wait until this level before re-evaluating a possible short position.
Short Bonds, An Indicator- The daily chart is a spiky jumble over the last few weeks with odd reactions to reports and swings in relation to the risk trade. This caused me to cover my short position a couple weeks ago and well before the market reached its objective. Today's weakness though has brought the Bonds to new lows on the move and towards the rough 122.00 objective for the March contract. I have no suggestion for short entry now and would only recommend a small position with most of the move concluded. This 122 level though is one of the individual indicators that I am using to gauge when the risk trade may begin to reverse.
Long Silver, An Indicator- Like the Bonds above, I do not recommend jumping into a long Silver (especially with the volatility and over 90 cents higher today). However, I am looking for Silver to rally further towards the $32.16 3rd leg projection. Most of the move has concluded, but this is another indicator level to begin looking for a macro reversal on the risk trade.
Buy Natural Gas- Last week I noted the weekly Bearish trend line for Natural Gas that extends throughout the 2010 year. Natural Gas failed to settle above this trend last week, but it does have a good opportunity to this week. This trend value is $4.452. The weekly chart is beginning to look overextended and may need another price break before becoming a long term buy. But, short term I have a small projection of $4.904 with a confirmed move above $4.515. Natural Gas can be extremely fickle with its continuation beyond range levels, although it can also have some extra fire power to continue well beyond objectives. Because of this volatility it is wise to wait until there is confirmation on the advance.
Notes:
Cocoa- It only took about 3 months of waiting through an extremely sideways pattern, but Cocoa finally rallied above this range in violent fashion yesterday. The March contract daily chart has an objective of $3217, which has nearly been met by within the last 24 hours. This daily chart pattern is the short term, but the weekly chart is the important thing to note on the move. Yesterday's rally jumped Cocoa straight above the Bearish trend that has lasted entirely throughout 2010. If this violation above roughly $2980 holds, then I expect Cocoa to continue towards the high of $3510 in a quick manner on this weekly chart. Look for temporary resistance to come in around the $3217 objective, but keep Cocoa on the radar as a longer term buy on a pullback from this level.
Grain Spreads- The Goldman Roll begins today for January Soybeans. This will put pressure on the Jan'11-Mch'11 spread. Around Day 4 of the roll though I think it is time to look at buying (bull spreading) the Jan and selling the March. Short term Chinese demand could easily come into the market and with clear support there will likely be limited risk for the position. I will review this trade in a few days. I also still recommend keeping an eye on the March'11 - May'11 Wheat spread. I am not necessarily set on this exact spread, so look for revised suggestions in the future. Russian and European demand for the higher quality U.S. Wheat will continue to be a story. Australian Wheat quality has suffered and demand for the Wheat at the Chicago & Kansas City Board of Trades and Minnesota Grain Exchange should make old crop Wheat a good bull spread position over the coming months.
Monday, December 6, 2010
Monday 12/6/10 Commodity Ideas
Opening Note:
While I Was Gone
I was in the office for a while Wednesday, although I did not write, so this summary is observations I have of the markets from Wednesday through Friday. While I was away I purposefully only took a brief look at where the Dow closed Friday to get a truly fresh look. I like vacations because when I come back I usually have a less opinionated view and sometimes a better understanding of the markets. Unfortunately it looks like I should have stayed a little while longer. I hopefully have some helpful observations, but I am finding that the market seems just as difficult to predict day to day as when I left.
-The Euro is WEAK in comparison to the Equity and Physical Commodity markets over the last month. While this originally appeared to be an early signal to me that the Equities and Commodities may struggle in the coming month, I now believe that it could just be a sign of these same markets "real"strength in the face of adversity.
-Wednesday was the 1st of December. The fact that this was the biggest winning day for the Dow in 3 months should not be surprising. What was the previous larger winner...September 1st. Beginning of the month allocation and follow through.
-The correlation between the U.S. Dollar and the Equity and Commodity markets is still low in my opinion. I believe that on one of the biggest 3 day moves in months that there was a bandwagon/pile-on effect to push the Dollar lower. I do not believe that a weaker Dollar was "the cause" of this rise in prices across the market. The only way that you could make this case is if you tie the cause to the rise in prices strictly to optimism on the European Debt situation and not to any other fundamental factor like QE2, China, Korea...etc. I highly recommend avoiding trading the causal relationship between the Dollar/Euro and Equity or Commodity prices throughout the rest of the year. This means do not sell the Dollar because the S&P is up and vice versa.
-Follow through is absolutely terrible right now. If there is established support or resistance you can almost guarantee that the market will not only violate this level, but that it will subsequently fail. Possibly multiple times before a direction is decided. There are still some markets with a clearly defined trend, but the most part I would call the Equity and Commodity markets an up-sloping volatility range. I have never called a market or a group of markets this, nor do I believe it is an actual definition. How to trade this pattern on a short term or day to day basis...stay out of the way and wait until you find something that really makes sense.
Today
The market is very mixed this morning. The Foreign Currencies are unanimously weak as the Dollar is strong. The Treasuries are all definitely stronger this morning as well. It gets more complicated from there though. The Precious Metals, Wheat, and Natural Gas are moderate strengths, while the Industrial Metals and Equities are moderate weaknesses.
After such strength the second half of last week I would not be surprised to see some pullback today and tomorrow. I am looking at this early month rally to likely remain the trend over the next two weeks though. The market seems that it would rather push prices higher for now and with more momentum than the declines in price. Because I believe the market is currently extra-treacherous I am waiting until I find trades that I really like prior to suggesting them. There will therefore only be some Radar and Notes.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Soybeans Weekly Chart- Last week the Soybeans made an initial close above the high from June 8th, 2009 of $12.91 1/4. If the Soybeans make a second consecutive weekly close above this level Friday then a new price target of $16.53 - $16.97 would be in place for Beans. Remember that this is a weekly chart, so this is a longer term projection that could take anywhere from several months to even a year to reach. My guess is that with the Fundamental Chinese demand and tight U.S. supplies that we will see at least $18 by the end of 2011 and likely prices above $20 at some point.
Sell Euro- Other than possibly the Treasuries, the Euro is the only market that I would consider a short position in for the time being. There is resistance in some other markets still, but the Euro has the best Bearish trend and I am not looking to fade anything right now. On Friday, and again overnight, the Euro bounced off the daily chart trend from the high Nov. 4th - Nov. 22nd with a value of 1.3375 today. It is possible that the Euro has put in another interim top now and is in the process of forming a 3rd leg lower. However, I recommend holding off on entry in the Euro for now. All of the momentum indicators remain in a Bullish mode currently. Furthermore, there is a fresh Bullish trend line formed by the lows on the daily chart since Wednesday at 1.3239 today that is providing support. If the Euro breaks this trend then I think you can begin looking at short entry with a 3rd leg objective of 1.2621. If the short term Bull trend upholds then look for a correction near resistance from 1.3575- 1.3625 before initiating a short position.
March'11-May'11 Wheat Spread- The Wheat spreads have had a strong Bullish move since Wednesday of last week. I need to do a bit more research before I suggest a specific one, but I believe this March-May chart shows the violation of the clear Bearish trend since early August the best. Tight supplies in Europe should cause further short term demand for U.S. Wheat, making the Wheat spreads potentially explosive throughout 2011. More to come soon.
Notes:
Bonds...Does Unemployment Even Matter?
The Unemployment Number Friday was weak. I would expect that this would carry over into the market, but the Bullish enthusiasm from Wednesday and Friday continued to subdue losses in Equities and Commodities. This did not surprise me a whole lot, but the Bond market's reaction definitely did. Initially following the number from 7:30 - 7:45 am the Bonds rallied 1 1/2 handles, as I would expect following a poor number. Within an hour though the Bonds were back where they started and proceeded to trade lower on the day.
Either this is a sign that the Bonds are flat out weak or that Unemployment is at a place in the market where it just does not matter much. Bonds are possibly on the way lower after a "bubble" pile-in of money. The global fundamental stories are dominating the headlines and money flow now too, rendering U.S. Economic data as back page stories. I speculate that both are probably true.
While I Was Gone
I was in the office for a while Wednesday, although I did not write, so this summary is observations I have of the markets from Wednesday through Friday. While I was away I purposefully only took a brief look at where the Dow closed Friday to get a truly fresh look. I like vacations because when I come back I usually have a less opinionated view and sometimes a better understanding of the markets. Unfortunately it looks like I should have stayed a little while longer. I hopefully have some helpful observations, but I am finding that the market seems just as difficult to predict day to day as when I left.
-The Euro is WEAK in comparison to the Equity and Physical Commodity markets over the last month. While this originally appeared to be an early signal to me that the Equities and Commodities may struggle in the coming month, I now believe that it could just be a sign of these same markets "real"strength in the face of adversity.
-Wednesday was the 1st of December. The fact that this was the biggest winning day for the Dow in 3 months should not be surprising. What was the previous larger winner...September 1st. Beginning of the month allocation and follow through.
-The correlation between the U.S. Dollar and the Equity and Commodity markets is still low in my opinion. I believe that on one of the biggest 3 day moves in months that there was a bandwagon/pile-on effect to push the Dollar lower. I do not believe that a weaker Dollar was "the cause" of this rise in prices across the market. The only way that you could make this case is if you tie the cause to the rise in prices strictly to optimism on the European Debt situation and not to any other fundamental factor like QE2, China, Korea...etc. I highly recommend avoiding trading the causal relationship between the Dollar/Euro and Equity or Commodity prices throughout the rest of the year. This means do not sell the Dollar because the S&P is up and vice versa.
-Follow through is absolutely terrible right now. If there is established support or resistance you can almost guarantee that the market will not only violate this level, but that it will subsequently fail. Possibly multiple times before a direction is decided. There are still some markets with a clearly defined trend, but the most part I would call the Equity and Commodity markets an up-sloping volatility range. I have never called a market or a group of markets this, nor do I believe it is an actual definition. How to trade this pattern on a short term or day to day basis...stay out of the way and wait until you find something that really makes sense.
Today
The market is very mixed this morning. The Foreign Currencies are unanimously weak as the Dollar is strong. The Treasuries are all definitely stronger this morning as well. It gets more complicated from there though. The Precious Metals, Wheat, and Natural Gas are moderate strengths, while the Industrial Metals and Equities are moderate weaknesses.
After such strength the second half of last week I would not be surprised to see some pullback today and tomorrow. I am looking at this early month rally to likely remain the trend over the next two weeks though. The market seems that it would rather push prices higher for now and with more momentum than the declines in price. Because I believe the market is currently extra-treacherous I am waiting until I find trades that I really like prior to suggesting them. There will therefore only be some Radar and Notes.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Soybeans Weekly Chart- Last week the Soybeans made an initial close above the high from June 8th, 2009 of $12.91 1/4. If the Soybeans make a second consecutive weekly close above this level Friday then a new price target of $16.53 - $16.97 would be in place for Beans. Remember that this is a weekly chart, so this is a longer term projection that could take anywhere from several months to even a year to reach. My guess is that with the Fundamental Chinese demand and tight U.S. supplies that we will see at least $18 by the end of 2011 and likely prices above $20 at some point.
Sell Euro- Other than possibly the Treasuries, the Euro is the only market that I would consider a short position in for the time being. There is resistance in some other markets still, but the Euro has the best Bearish trend and I am not looking to fade anything right now. On Friday, and again overnight, the Euro bounced off the daily chart trend from the high Nov. 4th - Nov. 22nd with a value of 1.3375 today. It is possible that the Euro has put in another interim top now and is in the process of forming a 3rd leg lower. However, I recommend holding off on entry in the Euro for now. All of the momentum indicators remain in a Bullish mode currently. Furthermore, there is a fresh Bullish trend line formed by the lows on the daily chart since Wednesday at 1.3239 today that is providing support. If the Euro breaks this trend then I think you can begin looking at short entry with a 3rd leg objective of 1.2621. If the short term Bull trend upholds then look for a correction near resistance from 1.3575- 1.3625 before initiating a short position.
March'11-May'11 Wheat Spread- The Wheat spreads have had a strong Bullish move since Wednesday of last week. I need to do a bit more research before I suggest a specific one, but I believe this March-May chart shows the violation of the clear Bearish trend since early August the best. Tight supplies in Europe should cause further short term demand for U.S. Wheat, making the Wheat spreads potentially explosive throughout 2011. More to come soon.
Notes:
Bonds...Does Unemployment Even Matter?
The Unemployment Number Friday was weak. I would expect that this would carry over into the market, but the Bullish enthusiasm from Wednesday and Friday continued to subdue losses in Equities and Commodities. This did not surprise me a whole lot, but the Bond market's reaction definitely did. Initially following the number from 7:30 - 7:45 am the Bonds rallied 1 1/2 handles, as I would expect following a poor number. Within an hour though the Bonds were back where they started and proceeded to trade lower on the day.
Either this is a sign that the Bonds are flat out weak or that Unemployment is at a place in the market where it just does not matter much. Bonds are possibly on the way lower after a "bubble" pile-in of money. The global fundamental stories are dominating the headlines and money flow now too, rendering U.S. Economic data as back page stories. I speculate that both are probably true.
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