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.