*First off, roll your Equity Indices, Treasuries, and Currencies to September. I have talked a lot about specific levels in Equities so just mentally drop any numbers in the S&P 500 by 4 points now as I will now use the September contract levels for reference and discussion.
*Second off, Crop Production Report at 7:30 am that will move the markets of Commodities that grow, so do not be caught in the dark.
Opening Note:
While the stock market held the 1070 to 1076 level in the S&P 500 yesterday I would not consider the day a winner for the bears necessarily as the rest of the macro market displayed signs of recovery in many of the other Commodity sectors. Equities slid back near their lows on yesterday's close, but again have found support near the 1050 level and have rallied overnight. A number of central banks around the world (mainly the ECB) have kept their interest rates steady, which has supported the U.S. market this morning, but the jury is still out whether this will be a buy the rumor (rates are steady) or sell the fact (they can not raise rates because the market is so weak) trade.
In my sells to watch section yesterday I listed Copper, Crude Oil, and the Australian Dollar and provided levels that I believed would correlate in price and time-wise. However, if you watched these specific levels it was apparent that not all of these markets were created equal. It was interesting to watch these markets weed themselves out as the best short position with Copper and Equities winning, the Australian Dollar placing second, and Crude Oil falling in last as fundamentals supported the market. So, going forward I recommend focusing more on the Copper and Equities as the best markets to put a short position on.
Overnight the S&P 500 has tested the 1066 -1072 level for the September contract and has failed. I believe that the market is now heading towards another test of the 1036 level, which will likely fail this time around leading to a breakout on the large topping pattern with a projection range from 865 - 900. However, if a rally above this initial resistance is confirmed then a test of the 1096 level is in store. While supportive markets like the Australian Dollar and Crude Oil may be forming a base I still recommend playing the short side of the macro market and selling rallies until there is a confirmed rally breakout in one of these markets. Two sided volatility has ruled the market this week, but the general direction is still down.
Buys to Watch:
Buy Gold vs Sell Silver (Gold - Silver/2 to chart)- The differential between the two Metals fell at the start of the week, but likely found a base yesterday after testing the lower end of the large low volume zone on the market profile. Led by an odd Silver rally, the differential traded below the $320 level for most of yesterday, but rallied towards the close as the Metal sector weakened and is trading near $325 this morning. There is strong support around the $310 level for stop placement and if the market does trade below $320 again I believe it is a great buy. I expect the spread to rally back to the $345 - $350 level to test the highs as well as the large weekly chart head and shoulders pattern breakout that projects to $492.
Sugar- Sugar was on the radar yesterday, but is now moved to the buys as the rally breakout level has become closer. Above 15.75 the Sugar market has a projection to 17.68 on the bullish cup and handle pattern. Sugar is a huge loser since the start of the year and after forming a consolidation base is finally attempting a recovery rally. RSI for the daily chart is now testing the bear market highs on it's range and Stochastics provided a buy signal early last week and maintains positive momentum for the market as well. I recommend waiting for the breakout before buying, but after being pummeled for a number of months I could see Sugar having a stronger rally than projected.
Sells to Watch:
Copper- Copper is the weakest Commodity in my opinion as it was unable to even reach it's sell zone on the macro rally yesterday. Other correlated markets like the Australian Dollar and Crude Oil easily met their own, with Crude actually rallying above it's high volume resistance as well. With huge long term open interest and new entrants holding a losing position I believe that Copper still has a much larger move in store. The market remains in a bearish head and shoulders pattern that has a projection range from $2.12 - $2.32. The low volume zone between 2.8850 to 2.9130 was not reached yesterday, but still is a great level for short entry with trendline resistance from 2.91 to 2.94 and high volume resistance from 2.93 to 2.96. If you are looking for short entry it is important to also watch the S&P 500. If the stock market rallies for another bounce off of yesterday's resistance then Copper is unlikely to reach it's sell zone, but is still a good sale at this level if the macro market appears it will weaken.
Put on the Radar:
Silver- Silver has come back down to earth slightly over the last 24 hours and is now approaching the breakout level on it's bearish head and shoulders pattern again. Using the same trendline from the earlier failed pattern provides a value of $17.795 today and a projection to $15.20. I believe that the macro market is on a larger downward move with deflationary pressures that should lead Silver lower even if it is being used as a store of value. The recent increase in open interest should also add fuel to the market on the downside move with more liquidation if it occurs.
Gold- The Gold market did make a new high close on Tuesday, but failed after making new highs creating a possible double top on the market. Stochastics for the daily chart produced a sell signal for the market yesterday as well. There is an important bullish trendline for the market at $12.16.3 for the market today, which would signify a larger bearish move if it is violated. I still fundamentally hold a bearish opinion on the Gold market and do not recommend holding or entering long outright positions in the market.
Crude Oil- Crude Oil had a substantial rally yesterday as rumors of future offshore drilling regulation circulated and stocks numbers were lower. The market rallied above it's low volume sell zone and high volume resistance even before the stocks number was released as one of the strongest markets yesterday. It is now nearing it's bullish breakout level above $75.72 that projects a move to $81.93. I do not recommend holding a long position in the market unless it confirms a rally projection however. Crude is one of the stronger Commodities that has a high correlation to the stock market, so I will watch it as a barometer for macro direction, with a rally above consolidation meaning a likely rally in the rest of the market.
Australian Dollar- The September contract is trading about 90 ticks below the June contract, so adjust your previous numbers accordingly. The Aussie Dollar found support overnight with central banks keeping rates steady as the risk trade re-emerged, but has run into the high volume resistance level in the market that has acted as a top this morning. The .8350 level may provide the highs for the market as it is likely to weaken if the overall market does and is a decent low risk fade at this time. However, like the Crude Oil, the Aussie does have the possibility of a rally above it's recent consolidation range that projects to .89 above .8450. I do not recommend holding a long position in the market unless it confirms a rally breakout and still look at it as a potential short for the time being.
Notes:
Thursday, June 10, 2010
Wednesday, June 9, 2010
Wednesday 6/9/10 Commodity Ideas
Opening Note:
Although the macro market did trade lower in the morning hours yesterday, my concern that a 2 day rally was emerging now is confirmed with the market firmer this morning after closing on it's highs yesterday. Although prices are trending higher this morning, I do not take this move as a very bullish signal as the majority of this move appears to be short covering. The Equity action over the last 24 hours is also not very impressive, with the S&P 500 struggling for a long time just to hold a rally above the 1061 level. If you are bullish it is not a difficult trade to jump in front of the strong 1040 support, but buying above 1075 and 1100 has continued to fail. I believe that we now are in the last little rally prior to finally taking out the 1040 support on a fast move lower over the rest of June.
Yesterday I listed a number of low volume and resistance zones for re-initiation of short positions and it looks like the market will continue to gravitate towards them today. Some of these levels are wide and require a little more risk, but they should be great opportunities for early entry on this large break that I believe is coming for the rest of the month. I recommend using patience and maybe only executing a smaller portion of your normal size when attempting shorts at these levels. Once the S&P 500 closes below the 1040 and 1036 levels it will be on cruise control for 865 - 900, with this breakout level providing another opportunity to enter the Commodity deflation and risk aversion trade.
Sidenote: I have done a lot of searching throughout the options markets for downside plays, but have found that premium across almost every market is at ridiculous levels. I only recommend using call or put spreads as the risk of owning such high implied volatility is likely to come back and bite you. I recommend sticking to outrights for the time being and using strength and weakness spreads as a hedge if you are looking at a larger move instead of spreads. Although I still do not like buying Gold as an outright position I do believe that it is the best hedge as a long position along with the Canadian Dollar against other shorts across the market.
Buys to Watch:
Gold vs. Silver (Gold - Silver/2)- With Silver having a strong reversal this week that has outpaced the Gold market a good opportunity has emerged in this differential trade. Although the market traded above $350 early Monday it has now fallen back to around the $320 level this morning. The differential chart is in the midst of a large bullish move with a great base and support. There is some strong support around the $310 with a large low volume zone stretching all the way from $315 to 343. If there is a pullback in the area from $312 to $315 I would jump all over it with very little risk on the trade and a potentially large reward. Looking at the weekly chart, the spread is on the verge of a large bullish head and shoulders pattern with a breakout level of $345 this week and a projection to $492 on a massive spike. Going forward this is a great spread to keep on your radar as it should become an easy long term position. The execution ratio when trading this differential is 1:1 Gold:Silver. Sidenote: The Gold/Silver weekly chart is also on the verge of setting off a large bullish head and shoulders pattern with a move above 70 projecting to 82 this week. This would test the high spike from late '08.
Sells to Watch: *These all could hit their sell zones near the same time
Copper- Copper has traded as the weakest Metal and arguably weakest Commodity over the last few weeks and I believe that it is the best sale going forward on the larger break that I believe will occur. New longs are now entering the market with another 8,000 contracts added to open interest between 3.10 and 2.80. However, most of these longs are now losers and if prices move a bit lower I believe that a new large wave of liquidation will begin as open interest is still just off record highs. The Copper daily chart is now broken out on a large head and shoulders pattern that has a projection range from $2.12 to $2.32. There is a good low volume zone from 2.8850 to 2.9130 for short entry, but the higher volume resistance for stop placement does range higher from 2.93 to 2.96. However, there are a number of strong support trendlines that fall between the 2.91 to 2.94 range that should provide additional strong resistance. I like the Copper the most of any of the shorts and believe that if you are going to have any position it should be this one.
Crude Oil- I do not currently have a decided projection lower for Crude Oil, but I believe that a move below $60 is definitely on the horizon and I want to be short the Crude. Crude does have what could be a base forming on it's daily chart as it has yet to make a new low below the early May move, but this is not a confirmed move higher until a move above $75.72. Like Copper, Crude Oil has had one of the larges increases in open interest over the last year and has a whole lot more fuel in the tank with another move lower to fuel a large amount of liquidation. The RSI and Stochastics momentum indicators also maintain a bearish trend range and could be on the verge of setting off a new sell signal. There is a good low volume zone for entry between $73.56 to 74.04 with stronger resistance from 74.22 to 74.50. I would lean towards looking for the higher end of this low volume zone to cut down on your risk.
Australian Dollar- Like the Crude Oil the Australian Dollar appears that it could be forming a base for a larger rally, but this is not an issue until above .85 with momentum still in a bearish mode as well. There is a good low volume zone from .8326 to .8368 with some older high volume resistance from .8370 to .8400 with some continuation higher on more recent resistance to .8440. Like the Crude Oil I suggest waiting for a higher level in the low volume zone for execution as there is a larger risk area for stop placement.
Put on the Radar:
S&P 500 Direction and Resistance- The initial trendline from the February lows to the "Flash Crash" is sitting at 1063.5 today. It acted as resistance yesterday and this morning, but as I speculated yesterday it did not hold. The next level of high volume resistance is from 1070 to 1076, which provided a top on the market early last week. This level would make sense to hold, especially for the levels on the markets listed in the sells to watch category today. However, if it does not hold then a move to the area from 1088 - 1100 is likely on another test of the 200 day moving average. The Nasdaq has also begun to perform weaker in relation to the Dow and S&P 500 over the last two days, which is another bearish signal. I am leaning towards the 1075 level holding today with a move below the 1040 level coming soon, either later this week or by the beginning of next.
Silver- Silver failed yesterday on a test of the high volume resistance levels I gave yesterday on what was the right shoulder of it's bearish head and shoulders pattern. I still believe that an egregious error has been made by investors in the Silver market as they have incorrectly invested in what they think is a store of value, but is rather an industrial metal with nasty price break under deflationary pressures. I am sitting on the sidelines in the outright market for the time being and waiting for another breakout on the head and shoulders neckline at $17.765 today before initiating a short. As I explained in the Buys to Watch though I do like Buying Gold vs. Selling Silver now.
Sugar- Sugar has been a dead story for the last couple months, but the after forming a consolidation range over the last month it is now on the verge of a bullish breakout. Above 15.75 cents I have a projection to 17.68. Stochastics produced a buy signal a few days ago and the RSI is also testing the topside range on the recent bearish mode as a potential reversal signal. This market may also have the potential to rally a bit higher above the projection if momentum gets churning.
Notes:
Natural Gas- The allocation in the market appears to be over after the market failed at a test of the $5 level. I had a projection to $5.138 for the market, but I no longer feel that this is a worthwhile trade. The $4.800 level I suggested as support for long entry failed shortly after the open yesterday as well, confirming my opinion to exit the market.
Cotton- If you do not normally watch Cotton it is worthwhile to pull up a daily chart now to witness the massive short covering rally that has occurred over the last two days. The low volume zone I provided yesterday for re-entry of a short position failed near 78 cents on the close yesterday, so hopefully you were able to exit prior to this morning if you were holding a short position.
Although the macro market did trade lower in the morning hours yesterday, my concern that a 2 day rally was emerging now is confirmed with the market firmer this morning after closing on it's highs yesterday. Although prices are trending higher this morning, I do not take this move as a very bullish signal as the majority of this move appears to be short covering. The Equity action over the last 24 hours is also not very impressive, with the S&P 500 struggling for a long time just to hold a rally above the 1061 level. If you are bullish it is not a difficult trade to jump in front of the strong 1040 support, but buying above 1075 and 1100 has continued to fail. I believe that we now are in the last little rally prior to finally taking out the 1040 support on a fast move lower over the rest of June.
Yesterday I listed a number of low volume and resistance zones for re-initiation of short positions and it looks like the market will continue to gravitate towards them today. Some of these levels are wide and require a little more risk, but they should be great opportunities for early entry on this large break that I believe is coming for the rest of the month. I recommend using patience and maybe only executing a smaller portion of your normal size when attempting shorts at these levels. Once the S&P 500 closes below the 1040 and 1036 levels it will be on cruise control for 865 - 900, with this breakout level providing another opportunity to enter the Commodity deflation and risk aversion trade.
Sidenote: I have done a lot of searching throughout the options markets for downside plays, but have found that premium across almost every market is at ridiculous levels. I only recommend using call or put spreads as the risk of owning such high implied volatility is likely to come back and bite you. I recommend sticking to outrights for the time being and using strength and weakness spreads as a hedge if you are looking at a larger move instead of spreads. Although I still do not like buying Gold as an outright position I do believe that it is the best hedge as a long position along with the Canadian Dollar against other shorts across the market.
Buys to Watch:
Gold vs. Silver (Gold - Silver/2)- With Silver having a strong reversal this week that has outpaced the Gold market a good opportunity has emerged in this differential trade. Although the market traded above $350 early Monday it has now fallen back to around the $320 level this morning. The differential chart is in the midst of a large bullish move with a great base and support. There is some strong support around the $310 with a large low volume zone stretching all the way from $315 to 343. If there is a pullback in the area from $312 to $315 I would jump all over it with very little risk on the trade and a potentially large reward. Looking at the weekly chart, the spread is on the verge of a large bullish head and shoulders pattern with a breakout level of $345 this week and a projection to $492 on a massive spike. Going forward this is a great spread to keep on your radar as it should become an easy long term position. The execution ratio when trading this differential is 1:1 Gold:Silver. Sidenote: The Gold/Silver weekly chart is also on the verge of setting off a large bullish head and shoulders pattern with a move above 70 projecting to 82 this week. This would test the high spike from late '08.
Sells to Watch: *These all could hit their sell zones near the same time
Copper- Copper has traded as the weakest Metal and arguably weakest Commodity over the last few weeks and I believe that it is the best sale going forward on the larger break that I believe will occur. New longs are now entering the market with another 8,000 contracts added to open interest between 3.10 and 2.80. However, most of these longs are now losers and if prices move a bit lower I believe that a new large wave of liquidation will begin as open interest is still just off record highs. The Copper daily chart is now broken out on a large head and shoulders pattern that has a projection range from $2.12 to $2.32. There is a good low volume zone from 2.8850 to 2.9130 for short entry, but the higher volume resistance for stop placement does range higher from 2.93 to 2.96. However, there are a number of strong support trendlines that fall between the 2.91 to 2.94 range that should provide additional strong resistance. I like the Copper the most of any of the shorts and believe that if you are going to have any position it should be this one.
Crude Oil- I do not currently have a decided projection lower for Crude Oil, but I believe that a move below $60 is definitely on the horizon and I want to be short the Crude. Crude does have what could be a base forming on it's daily chart as it has yet to make a new low below the early May move, but this is not a confirmed move higher until a move above $75.72. Like Copper, Crude Oil has had one of the larges increases in open interest over the last year and has a whole lot more fuel in the tank with another move lower to fuel a large amount of liquidation. The RSI and Stochastics momentum indicators also maintain a bearish trend range and could be on the verge of setting off a new sell signal. There is a good low volume zone for entry between $73.56 to 74.04 with stronger resistance from 74.22 to 74.50. I would lean towards looking for the higher end of this low volume zone to cut down on your risk.
Australian Dollar- Like the Crude Oil the Australian Dollar appears that it could be forming a base for a larger rally, but this is not an issue until above .85 with momentum still in a bearish mode as well. There is a good low volume zone from .8326 to .8368 with some older high volume resistance from .8370 to .8400 with some continuation higher on more recent resistance to .8440. Like the Crude Oil I suggest waiting for a higher level in the low volume zone for execution as there is a larger risk area for stop placement.
Put on the Radar:
S&P 500 Direction and Resistance- The initial trendline from the February lows to the "Flash Crash" is sitting at 1063.5 today. It acted as resistance yesterday and this morning, but as I speculated yesterday it did not hold. The next level of high volume resistance is from 1070 to 1076, which provided a top on the market early last week. This level would make sense to hold, especially for the levels on the markets listed in the sells to watch category today. However, if it does not hold then a move to the area from 1088 - 1100 is likely on another test of the 200 day moving average. The Nasdaq has also begun to perform weaker in relation to the Dow and S&P 500 over the last two days, which is another bearish signal. I am leaning towards the 1075 level holding today with a move below the 1040 level coming soon, either later this week or by the beginning of next.
Silver- Silver failed yesterday on a test of the high volume resistance levels I gave yesterday on what was the right shoulder of it's bearish head and shoulders pattern. I still believe that an egregious error has been made by investors in the Silver market as they have incorrectly invested in what they think is a store of value, but is rather an industrial metal with nasty price break under deflationary pressures. I am sitting on the sidelines in the outright market for the time being and waiting for another breakout on the head and shoulders neckline at $17.765 today before initiating a short. As I explained in the Buys to Watch though I do like Buying Gold vs. Selling Silver now.
Sugar- Sugar has been a dead story for the last couple months, but the after forming a consolidation range over the last month it is now on the verge of a bullish breakout. Above 15.75 cents I have a projection to 17.68. Stochastics produced a buy signal a few days ago and the RSI is also testing the topside range on the recent bearish mode as a potential reversal signal. This market may also have the potential to rally a bit higher above the projection if momentum gets churning.
Notes:
Natural Gas- The allocation in the market appears to be over after the market failed at a test of the $5 level. I had a projection to $5.138 for the market, but I no longer feel that this is a worthwhile trade. The $4.800 level I suggested as support for long entry failed shortly after the open yesterday as well, confirming my opinion to exit the market.
Cotton- If you do not normally watch Cotton it is worthwhile to pull up a daily chart now to witness the massive short covering rally that has occurred over the last two days. The low volume zone I provided yesterday for re-entry of a short position failed near 78 cents on the close yesterday, so hopefully you were able to exit prior to this morning if you were holding a short position.
Tuesday, June 8, 2010
Tuesday 6/8/10 Commodity Ideas
Opening Note:
Although the macro market started out with a nice recovery yesterday morning after a poor opening Sunday evening, it still managed to sink throughout U.S. trading hours to close near the lows in many supportive markets. I now have the S&P 500 with a low close below my early short initiation breakout trendline that connects the lows from Feb. 5th to the "Flash Forward" low on May 6th. This head and shoulders pattern neckline had a breakout value yesterday of 1063.25 that projects exactly to 900, but it is appropriate to also add the larger projection of 865 to form a range of expectations on the move lower. The market is now seeking a second consecutive lower close today to confirm the bearish market projection.
However, I have become slightly concerned with the overall market action as a holder of short positions over the last 36 hours as supportive Commodity markets have continually found support and some indicator markets have reversed. The industrial Metals like Silver (which reversed hard) and Copper (which has found support) are some of the indicators, along with the Aussie Dollar, that are telling me to lay off for a while. Part of my cautiousness may be due to an over-investment in emotional capital in the hard reversing Silver market, but after a large break Friday and two failed attempts at a move lower I feel that the macro market may be temporarily oversold and looking for a rally to clean out shorts. I personally closed out the majority of my short positions mid-day yesterday as this concern sank in and actually *gulp* purchased a small long position in the S&P 500 this morning (but with a tight stop).
I am only looking for a 20 point rally in the market, but I believe that it is a good idea to temporarily lighten short positions and to look for a 2 day rally pullback before initiating short positions. There are a number of great low volume zones to re-initiate shorts at if you are patient and can lay off some of the nearby resistance levels. I still hold the medium term bearish opinion that the S&P 500 will be the leading indicator on a move to the 865 - 900 level in macro terms. I just recommend a little patience for the time being as the market delivers a little more hope for the bulls prior to slamming the door shut later this week.
Buys to Watch:
Natural Gas- The Natural Gas market continues to perform strong on it's bullish cup and handle pattern on the rally out of consolidation with another strong rally on yesterday's open. The cup and handle pattern had a breakout level of $4.587 with a projection to $5.138 that is becoming close to completion. Yesterday morning I provided a higher volume support level from 4.700 to 4.680 that was temporarily violated, but after a quick stop-run acted as the base for the large allocation rally on the market's open. Although it is likely too late to enter, there was higher volume support in the market from 4.875 to 4.844 with another support level near 4.800. The market appears to be driven by fund allocation as concern around Crude Oil's future has sent money seeking alternative energy investment. The best moves appear to happen near the open and close over the last few days, so look for entry about a half hour prior to the event for the best opportunity to capture them.
Sells to Watch:
Cotton- Cotton had a breakout level of 80.13 on it's bearish head and shoulders pattern that has a projection of 72.66. The market has consistently moved lower and has been easy to hold a short position, but I now believe that it is prudent to wait for a larger pullback before initiating another short position in the market. Yesterday's lower initiation value from 77.40 to 77.50 acted as a high, but I will now wait for a rally into the low volume area from 77.76 to 78.06 with higher volume resistance above to the 78.35. Both RSI and Stochastics are sitting in oversold territory for the market, with Stochastics close to producing a buy signal for the market. These momentum indicators are also saying wait for a little rally and reduce short positions in the market for the time being.
Copper- Copper continues to be one of the weaker performers among the broad market and is one of the few Commodities that is lower this morning. Still, I recommend reducing short positions in the market for the time being and waiting for a larger rally for re-initiation in the market. The large bearish head and shoulders pattern for the market has a projection range from $2.12 to $2.32 and is now confirmed on this move lower. The high volume resistance from 2.78 to 2.8050 has acted as a good top on the market for the last 36 hours, but now has tested on multiple occasions and is unlikely to hold much longer. There is a great low volume zone from 2.8850 to 2.9140 to enter a short position on a rally with a number of key resistance levels near this up to the 2.93 area. I will be waiting for a rally near this level to put my short position back on.
Australian Dollar- The theme for today is reduce and re-initiate, so for the Aussie I am looking for the low volume zone from .8326 to .8358. The weekly chart bearish cup and handle pattern still has a projection to .7784 on the longer term move. The high volume resistance level from .8200 to .8235 has acted as a top for the market over the last 36 hours, but like the Copper I believe that it may come under pressure and not hold the next time it is tested.
Put on the Radar:
Silver and Gold- The Silver market obviously had an enormous reversal day yesterday that was fueled by short covering despite the bearish head and shoulders breakout on Friday. Right now the market is testing some of the high volume resistance from the right shoulder from $18.39 to 18.44 and 18.52 to 18.64. Right now I am still fundamentally unconvinced that this is a logical move for the Silver market as it is much more of an industrial metal than the store of value that the market is using it as for the time being. However, I am not willing to fight the market with this sort of market action with short covering and allocation entering the market. I did peruse the options market for possible purchase of puts, but with volatility so expensive right now I do not think that this is a value play for the time being.
I am running out of time this morning, but I have the Gold/Silver ratio chart and Gold - Silver/2 differential chart on my radar on the weekly basis. Both are nearing large head bullish head and shoulders pattern breakouts right now, which will either mean a larger Gold rally or a sharp Silver break. They will not come into play today so I will discuss them tomorrow.
Notes:
Japanese Yen- The Yen has not been on my radar as it has underperformed in comparison to many of the other risk aversion markets, but I believe that it may now be oversold and nearing a good buy level. I am considering purchasing a small initial position in the market on a break into the low volume zone from 108.32 to 108.44 with higher volume support to 107.86. This is much more of a feel trade for me as the market appears to be coiling bullish momentum as we speak. The market should fundamentally rally if the macro market weakens and with a small risk I believe it may be worth a small shot.
Although the macro market started out with a nice recovery yesterday morning after a poor opening Sunday evening, it still managed to sink throughout U.S. trading hours to close near the lows in many supportive markets. I now have the S&P 500 with a low close below my early short initiation breakout trendline that connects the lows from Feb. 5th to the "Flash Forward" low on May 6th. This head and shoulders pattern neckline had a breakout value yesterday of 1063.25 that projects exactly to 900, but it is appropriate to also add the larger projection of 865 to form a range of expectations on the move lower. The market is now seeking a second consecutive lower close today to confirm the bearish market projection.
However, I have become slightly concerned with the overall market action as a holder of short positions over the last 36 hours as supportive Commodity markets have continually found support and some indicator markets have reversed. The industrial Metals like Silver (which reversed hard) and Copper (which has found support) are some of the indicators, along with the Aussie Dollar, that are telling me to lay off for a while. Part of my cautiousness may be due to an over-investment in emotional capital in the hard reversing Silver market, but after a large break Friday and two failed attempts at a move lower I feel that the macro market may be temporarily oversold and looking for a rally to clean out shorts. I personally closed out the majority of my short positions mid-day yesterday as this concern sank in and actually *gulp* purchased a small long position in the S&P 500 this morning (but with a tight stop).
I am only looking for a 20 point rally in the market, but I believe that it is a good idea to temporarily lighten short positions and to look for a 2 day rally pullback before initiating short positions. There are a number of great low volume zones to re-initiate shorts at if you are patient and can lay off some of the nearby resistance levels. I still hold the medium term bearish opinion that the S&P 500 will be the leading indicator on a move to the 865 - 900 level in macro terms. I just recommend a little patience for the time being as the market delivers a little more hope for the bulls prior to slamming the door shut later this week.
Buys to Watch:
Natural Gas- The Natural Gas market continues to perform strong on it's bullish cup and handle pattern on the rally out of consolidation with another strong rally on yesterday's open. The cup and handle pattern had a breakout level of $4.587 with a projection to $5.138 that is becoming close to completion. Yesterday morning I provided a higher volume support level from 4.700 to 4.680 that was temporarily violated, but after a quick stop-run acted as the base for the large allocation rally on the market's open. Although it is likely too late to enter, there was higher volume support in the market from 4.875 to 4.844 with another support level near 4.800. The market appears to be driven by fund allocation as concern around Crude Oil's future has sent money seeking alternative energy investment. The best moves appear to happen near the open and close over the last few days, so look for entry about a half hour prior to the event for the best opportunity to capture them.
Sells to Watch:
Cotton- Cotton had a breakout level of 80.13 on it's bearish head and shoulders pattern that has a projection of 72.66. The market has consistently moved lower and has been easy to hold a short position, but I now believe that it is prudent to wait for a larger pullback before initiating another short position in the market. Yesterday's lower initiation value from 77.40 to 77.50 acted as a high, but I will now wait for a rally into the low volume area from 77.76 to 78.06 with higher volume resistance above to the 78.35. Both RSI and Stochastics are sitting in oversold territory for the market, with Stochastics close to producing a buy signal for the market. These momentum indicators are also saying wait for a little rally and reduce short positions in the market for the time being.
Copper- Copper continues to be one of the weaker performers among the broad market and is one of the few Commodities that is lower this morning. Still, I recommend reducing short positions in the market for the time being and waiting for a larger rally for re-initiation in the market. The large bearish head and shoulders pattern for the market has a projection range from $2.12 to $2.32 and is now confirmed on this move lower. The high volume resistance from 2.78 to 2.8050 has acted as a good top on the market for the last 36 hours, but now has tested on multiple occasions and is unlikely to hold much longer. There is a great low volume zone from 2.8850 to 2.9140 to enter a short position on a rally with a number of key resistance levels near this up to the 2.93 area. I will be waiting for a rally near this level to put my short position back on.
Australian Dollar- The theme for today is reduce and re-initiate, so for the Aussie I am looking for the low volume zone from .8326 to .8358. The weekly chart bearish cup and handle pattern still has a projection to .7784 on the longer term move. The high volume resistance level from .8200 to .8235 has acted as a top for the market over the last 36 hours, but like the Copper I believe that it may come under pressure and not hold the next time it is tested.
Put on the Radar:
Silver and Gold- The Silver market obviously had an enormous reversal day yesterday that was fueled by short covering despite the bearish head and shoulders breakout on Friday. Right now the market is testing some of the high volume resistance from the right shoulder from $18.39 to 18.44 and 18.52 to 18.64. Right now I am still fundamentally unconvinced that this is a logical move for the Silver market as it is much more of an industrial metal than the store of value that the market is using it as for the time being. However, I am not willing to fight the market with this sort of market action with short covering and allocation entering the market. I did peruse the options market for possible purchase of puts, but with volatility so expensive right now I do not think that this is a value play for the time being.
I am running out of time this morning, but I have the Gold/Silver ratio chart and Gold - Silver/2 differential chart on my radar on the weekly basis. Both are nearing large head bullish head and shoulders pattern breakouts right now, which will either mean a larger Gold rally or a sharp Silver break. They will not come into play today so I will discuss them tomorrow.
Notes:
Japanese Yen- The Yen has not been on my radar as it has underperformed in comparison to many of the other risk aversion markets, but I believe that it may now be oversold and nearing a good buy level. I am considering purchasing a small initial position in the market on a break into the low volume zone from 108.32 to 108.44 with higher volume support to 107.86. This is much more of a feel trade for me as the market appears to be coiling bullish momentum as we speak. The market should fundamentally rally if the macro market weakens and with a small risk I believe it may be worth a small shot.
Monday, June 7, 2010
Monday 6/7/10 Commodity Ideas
Opening Note:
With expectations high coming into the Unemployment report Friday the market was dealt a devastating blow as an underwhelming number fell roughly 150,000 long term jobs short of the consensus estimate. Most current Bulls have used U.S. economic recovery as their fundamental evidence for why the market should continue higher, but they are now left with little backstory to support their opinions. With a lack of substantial reports until the FOMC meeting on June 23rd and another month until earnings take center stage again I believe that the technical bearishness of the macro market will now define the trade for the next month. I have stood by my opinion that the stock market as well as Commodities are entering a large deflationary move that I now believe will rear it's head by the end of this week.
Technically the S&P 500 now is on the verge of setting off a large topping pattern with the point of no return being the February lows of 1036.25. While there should be some fight early in the week to hold this level I do not see a significant demand that will enter the market to save it again. I have a projection range on the S&P 500 from 865 - 900 on this initial bearish move with the supportive markets also following suit with Equities down to this level. With debt concerns across the globe and bubble markets beginning to pop, including here in the U.S., the bearish news should continue to emerge as consumer confidence is already suffering. The market has not forgotten the ugly dip from '08 and early '09, so it is likely that this move will be much swifter than most of the previous breaks in the market. I continue to recommend holding a bearish macro position and selling rallies in supportive Commodities over the large dip coming over the next month.
*In the Radar section I provided some Equity analysis that should facilitate today's trade.
Buys to Watch:
Natural Gas- With concerns about the future of the Oil market after the Gulf Oil Leak the large money is now in the process of allocating a substantial position in the Natural Gas market. The chart for Natural Gas has now confirmed a breakout above consolidation with two consecutive closes above the $4.587 price level with a projection on the cup and handle pattern to $5.138. RSI has now crossed the bearish mode resistance level and has entered a bullish momentum level that supports further entry. I had a good low volume entry level for today from 4.712 to 4.748, but the market is in the process of testing this level and the underlying higher volume support already. The larger volume support lies from 4.700 to 4.680, which already had a stop running break that ticked below this level. I would wait for a price level above the 4.7 level for entry and getting out of the market quick if there does not appear to be large allocation on the open.
Sells to Watch:
Cotton- Cotton is broken out on a bearish daily head and shoulders pattern with a breakout level of 80.13 and a projection to 72.66. Since the breakout last week the market has continued to decline each day on a move that easily supported holding a short position. The market has already continued lower this morning, but between 77.40 and 77.50 there is a small low volume level for short entry with higher volume resistance up to 77.70. Above this there is also another low volume zone from 77.90 to 78.10 as another option to enter a short if this first level does not hold with larger volume resistance above to 78.35. This projection to 72.66 is again one of the larger ones that you can draw from the chart, but most still provide a move to at least the 75 cent level if you prefer to take profits sooner.
Silver- Silver is now broken out on it's large bearish head and shoulders pattern and is seeking confirmation today with another lower close. To form the head and shoulders pattern draw the neckline on the daily chart from the low May 5th to the low May 21st. On Friday the chart broke out below the $17.685 level and now has a projection to $15.085. For entry on a rally today I have a low volume zone from 17.675 to 17.73 with some higher volume resistance from 17.735 to 17.80. However, with Silver lacking a rally on it's opening I believe that Equities or Gold would need a substantial rally today for Silver to reach this level. If you are holding a short position I recommend placing a stop near the highs overnight and if you are stopped out then looking for re-entry at this low volume level.
Copper- Copper is broken out on a large topping pattern that looks very similar to the S&P 500 pattern that is forming. As Copper is often a good indicator of overall market direction I take this pattern initiation as a bearish signal for the market moving forward. Depending on whether you draw the pattern based off the "Flash Forward" levels or the lows from mid-May provides different projections, so I am using them as a range of expectations from $2.12 to $2.32. If you are already short I recommend placing a stop near the highs on the range overnight and looking for re-entry at a higher level. The low volume zone from 2.8860 to 2.9130 is great level for re-initiation if it is met with the neckline on the lower head and shoulders pattern sitting at 2.9275 today as resistance for the trade.
Australian Dollar- The Aussie was the poorest performing Currency on Friday on a percentage basis and is also again this morning. The market is in a large bearish cup and handle pattern on the weekly chart with a breakout level of .8547 and a projection to .7784. After breaking the base trendline on it's recent daily chart consolidation on Friday Stochastics also produced a sell signal confirming a loss of upward momentum. As I write the market is testing the higher volume resistance level from .8200 to .8235 as a spot to initiate a short position against. The Aussie, along with most of these other Commodities, will likely travel along with the S&P 500, so I recommend lightening short positions and looking for re-entry at a higher level if the 1775.75 level is breached by the S&P.
Put on the Radar:
S&P 500 as an indicator for today- After an initial break on the open yesterday evening the stock market has formed an uptrend over the last 11 hours that is now testing a higher volume resistance level. The S&P 500 has acted as the best indicator for Equities so I am keeping a very close eye on the higher volume resistance from 1770 to 1775.75 today. A rally above this level could lead the market back to the 1090 to 1095 level as shorts scramble to cover open positions from last week. Right now Equities, Commodities, and Currencies are all highly correlated, so a move above this resistance would likely mean a move higher for all of my suggested shorts today. If the S&P 500 is able to rally above 1775.75 then I recommend lightening up on short positions and looking to re-initiate near this higher low volume level for the equity market.
Gold- While Gold had the "gut reaction run to safety" rally on Friday I am still not convinced that it is a good outright buy and recommend holding a flat position in the market. Gold struggled overnight with the higher volume resistance level from $1223 to 1230 and has trended lower overnight. While I do like the idea of buying gold as a hedge against short positions in other markets, I still believe that this a large deflationary move across the macro market and that even the price of Gold should independently drop. Above $1230 I can understand entering a long position, but until this time I recommend staying neutral. When you put the same head and shoulders neckline from Silver on Gold you receive a value today of $1177.5, which would project a move to below $1100 if it was violated.
Notes:
Crude Oil- Although I do not have a good projection on Crude Oil currently I believe that the macro market is in a deflationary move that would include Crude trending lower. There is some higher volume resistance from 71.90 to 72.25 that correlates price-wise with the aforementioned resistance in the S&P 500. This is a good level to initiate a short position against in Crude on a further rally today if the S&P 500 also struggles with it's level.
With expectations high coming into the Unemployment report Friday the market was dealt a devastating blow as an underwhelming number fell roughly 150,000 long term jobs short of the consensus estimate. Most current Bulls have used U.S. economic recovery as their fundamental evidence for why the market should continue higher, but they are now left with little backstory to support their opinions. With a lack of substantial reports until the FOMC meeting on June 23rd and another month until earnings take center stage again I believe that the technical bearishness of the macro market will now define the trade for the next month. I have stood by my opinion that the stock market as well as Commodities are entering a large deflationary move that I now believe will rear it's head by the end of this week.
Technically the S&P 500 now is on the verge of setting off a large topping pattern with the point of no return being the February lows of 1036.25. While there should be some fight early in the week to hold this level I do not see a significant demand that will enter the market to save it again. I have a projection range on the S&P 500 from 865 - 900 on this initial bearish move with the supportive markets also following suit with Equities down to this level. With debt concerns across the globe and bubble markets beginning to pop, including here in the U.S., the bearish news should continue to emerge as consumer confidence is already suffering. The market has not forgotten the ugly dip from '08 and early '09, so it is likely that this move will be much swifter than most of the previous breaks in the market. I continue to recommend holding a bearish macro position and selling rallies in supportive Commodities over the large dip coming over the next month.
*In the Radar section I provided some Equity analysis that should facilitate today's trade.
Buys to Watch:
Natural Gas- With concerns about the future of the Oil market after the Gulf Oil Leak the large money is now in the process of allocating a substantial position in the Natural Gas market. The chart for Natural Gas has now confirmed a breakout above consolidation with two consecutive closes above the $4.587 price level with a projection on the cup and handle pattern to $5.138. RSI has now crossed the bearish mode resistance level and has entered a bullish momentum level that supports further entry. I had a good low volume entry level for today from 4.712 to 4.748, but the market is in the process of testing this level and the underlying higher volume support already. The larger volume support lies from 4.700 to 4.680, which already had a stop running break that ticked below this level. I would wait for a price level above the 4.7 level for entry and getting out of the market quick if there does not appear to be large allocation on the open.
Sells to Watch:
Cotton- Cotton is broken out on a bearish daily head and shoulders pattern with a breakout level of 80.13 and a projection to 72.66. Since the breakout last week the market has continued to decline each day on a move that easily supported holding a short position. The market has already continued lower this morning, but between 77.40 and 77.50 there is a small low volume level for short entry with higher volume resistance up to 77.70. Above this there is also another low volume zone from 77.90 to 78.10 as another option to enter a short if this first level does not hold with larger volume resistance above to 78.35. This projection to 72.66 is again one of the larger ones that you can draw from the chart, but most still provide a move to at least the 75 cent level if you prefer to take profits sooner.
Silver- Silver is now broken out on it's large bearish head and shoulders pattern and is seeking confirmation today with another lower close. To form the head and shoulders pattern draw the neckline on the daily chart from the low May 5th to the low May 21st. On Friday the chart broke out below the $17.685 level and now has a projection to $15.085. For entry on a rally today I have a low volume zone from 17.675 to 17.73 with some higher volume resistance from 17.735 to 17.80. However, with Silver lacking a rally on it's opening I believe that Equities or Gold would need a substantial rally today for Silver to reach this level. If you are holding a short position I recommend placing a stop near the highs overnight and if you are stopped out then looking for re-entry at this low volume level.
Copper- Copper is broken out on a large topping pattern that looks very similar to the S&P 500 pattern that is forming. As Copper is often a good indicator of overall market direction I take this pattern initiation as a bearish signal for the market moving forward. Depending on whether you draw the pattern based off the "Flash Forward" levels or the lows from mid-May provides different projections, so I am using them as a range of expectations from $2.12 to $2.32. If you are already short I recommend placing a stop near the highs on the range overnight and looking for re-entry at a higher level. The low volume zone from 2.8860 to 2.9130 is great level for re-initiation if it is met with the neckline on the lower head and shoulders pattern sitting at 2.9275 today as resistance for the trade.
Australian Dollar- The Aussie was the poorest performing Currency on Friday on a percentage basis and is also again this morning. The market is in a large bearish cup and handle pattern on the weekly chart with a breakout level of .8547 and a projection to .7784. After breaking the base trendline on it's recent daily chart consolidation on Friday Stochastics also produced a sell signal confirming a loss of upward momentum. As I write the market is testing the higher volume resistance level from .8200 to .8235 as a spot to initiate a short position against. The Aussie, along with most of these other Commodities, will likely travel along with the S&P 500, so I recommend lightening short positions and looking for re-entry at a higher level if the 1775.75 level is breached by the S&P.
Put on the Radar:
S&P 500 as an indicator for today- After an initial break on the open yesterday evening the stock market has formed an uptrend over the last 11 hours that is now testing a higher volume resistance level. The S&P 500 has acted as the best indicator for Equities so I am keeping a very close eye on the higher volume resistance from 1770 to 1775.75 today. A rally above this level could lead the market back to the 1090 to 1095 level as shorts scramble to cover open positions from last week. Right now Equities, Commodities, and Currencies are all highly correlated, so a move above this resistance would likely mean a move higher for all of my suggested shorts today. If the S&P 500 is able to rally above 1775.75 then I recommend lightening up on short positions and looking to re-initiate near this higher low volume level for the equity market.
Gold- While Gold had the "gut reaction run to safety" rally on Friday I am still not convinced that it is a good outright buy and recommend holding a flat position in the market. Gold struggled overnight with the higher volume resistance level from $1223 to 1230 and has trended lower overnight. While I do like the idea of buying gold as a hedge against short positions in other markets, I still believe that this a large deflationary move across the macro market and that even the price of Gold should independently drop. Above $1230 I can understand entering a long position, but until this time I recommend staying neutral. When you put the same head and shoulders neckline from Silver on Gold you receive a value today of $1177.5, which would project a move to below $1100 if it was violated.
Notes:
Crude Oil- Although I do not have a good projection on Crude Oil currently I believe that the macro market is in a deflationary move that would include Crude trending lower. There is some higher volume resistance from 71.90 to 72.25 that correlates price-wise with the aforementioned resistance in the S&P 500. This is a good level to initiate a short position against in Crude on a further rally today if the S&P 500 also struggles with it's level.
Friday, June 4, 2010
Friday 6/4/10 Commodity Ideas (Extra Early Edition)
Opening Note:
Equities yesterday found a tighter range compared to more recent action as the market rebounded mid-day to settle just below my breakout point on the daily chart for the S&P 500. While Equities ended up rather quiet it was weakness in the Metal Sector and strength in the Energy Sector that took center stage in the macro picture. Following the new Australian mining tax and downgrades on expectations from Freeport-McMoran the entire Metal sector found a weaker trade as a fundamental story emerged to help form the bearish top in the Metal sector I have speculated about for a week. Meanwhile, the Energy Sector was boosted by bullish stocks reports and an oversold marketplace that was begging for a rally. These two slightly correlated sectors send mixed signals in their direction, but other than Gold, the Metal Sector is usually more correlated to macro moves and can be used as a good indicator prior to a macro move. I believe that Energies could see more rally bounce, but if Silver and Copper breakout on their massive topping patterns then I believe that it is just a matter of time before the rest of the macro world follows.
As I stated yesterday I believe that there is a fork in the road today, but with both paths likely leading to the eventual bearish breakout on a large macro top with a significant downside move and deflationary trade to follow. Equities are sitting very close to their breakouts this morning, so it seems more likely to me at the time being that we could see a small rally today after the number. I personally will jump on the rally in Equities and Crude if it occurs, but with a tighter leash on my stop and limited expectations on the rally to my projections. However, if this rally does not occur today I would take this as a very bearish signal and recommend preparing short positions with the Metals being the first markets to jump into. There is a wide range of estimates on the Unemployment number with many being revised higher over the last couple days. It is possible that the market is already pricing in a huge number and the trade could turn into a buy the rumor and sell the fact situation. Below 1040 on the S&P 500 I have a projection range from 865 - 900 with the macro market sliding with he Equities.
**7am Note- Since I began writing this letter Equities, Commodities, and Currencies have all experienced a volatile price drop. This is odd action in my experience prior to an Unemployment number. The Euro is leading the way lower as it has just made new lows. I am getting a very bearish vibe from this action as longs are running for cover prior to the number. I now expect that we could see a collapse after the number if it is now extraordinarily high.
Buys to Watch:
Natural Gas- With a bullish stocks number and increased market interest following the Gulf Oil Spill, Natural Gas had a bullish breakout above it's consolidation range yesterday. The breakout level of $4.587 has a projection to $5.138. With the daily RSI for the chart also now broken out of its bear market range the momentum indicators are also showing Nat. Gas as a buy. There is a nice "single print" low volume area from 4.610 to 4.630 with some higher volume support near 4.588 and more below from 4.564 to 4.574 for stop placement on the long entry. However, below this level the market would negate it's bullish consolidation breakout and would likely travel to the next "single print" low volume area of support from 4.474 to 4.530, which would not be a good place for entry at the time.
Sells to Watch:
Cotton- Despite coming into the day a bit higher Cotton was able to again close on it's lows as it approaches the 78 cent level. The bearish consolidation breakout had a breakout value of 80.13 and a projection on the head and shoulders pattern to 72.66. For entry today there is a minuscule low volume area at 78.78 with mixed higher volume resistance above to 79.16 for entry. However, there is some higher volume trade near the 78.60 level that has already created a barrier on the highs in the market today. If you "need" to get into this market then I would recommend a smaller contract size fade of this 78.60 level on a rally, but prefer waiting for a rally to the 78.78 level despite the possibility of not getting filled.
Silver- Like I stated in the Opening Note, the fundamental story of mining taxes has sent the overbought Silver lower on the right shoulder of the head and shoulders topping pattern. For the last two days I have listed Silver in the sell section with a caution label as a sale against the higher volume resistance from $18.54 to 18.64. This high volume zone held beautifully as resistance on the formation of this right shoulder, with a good opportunity to get in even yesterday at $18.40, and has now pushed Silver nearly to it's breakout today. The large bearish head and shoulders pattern has a breakout today of $17.685 with a projection to $15.085. Stochastics put out a sell signal on the market yesterday as well. Gold also has a similar head and shoulders pattern that is forming after the violation of a significant trendline overnight. The Gold has a breakout level of $1176.6 today with a projection to $1088.9. Equities having a make or break day today could effect the Precious Metals, but they have moved lower lately on macro strength as well as weakness because the are overcrowded trades. So, keep an eye on the Metals price action in relation to Equities to make the call on whether to stick with the trade or not after they have broken out.
Copper- Yesterday Copper had a downside breakout on the continuation triangle pattern on the daily chart. Although the market mounted a late day rally on Equity strength yesterday the Copper is now one of the weaker markets again on my board. It is now very close to the very large topping pattern breakout level of $2.9075 today that has a projection range from $2.10 to $2.32. I am now using the base trendline on the triangle pattern at $3.01 today as a stop on a short position. I recommend initiating a full position short after confirmation on the large breakout for Copper as the market is historically still near all time highs for open interest and should have a massive liquidation of long positions. I also still like buying Gold vs. Selling Copper as a hedged trade that I will now group with the Copper. Please refer to my blog and yesterday's letter for an explanation on this ratio spread.
Australian Dollar- The Aussie is in the midst of a bearish cup and handle pattern on it's weekly chart with a breakout value of .8547 and a projection to .7784. However, the market has set up a base on it's daily chart to rally off of for the last week and a half making it a difficult short to hold on to. The base trendline on this chart has a value of .8412 today, which created the lows overnight, but has been rejected this morning as the Aussie has tumbled since 6 AM. The Aussie continues to show weaker action over the last three days in comparison to many other correlated markets so I believe it is fair game to get back in short if this move below this trendline is held after the Unemployment number. However, if the Equities do find a significant rally then it is likely that the Aussie will follow. In this case I have a cup and handle rally pattern for the market with a breakout value of .8537 that has a projection to .8809.
Put on the Radar:
Equity Indices Rally Projections- The S&P 500 is the best indicator for the Equity Sector right now, so I am keying all of my trade entries and exits off of the market. For execution if the S&P does breakout today on a rally I prefer to enter in the stronger Nasdaq market or may use a 50/50 blend of the two markets. The Nasdaq projection is also based off of it's own chart, but likely has a stronger rally if the S&P begins it's pattern. The projections are as follows:
S&P 500- Above 1106.75 to 1146.25
Dow- Above 10,277 to 10,582
Nasdaq- Above 1874.25 to 1924.25
Crude Oil- Crude Oil has a rally projection of $79.80 above $75.72. I believe Crude is one of the better buys if the stock market is able to rally above it's own breakout.
Notes:
Equities yesterday found a tighter range compared to more recent action as the market rebounded mid-day to settle just below my breakout point on the daily chart for the S&P 500. While Equities ended up rather quiet it was weakness in the Metal Sector and strength in the Energy Sector that took center stage in the macro picture. Following the new Australian mining tax and downgrades on expectations from Freeport-McMoran the entire Metal sector found a weaker trade as a fundamental story emerged to help form the bearish top in the Metal sector I have speculated about for a week. Meanwhile, the Energy Sector was boosted by bullish stocks reports and an oversold marketplace that was begging for a rally. These two slightly correlated sectors send mixed signals in their direction, but other than Gold, the Metal Sector is usually more correlated to macro moves and can be used as a good indicator prior to a macro move. I believe that Energies could see more rally bounce, but if Silver and Copper breakout on their massive topping patterns then I believe that it is just a matter of time before the rest of the macro world follows.
As I stated yesterday I believe that there is a fork in the road today, but with both paths likely leading to the eventual bearish breakout on a large macro top with a significant downside move and deflationary trade to follow. Equities are sitting very close to their breakouts this morning, so it seems more likely to me at the time being that we could see a small rally today after the number. I personally will jump on the rally in Equities and Crude if it occurs, but with a tighter leash on my stop and limited expectations on the rally to my projections. However, if this rally does not occur today I would take this as a very bearish signal and recommend preparing short positions with the Metals being the first markets to jump into. There is a wide range of estimates on the Unemployment number with many being revised higher over the last couple days. It is possible that the market is already pricing in a huge number and the trade could turn into a buy the rumor and sell the fact situation. Below 1040 on the S&P 500 I have a projection range from 865 - 900 with the macro market sliding with he Equities.
**7am Note- Since I began writing this letter Equities, Commodities, and Currencies have all experienced a volatile price drop. This is odd action in my experience prior to an Unemployment number. The Euro is leading the way lower as it has just made new lows. I am getting a very bearish vibe from this action as longs are running for cover prior to the number. I now expect that we could see a collapse after the number if it is now extraordinarily high.
Buys to Watch:
Natural Gas- With a bullish stocks number and increased market interest following the Gulf Oil Spill, Natural Gas had a bullish breakout above it's consolidation range yesterday. The breakout level of $4.587 has a projection to $5.138. With the daily RSI for the chart also now broken out of its bear market range the momentum indicators are also showing Nat. Gas as a buy. There is a nice "single print" low volume area from 4.610 to 4.630 with some higher volume support near 4.588 and more below from 4.564 to 4.574 for stop placement on the long entry. However, below this level the market would negate it's bullish consolidation breakout and would likely travel to the next "single print" low volume area of support from 4.474 to 4.530, which would not be a good place for entry at the time.
Sells to Watch:
Cotton- Despite coming into the day a bit higher Cotton was able to again close on it's lows as it approaches the 78 cent level. The bearish consolidation breakout had a breakout value of 80.13 and a projection on the head and shoulders pattern to 72.66. For entry today there is a minuscule low volume area at 78.78 with mixed higher volume resistance above to 79.16 for entry. However, there is some higher volume trade near the 78.60 level that has already created a barrier on the highs in the market today. If you "need" to get into this market then I would recommend a smaller contract size fade of this 78.60 level on a rally, but prefer waiting for a rally to the 78.78 level despite the possibility of not getting filled.
Silver- Like I stated in the Opening Note, the fundamental story of mining taxes has sent the overbought Silver lower on the right shoulder of the head and shoulders topping pattern. For the last two days I have listed Silver in the sell section with a caution label as a sale against the higher volume resistance from $18.54 to 18.64. This high volume zone held beautifully as resistance on the formation of this right shoulder, with a good opportunity to get in even yesterday at $18.40, and has now pushed Silver nearly to it's breakout today. The large bearish head and shoulders pattern has a breakout today of $17.685 with a projection to $15.085. Stochastics put out a sell signal on the market yesterday as well. Gold also has a similar head and shoulders pattern that is forming after the violation of a significant trendline overnight. The Gold has a breakout level of $1176.6 today with a projection to $1088.9. Equities having a make or break day today could effect the Precious Metals, but they have moved lower lately on macro strength as well as weakness because the are overcrowded trades. So, keep an eye on the Metals price action in relation to Equities to make the call on whether to stick with the trade or not after they have broken out.
Copper- Yesterday Copper had a downside breakout on the continuation triangle pattern on the daily chart. Although the market mounted a late day rally on Equity strength yesterday the Copper is now one of the weaker markets again on my board. It is now very close to the very large topping pattern breakout level of $2.9075 today that has a projection range from $2.10 to $2.32. I am now using the base trendline on the triangle pattern at $3.01 today as a stop on a short position. I recommend initiating a full position short after confirmation on the large breakout for Copper as the market is historically still near all time highs for open interest and should have a massive liquidation of long positions. I also still like buying Gold vs. Selling Copper as a hedged trade that I will now group with the Copper. Please refer to my blog and yesterday's letter for an explanation on this ratio spread.
Australian Dollar- The Aussie is in the midst of a bearish cup and handle pattern on it's weekly chart with a breakout value of .8547 and a projection to .7784. However, the market has set up a base on it's daily chart to rally off of for the last week and a half making it a difficult short to hold on to. The base trendline on this chart has a value of .8412 today, which created the lows overnight, but has been rejected this morning as the Aussie has tumbled since 6 AM. The Aussie continues to show weaker action over the last three days in comparison to many other correlated markets so I believe it is fair game to get back in short if this move below this trendline is held after the Unemployment number. However, if the Equities do find a significant rally then it is likely that the Aussie will follow. In this case I have a cup and handle rally pattern for the market with a breakout value of .8537 that has a projection to .8809.
Put on the Radar:
Equity Indices Rally Projections- The S&P 500 is the best indicator for the Equity Sector right now, so I am keying all of my trade entries and exits off of the market. For execution if the S&P does breakout today on a rally I prefer to enter in the stronger Nasdaq market or may use a 50/50 blend of the two markets. The Nasdaq projection is also based off of it's own chart, but likely has a stronger rally if the S&P begins it's pattern. The projections are as follows:
S&P 500- Above 1106.75 to 1146.25
Dow- Above 10,277 to 10,582
Nasdaq- Above 1874.25 to 1924.25
Crude Oil- Crude Oil has a rally projection of $79.80 above $75.72. I believe Crude is one of the better buys if the stock market is able to rally above it's own breakout.
Notes:
Thursday, June 3, 2010
Thursday 6/3/10 Commodity Ideas
Opening Note:
While the story on the start of June Tuesday was opening buying during the first hour followed by failure back to the lows, there was a complete reversal of this late day action yesterday. Market participants started the day with another strong rally on an up-trending 15 minute chart in Equities that appeared to fade around noon again. However, voracious buying entered the market again around 1:30 CT to create a whole new rally leg to close on it's highs. It is not a big secret that I hold a medium term bearish opinion and I am holding short positions, but as soon as I saw this buying come in across the entire board without a news story I was too familiar with this action from the 60 day February rally and it was an easy decision to cover early and fight another day. This action was unexpected after a disastrous failure Tuesday, but I think that you now have to keep up a 15 minute chart of the S&P 500 at all times to watch for this uptrend on the chart to gauge the amount of new long entry coming into the market and to bow out early if it looks similar to the intraday rallies on the 60 day rally.
Right now I believe that we are again at a fork in the road with the market as I see a couple different scenarios that could unfold over the rest of this week. The Jobs Report today and Unemployment tomorrow should actually hold a larger influence on the market than they have the last few months as The Bulls are banking on U.S. fundamental strength and recovery for their bullish opinion. Personally I have not been too impressed with the lack of recovery in Unemployment, but if they are going to see this recent bottom as a correction to buy The Bulls will have to step in to buy this number.
On the Radar today I included the rally projections that I have for the Equity Indices if they are going to rally in the short term, which could be a good opportunity to ride the wave higher for a day or two. However, I still see many inter-commodity relationships across the board that point to a much larger correction and a number of fundamental news stories that could continue to emerge to shake investor confidence. I would actually prefer a short term rally to these levels on a 50 - 61.8% correction on this recent break. I believe that this rally if it occurs is an opportunity to sell "bad buying" on the larger move lower and would love to get short Crude at $78 and the S&P at 1145. I recommend using caution over the rest of this week, but continuing to view the larger move as a bearish one.
Buys to Watch:
Sells to Watch:
Cotton- Cotton is still on a daily chart breakout below consolidation with the move below 80.13 projecting to 72.66 on the head and shoulders projection. Yesterday the market opened lower in the morning, but found a sizable mid-day rally of nearly a full cent. Although this rally went straight through the first entry point I provided yesterday and stalled out just below the higher entry level I provided, it still turned out to be a great selling opportunity as the market fell to close on it's dead ass lows. While it was closed the macro market did have a late day rally, which has propped the market higher this morning, but Cotton still remains a good sale after the crushing of the mid-day rally. I still would like a rally to the 79.54 to 79.66 price range for short entry with the higher volume resistance level from 79.90 to 80.10 as a level to place a stop above.
Copper (refer to entries 5/26 and 5/27 on my blog for reference)- If this stock market rally is to be believed then Copper is not doing a very convincing job of showing the same move. Despite a large macro rally that Copper slowly followed yesterday it is again weaker and testing the major support before a breakout on a large bearish move. For the continuation triangle I have a base trendline of $3.0030 today and on the large bearish topping pattern I have a value of $2.9070 today. The large projection on the move has a range from $2.10 to $2.32. I still recommend waiting for a close below the continuation triangle base before entering an initial position and entering a larger size after confirmation of the larger breakout. Daily chart Stochastics also set off a sell signal for the market yesterday while RSI maintains a bearish trend range on it's movement.
Sell Copper vs. Buy Gold (Gold/Copper to chart)- This longer term trade of roughly 6 - 8 weeks is broken out on the weekly chart and has a projection range from 515 - 550. Just for a brief recap, it is based on the large bearish move that I believe is coming in Copper with a Gold hedge as Gold should maintain prices better than Copper. I recommended a weaker initial entry entry level on this ratio trade between 404 and 406 yesterday with a stronger entry level of 391 to 395 on a larger pullback in the market and this morning the market is sitting right around 406 after pulling back to 399 yesterday. With a small initial position established I would like to wait for this lower entry level to put on more size with higher volume support from 387 to 390 for stop placement below. It may also be prudent to wait for a breakout close on Copper before establishing another position in the market if this lower entry level is not met.
Australian Dollar- I said I was not going to flip-flop with the Australian Dollar anymore, so I am keeping it on the sells to watch category unless the large bearish cup and handle pattern on the weekly chart is negated. The Aussie Dollar had a breakout value of .8547 on the cup and handle with a projection to .7784. This breakout value has now been tested twice over the last week's trade, but both attempts have come up short. The Aussie's short term path however will likely be determined by the Equities direction after the Unemployment report tomorrow. On Friday of last week the Aussie had a spike failure with a high of .8537, which is now the breakout value on a small cup and handle pattern on the daily chart that projects to .8809 on the short term move. It is very possible that there could be a spike test that runs through this breakout prior to a failure as well, so I recommend using caution on any short position still held in the market right now and to hold off on entry until further confirmation on this short term bullish pattern's confirmation or rejection.
Silver (but caution)- I had Silver on the sell list yesterday as well as I believe that the market is forming the right shoulder on a large bearish head and shoulders pattern currently. The high volume resistance I provided from $18.54 to $18.64 held up overnight to create the highs on a test of this level. I believe that you can still use this high volume area to enter a small initial short position against on an early entry for the larger move. The head and shoulders pattern has a breakout value today of $17.655 with a projection to $15.055. Silver's action lately has been inconsistent as it sometimes decides to move with Gold and other times with the macro market. As it was previously tied to the Gold on the rally continuation I believe this indecision is another sign that the market is reversing on it's topping pattern.
Put on the Radar:
Equities Cup and Handle Rally Projections- The key market to watch on this whole move is the S&P 500 as it has acted as the most reliable indicator throughout the recent volatility and currently remains below the breakout level. With Unemployment on the horizon tomorrow I believe it is unlikely that the Indices really move higher on this pattern today, but it is good to also have for tomorrow's report if they do take off after the announcement. As it has been the strength lately I believe that the Nasdaq is the best buy on this move if it occurs, but as a reminder, wait for S&P confirmation.
S&P 500- Above 1106.75 to 1146.25
Dow- Above 10,277 to 10,582
Nasdaq- Above 1874.25 to 1924.25
July Corn- The Corn market, and all of the Grains for that matter, have been a very tough trade with out-of-the-blue reversals and failure spikes. However, with a close below the recent support at $3.51 1/2 I now have a projection on Corn to $3.33 1/4.
Natural Gas- Natural Gas has a stocks number this morning that could be a catalyst so I wanted to include this market on the radar today. Since the Gulf Oil Spill has come into the news the Natural Gas market has garnered increased investor interest as an alternative energy source if off-shore drilling does not re-emerge as an option. The market has traded a fairly tight consolidation range with a number of false breakouts, but above $4.587 I have a projection for the market to $5.138. Stochastics for the market is in a positive mode, but the RSI daily chart indicator continues to remain locked in a bearish mode range. I recommend waiting for a confirmed breakout close for the market before initiating a position.
Notes:
While the story on the start of June Tuesday was opening buying during the first hour followed by failure back to the lows, there was a complete reversal of this late day action yesterday. Market participants started the day with another strong rally on an up-trending 15 minute chart in Equities that appeared to fade around noon again. However, voracious buying entered the market again around 1:30 CT to create a whole new rally leg to close on it's highs. It is not a big secret that I hold a medium term bearish opinion and I am holding short positions, but as soon as I saw this buying come in across the entire board without a news story I was too familiar with this action from the 60 day February rally and it was an easy decision to cover early and fight another day. This action was unexpected after a disastrous failure Tuesday, but I think that you now have to keep up a 15 minute chart of the S&P 500 at all times to watch for this uptrend on the chart to gauge the amount of new long entry coming into the market and to bow out early if it looks similar to the intraday rallies on the 60 day rally.
Right now I believe that we are again at a fork in the road with the market as I see a couple different scenarios that could unfold over the rest of this week. The Jobs Report today and Unemployment tomorrow should actually hold a larger influence on the market than they have the last few months as The Bulls are banking on U.S. fundamental strength and recovery for their bullish opinion. Personally I have not been too impressed with the lack of recovery in Unemployment, but if they are going to see this recent bottom as a correction to buy The Bulls will have to step in to buy this number.
On the Radar today I included the rally projections that I have for the Equity Indices if they are going to rally in the short term, which could be a good opportunity to ride the wave higher for a day or two. However, I still see many inter-commodity relationships across the board that point to a much larger correction and a number of fundamental news stories that could continue to emerge to shake investor confidence. I would actually prefer a short term rally to these levels on a 50 - 61.8% correction on this recent break. I believe that this rally if it occurs is an opportunity to sell "bad buying" on the larger move lower and would love to get short Crude at $78 and the S&P at 1145. I recommend using caution over the rest of this week, but continuing to view the larger move as a bearish one.
Buys to Watch:
Sells to Watch:
Cotton- Cotton is still on a daily chart breakout below consolidation with the move below 80.13 projecting to 72.66 on the head and shoulders projection. Yesterday the market opened lower in the morning, but found a sizable mid-day rally of nearly a full cent. Although this rally went straight through the first entry point I provided yesterday and stalled out just below the higher entry level I provided, it still turned out to be a great selling opportunity as the market fell to close on it's dead ass lows. While it was closed the macro market did have a late day rally, which has propped the market higher this morning, but Cotton still remains a good sale after the crushing of the mid-day rally. I still would like a rally to the 79.54 to 79.66 price range for short entry with the higher volume resistance level from 79.90 to 80.10 as a level to place a stop above.
Copper (refer to entries 5/26 and 5/27 on my blog for reference)- If this stock market rally is to be believed then Copper is not doing a very convincing job of showing the same move. Despite a large macro rally that Copper slowly followed yesterday it is again weaker and testing the major support before a breakout on a large bearish move. For the continuation triangle I have a base trendline of $3.0030 today and on the large bearish topping pattern I have a value of $2.9070 today. The large projection on the move has a range from $2.10 to $2.32. I still recommend waiting for a close below the continuation triangle base before entering an initial position and entering a larger size after confirmation of the larger breakout. Daily chart Stochastics also set off a sell signal for the market yesterday while RSI maintains a bearish trend range on it's movement.
Sell Copper vs. Buy Gold (Gold/Copper to chart)- This longer term trade of roughly 6 - 8 weeks is broken out on the weekly chart and has a projection range from 515 - 550. Just for a brief recap, it is based on the large bearish move that I believe is coming in Copper with a Gold hedge as Gold should maintain prices better than Copper. I recommended a weaker initial entry entry level on this ratio trade between 404 and 406 yesterday with a stronger entry level of 391 to 395 on a larger pullback in the market and this morning the market is sitting right around 406 after pulling back to 399 yesterday. With a small initial position established I would like to wait for this lower entry level to put on more size with higher volume support from 387 to 390 for stop placement below. It may also be prudent to wait for a breakout close on Copper before establishing another position in the market if this lower entry level is not met.
Australian Dollar- I said I was not going to flip-flop with the Australian Dollar anymore, so I am keeping it on the sells to watch category unless the large bearish cup and handle pattern on the weekly chart is negated. The Aussie Dollar had a breakout value of .8547 on the cup and handle with a projection to .7784. This breakout value has now been tested twice over the last week's trade, but both attempts have come up short. The Aussie's short term path however will likely be determined by the Equities direction after the Unemployment report tomorrow. On Friday of last week the Aussie had a spike failure with a high of .8537, which is now the breakout value on a small cup and handle pattern on the daily chart that projects to .8809 on the short term move. It is very possible that there could be a spike test that runs through this breakout prior to a failure as well, so I recommend using caution on any short position still held in the market right now and to hold off on entry until further confirmation on this short term bullish pattern's confirmation or rejection.
Silver (but caution)- I had Silver on the sell list yesterday as well as I believe that the market is forming the right shoulder on a large bearish head and shoulders pattern currently. The high volume resistance I provided from $18.54 to $18.64 held up overnight to create the highs on a test of this level. I believe that you can still use this high volume area to enter a small initial short position against on an early entry for the larger move. The head and shoulders pattern has a breakout value today of $17.655 with a projection to $15.055. Silver's action lately has been inconsistent as it sometimes decides to move with Gold and other times with the macro market. As it was previously tied to the Gold on the rally continuation I believe this indecision is another sign that the market is reversing on it's topping pattern.
Put on the Radar:
Equities Cup and Handle Rally Projections- The key market to watch on this whole move is the S&P 500 as it has acted as the most reliable indicator throughout the recent volatility and currently remains below the breakout level. With Unemployment on the horizon tomorrow I believe it is unlikely that the Indices really move higher on this pattern today, but it is good to also have for tomorrow's report if they do take off after the announcement. As it has been the strength lately I believe that the Nasdaq is the best buy on this move if it occurs, but as a reminder, wait for S&P confirmation.
S&P 500- Above 1106.75 to 1146.25
Dow- Above 10,277 to 10,582
Nasdaq- Above 1874.25 to 1924.25
July Corn- The Corn market, and all of the Grains for that matter, have been a very tough trade with out-of-the-blue reversals and failure spikes. However, with a close below the recent support at $3.51 1/2 I now have a projection on Corn to $3.33 1/4.
Natural Gas- Natural Gas has a stocks number this morning that could be a catalyst so I wanted to include this market on the radar today. Since the Gulf Oil Spill has come into the news the Natural Gas market has garnered increased investor interest as an alternative energy source if off-shore drilling does not re-emerge as an option. The market has traded a fairly tight consolidation range with a number of false breakouts, but above $4.587 I have a projection for the market to $5.138. Stochastics for the market is in a positive mode, but the RSI daily chart indicator continues to remain locked in a bearish mode range. I recommend waiting for a confirmed breakout close for the market before initiating a position.
Notes:
Wednesday, June 2, 2010
Wednesday 6/2/10 Commodity Ideas
Opening Note:
After a strong Equity opening yesterday the macro market fell apart by the end of the day to close near it's lows. The first day of the month has historically been the strongest gainer over any other day the last 13 years, so this failure to hold gains despite an inflow of money is troublesome. One of the few positives that I can take away from the recent Equity action is that the technology filled Nasdaq has been the strongest index as it was on the 14 month rally. However, I am finding very little evidence to hang your hat on when you look at the macro relationships across the market.
"Dr. Copper" has acted as a weakness over the last few days and is on the verge of setting off a large bearish topping pattern. The Euro is being held steady through government intervention at one of its last major support levels prior to a move to parity with the U.S. Dollar. The Euro/Yen Cross, which is a strong indicator for risk appetite and future market direction, is testing it's lows from '08 and '09 and on the chart looks a lot like what our stock market may look like without any stimulus pumped into it. And finally, the same cyclical pattern with Currencies, followed by Fixed Income, followed by Equities and Commodities is again setting a similar time pattern with Currencies pointing to a much larger move lower already.
While Equities are up slightly as I am writing this morning a number of Commodities and specifically the Metal Sector is lower on the day, which could indicate a broader reversal lower today. As I believe that Commodities and Equities are just beginning to catch up to the larger macro move that has already begun, I continue to recommend selling rallies in supportive markets and maintaining a bearish macro position for the next 4 months.
**Metals like Silver & Copper were one of the key indicators I used in predicting the January market break. This morning they have sold off with conviction on their opens. When the Metals begin to go it is not long before the other Commodities begin to follow as well.
Buys to Watch:
Sells to Watch:
Cotton- Cotton was on the sell list yesterday on it's bearish breakout from consolidation, but had a note of caution attached to it. I can safely say today that the caution on the trade is now removed with a 2 day confirmation and a move below all of the nearby support trends for the market. The breakout for Cotton on the head and shoulders pattern was Friday at 80.13 and has an aggressive projection to 72.66. I say aggressive because this is the head and shoulders pattern projection, while the chart could be interpreted in other fashions that still project a move to at least 75 cents or lower. There was a great opportunity for entry mid-day yesterday on a rally pullback to the 79.50 level, but with a lower close and a continuation lower overnight it is unlikely to reach this price level again for the time being. There is a small low volume zone on the trade overnight from 78.94 to 78.99 with some larger volume resistance from 79.00 to 79.18 for short entry on an intraday pullback. If this level does not hold then I would look for a move to 79.54 to 79.66 for even better entry. If you already have a short position than I believe you can move your stop up to the 79.18 level above today's highs to lock in profits while safely holding the position.
Australian Dollar- The Australian Dollar is still on it's weekly bearish cup and handle pattern after holding the .8547 breakout level on a test last week. This pattern has a projection to .7784, which is roughly halfway back on the large rally since March '09. Yesterday morning I provided a low volume entry level between .8400 and .8440 that was entered several times throughout the morning with a high trade of .8424 that eventually closed at .8300 on an afternoon break. The market is slightly higher this morning, but the higher volume resistance from .8370 to .8398 has held strong as the market only came close to bumping it overnight. On a longer term position trade if you are already short I believe that you can move your stop up to the .8400 level for sure or the more risky level near .8370 if you wish to lock in more profits. Selling a rally against this higher volume resistance is good intraday entry today, but if a larger rally does emerge then I still like selling the Aussie between .8400 and .8440.
Copper (refer to 5/26 and 5/27 entries on my blog for reference)- Copper is moved from the radar section to the sell section now as it is on the verge of setting off the bearish daily chart patterns. As I stated in the Opening Note, Copper has acted as one of the weaknesses in the overall market over the last few days, which is a reversal from some of the strength it showed towards the end of last month. This morning Copper is testing the lower boundary/breakout on it's continuation triangle pattern with a value of 2.9890 this morning. This pattern in turn would set off and confirm the much larger topping pattern that I have for the market with a breakout of 2.9065 today and an adjusted projection range from $2.10 to $2.32. This projection range is adjusted on the upper end based on a new trendline I added from Feb. 5th to May 5th lows. This trend has Copper already broken out on a large head and shoulders pattern at 3.0550 to provide the top end of $2.32. Copper is the market that I have had my eye on the most as a potential fire sale, so one way or the other I recommend getting a leg into a short position in this market.
Sell Copper vs. Buy Gold (Gold/Copper to Chart)- Yesterday I provided an entry level on the trade from 391 to 395, but the intraday low only reached 397. Today the ratio is trading up to 408 currently and is really beginning to gain steam on the breakout rally that could become a large spike. I have an initial projection from 515 - 550 on the rally to the major resistance on the spike from '08. I still really like the 391 - 395 level on the trade, but now with Copper on the verge of breaking out on it's massive head and shoulders top I am afraid that you may need to get in on this trade now before it really starts going. I have a weaker low volume entry zone from 404 - 406 today on an intraday pullback and with an upsloping support trend I believe you now only have to give the trade to just below 390. It would be wise to establish a smaller initial position of roughly half of what you want at this level and add more later on a continuation or a pullback to the lower entry level if it is reached again. I recommend using a 1:1 Copper to Gold execution ratio, which will provide more profit upside on the Copper break and with a smaller long Gold position in a market that I also believe will break in outright price. I believe this trade can be expected to be around 6 - 8 weeks for completion.
Silver (but caution)- I am also moving Silver to the sell list, but with the caveat that the pattern is not near it's breakout and this is a more speculative idea. I stated in the radar yesterday that I believe Silver is beginning the formation of a right shoulder on a large daily chart head and shoulders pattern. Yesterday afternoon and into this morning the market has fallen confirming a probable top on a right shoulder if there is one. The Gold market has also dropped over the last 24 hours as it attempted a fairly weak rally at it's $1251 highs from last month. Silver has a large volume resistance level from $18.54 to $18.64 now that can be used as an area for stop placement on an initial entry into the market. The head and shoulders top has a breakout value today of $17.63 that will likely not come into play, but I feel that the market is now headed straight towards it with a projection to $15.03 on what should be a fast move. I am looking at using either the $17 or $17.50 puts for an initial position as well, but this is not as conducive or liquid a market if you have substantial size. I recommend using about 1/3 of a full position that you would normally use on entry into Silver for the time being and add to this position after the head and shoulders breakout.
Put on the Radar:
Using the "Flash Forward" Spike on and S&P 500 Head and Shoulders Pattern- The "Flash Forward" spike happened and by all accounts now it was not a computer error. It may not be pretty, but when you connect from the lows on Feb. 5th and May 6th you receive a breakout line that has continually been unsuccessfully tested, but is sitting dangerously close this morning at 1062 and has a projection to 900. I am still using the 1040 breakout on the large head and shoulders pattern as a safety play, but might add a smaller initial size below the 1062 level once it is broken and adjust my projection range on the trade to 865 - 900.
Euro- The Euro continues to hand around the 1.21 to 1.23 level on extremely high volume, but little volatility in comparison to it's recent action. This says to me that there is some huge buying that is stepping in and it is not a hedge fund or traders. I still recommend waiting for a confirmed break below the 1.20 level before initiating a short position in the Euro as this protection trade could continue for a while. Below 1.20 I have a projection to .95 on the monthly chart. Currency interventions have been historically unsuccessful, so I believe that there is a decent probability that this continuation lower will happen in the long run.
Notes:
After a strong Equity opening yesterday the macro market fell apart by the end of the day to close near it's lows. The first day of the month has historically been the strongest gainer over any other day the last 13 years, so this failure to hold gains despite an inflow of money is troublesome. One of the few positives that I can take away from the recent Equity action is that the technology filled Nasdaq has been the strongest index as it was on the 14 month rally. However, I am finding very little evidence to hang your hat on when you look at the macro relationships across the market.
"Dr. Copper" has acted as a weakness over the last few days and is on the verge of setting off a large bearish topping pattern. The Euro is being held steady through government intervention at one of its last major support levels prior to a move to parity with the U.S. Dollar. The Euro/Yen Cross, which is a strong indicator for risk appetite and future market direction, is testing it's lows from '08 and '09 and on the chart looks a lot like what our stock market may look like without any stimulus pumped into it. And finally, the same cyclical pattern with Currencies, followed by Fixed Income, followed by Equities and Commodities is again setting a similar time pattern with Currencies pointing to a much larger move lower already.
While Equities are up slightly as I am writing this morning a number of Commodities and specifically the Metal Sector is lower on the day, which could indicate a broader reversal lower today. As I believe that Commodities and Equities are just beginning to catch up to the larger macro move that has already begun, I continue to recommend selling rallies in supportive markets and maintaining a bearish macro position for the next 4 months.
**Metals like Silver & Copper were one of the key indicators I used in predicting the January market break. This morning they have sold off with conviction on their opens. When the Metals begin to go it is not long before the other Commodities begin to follow as well.
Buys to Watch:
Sells to Watch:
Cotton- Cotton was on the sell list yesterday on it's bearish breakout from consolidation, but had a note of caution attached to it. I can safely say today that the caution on the trade is now removed with a 2 day confirmation and a move below all of the nearby support trends for the market. The breakout for Cotton on the head and shoulders pattern was Friday at 80.13 and has an aggressive projection to 72.66. I say aggressive because this is the head and shoulders pattern projection, while the chart could be interpreted in other fashions that still project a move to at least 75 cents or lower. There was a great opportunity for entry mid-day yesterday on a rally pullback to the 79.50 level, but with a lower close and a continuation lower overnight it is unlikely to reach this price level again for the time being. There is a small low volume zone on the trade overnight from 78.94 to 78.99 with some larger volume resistance from 79.00 to 79.18 for short entry on an intraday pullback. If this level does not hold then I would look for a move to 79.54 to 79.66 for even better entry. If you already have a short position than I believe you can move your stop up to the 79.18 level above today's highs to lock in profits while safely holding the position.
Australian Dollar- The Australian Dollar is still on it's weekly bearish cup and handle pattern after holding the .8547 breakout level on a test last week. This pattern has a projection to .7784, which is roughly halfway back on the large rally since March '09. Yesterday morning I provided a low volume entry level between .8400 and .8440 that was entered several times throughout the morning with a high trade of .8424 that eventually closed at .8300 on an afternoon break. The market is slightly higher this morning, but the higher volume resistance from .8370 to .8398 has held strong as the market only came close to bumping it overnight. On a longer term position trade if you are already short I believe that you can move your stop up to the .8400 level for sure or the more risky level near .8370 if you wish to lock in more profits. Selling a rally against this higher volume resistance is good intraday entry today, but if a larger rally does emerge then I still like selling the Aussie between .8400 and .8440.
Copper (refer to 5/26 and 5/27 entries on my blog for reference)- Copper is moved from the radar section to the sell section now as it is on the verge of setting off the bearish daily chart patterns. As I stated in the Opening Note, Copper has acted as one of the weaknesses in the overall market over the last few days, which is a reversal from some of the strength it showed towards the end of last month. This morning Copper is testing the lower boundary/breakout on it's continuation triangle pattern with a value of 2.9890 this morning. This pattern in turn would set off and confirm the much larger topping pattern that I have for the market with a breakout of 2.9065 today and an adjusted projection range from $2.10 to $2.32. This projection range is adjusted on the upper end based on a new trendline I added from Feb. 5th to May 5th lows. This trend has Copper already broken out on a large head and shoulders pattern at 3.0550 to provide the top end of $2.32. Copper is the market that I have had my eye on the most as a potential fire sale, so one way or the other I recommend getting a leg into a short position in this market.
Sell Copper vs. Buy Gold (Gold/Copper to Chart)- Yesterday I provided an entry level on the trade from 391 to 395, but the intraday low only reached 397. Today the ratio is trading up to 408 currently and is really beginning to gain steam on the breakout rally that could become a large spike. I have an initial projection from 515 - 550 on the rally to the major resistance on the spike from '08. I still really like the 391 - 395 level on the trade, but now with Copper on the verge of breaking out on it's massive head and shoulders top I am afraid that you may need to get in on this trade now before it really starts going. I have a weaker low volume entry zone from 404 - 406 today on an intraday pullback and with an upsloping support trend I believe you now only have to give the trade to just below 390. It would be wise to establish a smaller initial position of roughly half of what you want at this level and add more later on a continuation or a pullback to the lower entry level if it is reached again. I recommend using a 1:1 Copper to Gold execution ratio, which will provide more profit upside on the Copper break and with a smaller long Gold position in a market that I also believe will break in outright price. I believe this trade can be expected to be around 6 - 8 weeks for completion.
Silver (but caution)- I am also moving Silver to the sell list, but with the caveat that the pattern is not near it's breakout and this is a more speculative idea. I stated in the radar yesterday that I believe Silver is beginning the formation of a right shoulder on a large daily chart head and shoulders pattern. Yesterday afternoon and into this morning the market has fallen confirming a probable top on a right shoulder if there is one. The Gold market has also dropped over the last 24 hours as it attempted a fairly weak rally at it's $1251 highs from last month. Silver has a large volume resistance level from $18.54 to $18.64 now that can be used as an area for stop placement on an initial entry into the market. The head and shoulders top has a breakout value today of $17.63 that will likely not come into play, but I feel that the market is now headed straight towards it with a projection to $15.03 on what should be a fast move. I am looking at using either the $17 or $17.50 puts for an initial position as well, but this is not as conducive or liquid a market if you have substantial size. I recommend using about 1/3 of a full position that you would normally use on entry into Silver for the time being and add to this position after the head and shoulders breakout.
Put on the Radar:
Using the "Flash Forward" Spike on and S&P 500 Head and Shoulders Pattern- The "Flash Forward" spike happened and by all accounts now it was not a computer error. It may not be pretty, but when you connect from the lows on Feb. 5th and May 6th you receive a breakout line that has continually been unsuccessfully tested, but is sitting dangerously close this morning at 1062 and has a projection to 900. I am still using the 1040 breakout on the large head and shoulders pattern as a safety play, but might add a smaller initial size below the 1062 level once it is broken and adjust my projection range on the trade to 865 - 900.
Euro- The Euro continues to hand around the 1.21 to 1.23 level on extremely high volume, but little volatility in comparison to it's recent action. This says to me that there is some huge buying that is stepping in and it is not a hedge fund or traders. I still recommend waiting for a confirmed break below the 1.20 level before initiating a short position in the Euro as this protection trade could continue for a while. Below 1.20 I have a projection to .95 on the monthly chart. Currency interventions have been historically unsuccessful, so I believe that there is a decent probability that this continuation lower will happen in the long run.
Notes:
Tuesday, June 1, 2010
Tuesday 6/1/10 Commodity Ideas
Opening Note:
With the Downgrade of Spain's debt rating on Friday the macro market broke into the weekly close and has continued lower into this morning as Europe has reacted to the news. If you have paid attention to the European debt story this is not a surprising news item, but it is now another link on the chain of troubling news that continues to tighten around the market. As we now begin the official summer months I believe that it is now more a matter of time rather than if the S&P 500 will breach and hold a move below the February lows on a nasty looking topping pattern.
There are a number of different time and price action scenarios that could lead to this move, but pretty much any way that I look at it right now I am seeing a move in the S&P 500 to 865. Towards the end of last month after the market bounced off of the 1040 level I believed that a larger right shoulder could be made over the next few weeks on the massive head and shoulders pattern that could be forming. However, recent market action continues to be weak with Commodities and Equities having a very difficult time holding gains on rallies. I believe that it is still likely that the market finds another burst of support as it nears the breakout level again with Unemployment and other reports the focus for this week, but I now think that this could be only a brief couple weeks before the larger break comes.
With the Euro continuing to sag and other supportive Commodity markets in the midst or on the verge of also setting off large topping patterns, I believe that the market is a month into a 4 - 5 month bear market move. Going forward I believe that Crude Oil, Copper, Equities, Silver, Palladium, Australian Dollar, and the Euro are the most vulnerable markets that have the best potential for a significant price slide. My focus will likely be on these markets for the next few months and I continue to recommend selling rallies in supportive markets and maintaining a bearish macro position. An S&P 500 move below 1040 should open the flood gates again as a second leg lower on the overall move begins.
Buys to Watch:
Dollar Index- This is a smaller pattern in comparison to the large move that the Dollar Index has had recently, but a bullish cup and handle pattern with a breakout of 87.55 has a projection to 89.205. The market has already tested this breakout level overnight with a failure spike, but could position itself for another attempt today on a weak market opening. It is likely though that this pattern does not come into play until this evening or tomorrow. I recommend waiting until after the breakout for entry, but keep an eye on the low volume area from 86.88 to 87.04 with larger volume support around 86.70 as an indicator of market strength if it is able to hold. If there is failure again near these recent highs then the Dollar will likely have a double top reversal pattern.
I am also keeping the Dollar Index monthly chart on my radar for the time being. If this small daily chart pattern is completed it would mean a test of the 89 level highs from late '08 and early '09 that is also a breakout on a bullish cup and handle on this longer term chart. Because the Dollar Index does have a larger weight towards the Euro than other foreign Currencies it is understandable why the move has been significant for the Dollar, but could point much higher over the next year. A breakout above 89.71 projects to roughly 105 on this pattern.
Sells to Watch:
Cotton- Cotton has been in a slightly upsloping consolidation range for the last 3 months, but finally had a bearish breakout close below this range on Friday. What I am measuring as a bearish head and shoulders pattern with multiple shoulders on the daily chart, using the lows from April 9th to May 6th, had a neckline breakout Friday below 80.13 that has a projection to 72.66. There are a number of similar support trends that you can draw on this Cotton chart, but most fall close to just below this 80 cent level. Overnight and into this morning the market has battled with this 80 level making entry right now risky. Cotton has had a number of false patterns over the last few months, so I recommend waiting until at least tomorrow for confirmation on the move before entry.
Australian Dollar- The Aussie has been on and off my sell list and radar for the last few weeks, but with a confirmed hold on the weekly bearish pattern I will now be leaving it on the sell list unless the pattern is negated or a strong daily reversal emerges. The weekly bearish cup and handle pattern set off below .8547 two weeks ago and has a projection to .7784. While the market appeared to be on cruise control for this projection a daily chart bullish reversal caused a short covering rallied that topped out Friday at .8537. I had a daily chart pattern projection to the mid- .86 level, but this was negated by the market action overnight. The Aussie has been extremely volatile and directionally challenged over the last week and a half, so I recommend using caution prior to entry. However, I do like the low volume zone from .8400 to .8440 near the highs overnight as an opportunity to enter a short position a the larger move with a risk of only 100 to 150 ticks on the weekly pattern. Using put options for entry on the liquid September contract is also a good idea for entry on a rally.
Put on the Radar:
Copper (refer to 5/26 & 5/27 entries on my blog for reference)- I still have Copper in the bearish continuation triangle pattern on it's daily chart. The base trend from the lows May 17th to May 19th has a level of $2.9825 today for the breakout. The bearish topping pattern for Copper from the base Feb 5th. to May 17th also has a neckline at $2.9235 today that projects to the $2.10 - $2.15 range. I do not recommend jumping into a short Copper position for the time being, but refer to the next passage for earlier entry on the trade.
Buy Gold and Sell Copper (Gold/Copper to chart)- I also referenced this idea in the 5/26 newsletter, so please refer to it for the whole package description. I held off on recommending an outright buy on this ratio, but I now believe that it is a good buy on a break. Right now the weekly chart for the ratio is just beginning to breakout on what I believe will be a large Copper break. Sitting near 400 (Gold = Copper*400 on an ounce per pound basis) I think that the chart is forming a large spike rally with an initial projection to 550. I have a low volume zone for the ratio between 391 and 395 that provides a good short term entry level for the trade. With the chart now having an upsloping support trend and some higher volume trade I believe that you now only need to give the ratio to around 380 for stop placement on the excellent risk/reward longer term move. Because I believe the majority of the move will be on the larger Copper break I recommend using a 1:1 Gold to Copper execution ratio that should provide an even larger profit, but slightly more risk on the move. The safest way to play this is to wait for entry on an individual Copper chart bearish breakout, but with such a good chart and entry level on this ratio I believe that there is a good opportunity now.
Silver and Gold- My disdain for the short term Precious Metal bulls has been clear over the last few weeks and I believe that Silver is now technically forming my bearish opinion on the market. Using the lows from May 5th and May 21st on the Silver daily chart you can see the large bearish head and shoulders pattern that I believe is forming on the market. Silver has incorrectly followed the Gold market over the last month as a run to safety trade and is now over-valued on a short term basis in my opinion. The Gold - Silver differential (Gold - Silver/2) has shown price action consistent with my opinion over the last few weeks as I believe that we are experiencing deflationary pressure where Gold should continue to gain on Silver as the macro market weakens. The Silver head ans shoulders pattern has a breakout level of $17.245 that will not come into play today, but keep this pattern on your radar going forward as it projects a $2.60 move lower post-breakout that points towards $15.
Also keep the Gold daily chart on your radar as well. Gold rallied after encountering one of it's bullish trendlines a week and a half ago, but I believe that the price of Gold should also fundamentally break with deflationary pressures after a 3 wave bull market has already been completed with the move to $1250. The Gold also is forming an upsloping bearish head and shoulders pattern in my opinion that uses the same neckline dates of May 5th and May 21st as Silver. However, a move in Gold above the $1251.4 highs would negate this pattern. I believe that with Gold now trading near the $1230 level that this possibly provides a good opportunity at short entry in silver near the top of it's right shoulder that is forming. Silver had a small breakout attempt above it's recent highs early last night, but with Gold likely topping out soon I believe that you can now make a fairly safe bet by shorting Silver with a stop if Gold does take out it's highs from last month. The risk would likely be close to 40 cents, but this is on a $3.50 move providing great risk/reward. This is strictly do at your own risk for the time being though.
Notes:
**I ran out of time today, but I will discuss the longer term moves in Bonds and the Euro tomorrow.
With the Downgrade of Spain's debt rating on Friday the macro market broke into the weekly close and has continued lower into this morning as Europe has reacted to the news. If you have paid attention to the European debt story this is not a surprising news item, but it is now another link on the chain of troubling news that continues to tighten around the market. As we now begin the official summer months I believe that it is now more a matter of time rather than if the S&P 500 will breach and hold a move below the February lows on a nasty looking topping pattern.
There are a number of different time and price action scenarios that could lead to this move, but pretty much any way that I look at it right now I am seeing a move in the S&P 500 to 865. Towards the end of last month after the market bounced off of the 1040 level I believed that a larger right shoulder could be made over the next few weeks on the massive head and shoulders pattern that could be forming. However, recent market action continues to be weak with Commodities and Equities having a very difficult time holding gains on rallies. I believe that it is still likely that the market finds another burst of support as it nears the breakout level again with Unemployment and other reports the focus for this week, but I now think that this could be only a brief couple weeks before the larger break comes.
With the Euro continuing to sag and other supportive Commodity markets in the midst or on the verge of also setting off large topping patterns, I believe that the market is a month into a 4 - 5 month bear market move. Going forward I believe that Crude Oil, Copper, Equities, Silver, Palladium, Australian Dollar, and the Euro are the most vulnerable markets that have the best potential for a significant price slide. My focus will likely be on these markets for the next few months and I continue to recommend selling rallies in supportive markets and maintaining a bearish macro position. An S&P 500 move below 1040 should open the flood gates again as a second leg lower on the overall move begins.
Buys to Watch:
Dollar Index- This is a smaller pattern in comparison to the large move that the Dollar Index has had recently, but a bullish cup and handle pattern with a breakout of 87.55 has a projection to 89.205. The market has already tested this breakout level overnight with a failure spike, but could position itself for another attempt today on a weak market opening. It is likely though that this pattern does not come into play until this evening or tomorrow. I recommend waiting until after the breakout for entry, but keep an eye on the low volume area from 86.88 to 87.04 with larger volume support around 86.70 as an indicator of market strength if it is able to hold. If there is failure again near these recent highs then the Dollar will likely have a double top reversal pattern.
I am also keeping the Dollar Index monthly chart on my radar for the time being. If this small daily chart pattern is completed it would mean a test of the 89 level highs from late '08 and early '09 that is also a breakout on a bullish cup and handle on this longer term chart. Because the Dollar Index does have a larger weight towards the Euro than other foreign Currencies it is understandable why the move has been significant for the Dollar, but could point much higher over the next year. A breakout above 89.71 projects to roughly 105 on this pattern.
Sells to Watch:
Cotton- Cotton has been in a slightly upsloping consolidation range for the last 3 months, but finally had a bearish breakout close below this range on Friday. What I am measuring as a bearish head and shoulders pattern with multiple shoulders on the daily chart, using the lows from April 9th to May 6th, had a neckline breakout Friday below 80.13 that has a projection to 72.66. There are a number of similar support trends that you can draw on this Cotton chart, but most fall close to just below this 80 cent level. Overnight and into this morning the market has battled with this 80 level making entry right now risky. Cotton has had a number of false patterns over the last few months, so I recommend waiting until at least tomorrow for confirmation on the move before entry.
Australian Dollar- The Aussie has been on and off my sell list and radar for the last few weeks, but with a confirmed hold on the weekly bearish pattern I will now be leaving it on the sell list unless the pattern is negated or a strong daily reversal emerges. The weekly bearish cup and handle pattern set off below .8547 two weeks ago and has a projection to .7784. While the market appeared to be on cruise control for this projection a daily chart bullish reversal caused a short covering rallied that topped out Friday at .8537. I had a daily chart pattern projection to the mid- .86 level, but this was negated by the market action overnight. The Aussie has been extremely volatile and directionally challenged over the last week and a half, so I recommend using caution prior to entry. However, I do like the low volume zone from .8400 to .8440 near the highs overnight as an opportunity to enter a short position a the larger move with a risk of only 100 to 150 ticks on the weekly pattern. Using put options for entry on the liquid September contract is also a good idea for entry on a rally.
Put on the Radar:
Copper (refer to 5/26 & 5/27 entries on my blog for reference)- I still have Copper in the bearish continuation triangle pattern on it's daily chart. The base trend from the lows May 17th to May 19th has a level of $2.9825 today for the breakout. The bearish topping pattern for Copper from the base Feb 5th. to May 17th also has a neckline at $2.9235 today that projects to the $2.10 - $2.15 range. I do not recommend jumping into a short Copper position for the time being, but refer to the next passage for earlier entry on the trade.
Buy Gold and Sell Copper (Gold/Copper to chart)- I also referenced this idea in the 5/26 newsletter, so please refer to it for the whole package description. I held off on recommending an outright buy on this ratio, but I now believe that it is a good buy on a break. Right now the weekly chart for the ratio is just beginning to breakout on what I believe will be a large Copper break. Sitting near 400 (Gold = Copper*400 on an ounce per pound basis) I think that the chart is forming a large spike rally with an initial projection to 550. I have a low volume zone for the ratio between 391 and 395 that provides a good short term entry level for the trade. With the chart now having an upsloping support trend and some higher volume trade I believe that you now only need to give the ratio to around 380 for stop placement on the excellent risk/reward longer term move. Because I believe the majority of the move will be on the larger Copper break I recommend using a 1:1 Gold to Copper execution ratio that should provide an even larger profit, but slightly more risk on the move. The safest way to play this is to wait for entry on an individual Copper chart bearish breakout, but with such a good chart and entry level on this ratio I believe that there is a good opportunity now.
Silver and Gold- My disdain for the short term Precious Metal bulls has been clear over the last few weeks and I believe that Silver is now technically forming my bearish opinion on the market. Using the lows from May 5th and May 21st on the Silver daily chart you can see the large bearish head and shoulders pattern that I believe is forming on the market. Silver has incorrectly followed the Gold market over the last month as a run to safety trade and is now over-valued on a short term basis in my opinion. The Gold - Silver differential (Gold - Silver/2) has shown price action consistent with my opinion over the last few weeks as I believe that we are experiencing deflationary pressure where Gold should continue to gain on Silver as the macro market weakens. The Silver head ans shoulders pattern has a breakout level of $17.245 that will not come into play today, but keep this pattern on your radar going forward as it projects a $2.60 move lower post-breakout that points towards $15.
Also keep the Gold daily chart on your radar as well. Gold rallied after encountering one of it's bullish trendlines a week and a half ago, but I believe that the price of Gold should also fundamentally break with deflationary pressures after a 3 wave bull market has already been completed with the move to $1250. The Gold also is forming an upsloping bearish head and shoulders pattern in my opinion that uses the same neckline dates of May 5th and May 21st as Silver. However, a move in Gold above the $1251.4 highs would negate this pattern. I believe that with Gold now trading near the $1230 level that this possibly provides a good opportunity at short entry in silver near the top of it's right shoulder that is forming. Silver had a small breakout attempt above it's recent highs early last night, but with Gold likely topping out soon I believe that you can now make a fairly safe bet by shorting Silver with a stop if Gold does take out it's highs from last month. The risk would likely be close to 40 cents, but this is on a $3.50 move providing great risk/reward. This is strictly do at your own risk for the time being though.
Notes:
**I ran out of time today, but I will discuss the longer term moves in Bonds and the Euro tomorrow.
Friday, May 28, 2010
Friday 5/28/10 Commodity Ideas
Opening Note:
Following yesterday's huge rally in the macro market the range has been abnormally low overnight compared to recent action. The market is slightly stronger this morning, but it appears that most of the significant move and bookkeeping prior to the holiday weekend was done yesterday. I expect that the market will continue to rally today, but to a much lesser degree as shorts clean up positions heading into Memorial Day and the end of the month. Today's letter will be brief because unless you are already long the Australian Dollar, Nasdaq, or Crude Oil I believe that there is no reason to enter a position today prior to the long weekend and there's no harm in starting it a little early after a good month. I recommend just watching the action today and preparing for re-initiation of short positions towards the beginning of next month when this short covering rally shows signs of stalling out. I will provide some halfway back on the rally numbers to keep on your radar for next week. I personally plan on buying some puts on the market with some volatility a bit cheaper at these levels and recommend it if they are able to reach them.
*Roll your front month contract in the fixed income markets to September and your Gold to August.
Buys to Watch: If you are already holding a long position in the Aussie (or Euro or Canadian), Crude, or Nasdaq I believe that these will be the best performers to the upside today on a continuation of the short covering rally.
Sells to Watch:
Put on the Radar:
Projections on Rallies- The Australian Dollar has a bullish reversal pattern that has a projection range from .8625 to .8641. There is a lower volume area from .8406 to .8412 that should provide some support along with the higher volume pivot level that is now support at .8404. Also keep in mind that the weekly bearish cup and handle pattern had a breakout level of .8547, which could provide some interim resistance as it has for the highs thus far today. The Nasdaq has a rally projection range from 1914.5 to 1925 as the strongest Stock Index among the sector. There is a possibility if you take into account only yesterday's spike that you could have a base projection of 1898.25, but I still feel confident that the previous range is sufficient.
Halfway Back Numbers- I would rather error on the side of caution so for these numbers I am measuring the move from the highs in late April to the absolute low trade recently, while disregarding the "Flash Forward" spike if it was not reached in the described market. It is possible to also measure from the rally highs just after the Flash spike to the base this week, but you would get lower levels in most cases.
S&P 500 - 1126.75
Nasdaq - 1906.5
Crude Oil - $77.35
Aussie Dollar - .8665
I am using these numbers if they are reached as a point to purchase an initial short position in the options market. I would become concerned with this position if the markets rallied above the 61.8% retracement level as a mental stop for the trades. It is not necessary for the markets to rally this far prior to a move lower, so I will also look to execute a similar strategy if they show topping action. These markets have shown some of the largest short covering rallies over the last few days, which means they are likely to continue to be the most vulnerable as we move forward at much better initiation prices now.
Copper- Yesterday I provided my trendlines that I have on my Copper chart and as I suspected the lower top trendline for the triangle pattern was violated yesterday. Now I am looking for a move to the top trendline at 3.2280 today as a spot to watch and possibly attempt a small short position if the pattern appears that it will hold. If this happens today I still advise waiting until next Tuesday for initiation.
Notes:
Heating Oil and RBOB Crack Spreads- The Heating Oil completely rejected after touching the breakout of the bearish head and shoulders pattern yesterday, so it has not come into play yet. However, the RBOB Crack Spread did enter it's low volume zone from 1062 to 1106. Yesterday I provided a resistance range of 1116 to 1122 for stop placement above, but the market did trade to 1129 mid-day yesterday so there is a possibility that you were stopped out depending on the exact level. This morning the spread is back in the low volume zone after failing to continue lower. I recommend removing a position in the spread if you have one right now prior to the long weekend as the spread's performance is underwhelming thus far.
Euro- The Euro has had the most volatile trade among all of the markets overnight as the bulls and bears battle over the monthly close. My hunch is that the Euro will find a way to settle above the 1.2326 weekly lows from '08. However, I have to admit that the Euro's action has been extremely concerning and weak over the last few sessions. While other Currencies like the Aussie and Canadian and the Commodity and Equity markets have had short covering rallies the Euro has really had to work just to stay above this last major support level. My initial prediction is that it will not be able to hold above the 1.20 level as June progresses and we will see the slide to .95 begin. The Euro is the key to the longer term macro market move, which I already believe has a 4-5 month move lower underway just to catch up to the Euro's move thus far. If the Euro does fall to below par with the U.S. Dollar then all bets are off on where the market heads to, but it will likely be very disappointing to those who believe we made a bottom in March of '09.
Following yesterday's huge rally in the macro market the range has been abnormally low overnight compared to recent action. The market is slightly stronger this morning, but it appears that most of the significant move and bookkeeping prior to the holiday weekend was done yesterday. I expect that the market will continue to rally today, but to a much lesser degree as shorts clean up positions heading into Memorial Day and the end of the month. Today's letter will be brief because unless you are already long the Australian Dollar, Nasdaq, or Crude Oil I believe that there is no reason to enter a position today prior to the long weekend and there's no harm in starting it a little early after a good month. I recommend just watching the action today and preparing for re-initiation of short positions towards the beginning of next month when this short covering rally shows signs of stalling out. I will provide some halfway back on the rally numbers to keep on your radar for next week. I personally plan on buying some puts on the market with some volatility a bit cheaper at these levels and recommend it if they are able to reach them.
*Roll your front month contract in the fixed income markets to September and your Gold to August.
Buys to Watch: If you are already holding a long position in the Aussie (or Euro or Canadian), Crude, or Nasdaq I believe that these will be the best performers to the upside today on a continuation of the short covering rally.
Sells to Watch:
Put on the Radar:
Projections on Rallies- The Australian Dollar has a bullish reversal pattern that has a projection range from .8625 to .8641. There is a lower volume area from .8406 to .8412 that should provide some support along with the higher volume pivot level that is now support at .8404. Also keep in mind that the weekly bearish cup and handle pattern had a breakout level of .8547, which could provide some interim resistance as it has for the highs thus far today. The Nasdaq has a rally projection range from 1914.5 to 1925 as the strongest Stock Index among the sector. There is a possibility if you take into account only yesterday's spike that you could have a base projection of 1898.25, but I still feel confident that the previous range is sufficient.
Halfway Back Numbers- I would rather error on the side of caution so for these numbers I am measuring the move from the highs in late April to the absolute low trade recently, while disregarding the "Flash Forward" spike if it was not reached in the described market. It is possible to also measure from the rally highs just after the Flash spike to the base this week, but you would get lower levels in most cases.
S&P 500 - 1126.75
Nasdaq - 1906.5
Crude Oil - $77.35
Aussie Dollar - .8665
I am using these numbers if they are reached as a point to purchase an initial short position in the options market. I would become concerned with this position if the markets rallied above the 61.8% retracement level as a mental stop for the trades. It is not necessary for the markets to rally this far prior to a move lower, so I will also look to execute a similar strategy if they show topping action. These markets have shown some of the largest short covering rallies over the last few days, which means they are likely to continue to be the most vulnerable as we move forward at much better initiation prices now.
Copper- Yesterday I provided my trendlines that I have on my Copper chart and as I suspected the lower top trendline for the triangle pattern was violated yesterday. Now I am looking for a move to the top trendline at 3.2280 today as a spot to watch and possibly attempt a small short position if the pattern appears that it will hold. If this happens today I still advise waiting until next Tuesday for initiation.
Notes:
Heating Oil and RBOB Crack Spreads- The Heating Oil completely rejected after touching the breakout of the bearish head and shoulders pattern yesterday, so it has not come into play yet. However, the RBOB Crack Spread did enter it's low volume zone from 1062 to 1106. Yesterday I provided a resistance range of 1116 to 1122 for stop placement above, but the market did trade to 1129 mid-day yesterday so there is a possibility that you were stopped out depending on the exact level. This morning the spread is back in the low volume zone after failing to continue lower. I recommend removing a position in the spread if you have one right now prior to the long weekend as the spread's performance is underwhelming thus far.
Euro- The Euro has had the most volatile trade among all of the markets overnight as the bulls and bears battle over the monthly close. My hunch is that the Euro will find a way to settle above the 1.2326 weekly lows from '08. However, I have to admit that the Euro's action has been extremely concerning and weak over the last few sessions. While other Currencies like the Aussie and Canadian and the Commodity and Equity markets have had short covering rallies the Euro has really had to work just to stay above this last major support level. My initial prediction is that it will not be able to hold above the 1.20 level as June progresses and we will see the slide to .95 begin. The Euro is the key to the longer term macro market move, which I already believe has a 4-5 month move lower underway just to catch up to the Euro's move thus far. If the Euro does fall to below par with the U.S. Dollar then all bets are off on where the market heads to, but it will likely be very disappointing to those who believe we made a bottom in March of '09.
Thursday, May 27, 2010
Thursday 5/27/10 Commodity Ideas
Opening Note:
After a sizable break on the close yesterday on rumors of Chinese liquidation of Euro holdings the market has rebounded strongly overnight on European gains and squashing of these initial Chinese rumors. Despite finally posting a close in the Dow below the psychological 10,000 level yesterday the market has found a way to rebound again off of the base that appears to be forming. With the February lows now tested in the S&P 500 and many other supportive markets and relentless bullish reversals off of this base I believe that if the market can clear the next level of strong resistance that there could be a decent rally recovery after the month long move lower.
I am specifically keeping my eye on some key technical levels in the Stock Indices, Fixed Income, and Currency markets to evaluate whether this is just a weak test before continuation lower or if the market has a little more bounce in store. With the Euro continuing to test the weekly lows from '08 near 1.23 and with a new low close for recent action yesterday I believe that this market may be the short term key. As I have speculated for the last week and a half, I feel that global governments and the EU are seeing the same thing that I am and will protect the Euro around this base, especially as we go into the monthly close tomorrow. A move below 1.20 signals a move to .95 to me, so I am expecting that the market should see a little bounce going forward with a move above the high trade last week of 1.2674 meaning a move to roughly 1.32.
However, I remain fundamentally bearish and believe that this protection plan for the Euro will likely come up short in the long run with a move lower on the horizon for the overall market. With such a violent swing down over the last month it is likely that the market needs a bounce to get new longs in the market and clean out some of the shorts. I am beginning to see the initial formation of some large topping patterns in both the Metal and Equity sectors that could use a larger rally here for facilitation of a better trade in the future. There should be a slowdown in some of the bearish global news, but I believe that the World has too many nations wrought with debt problems that will emerge as we go forward. I recommend lightening up on short positions for the time being until the magnitude of this short term rally is better understood, but still focusing on the larger bearish picture with a 4-5 month macro move lower underway as I see it now.
Buys to Watch:
Sells to Watch:
Heating Oil and RBOB Crack Spreads- I do not have any of the volatile outright markets on my trade list for the time being, but these Energy Crack Spreads have set up some good looking bearish patterns to trade in the meantime. If you have access to CQG to see the Heating Oil/Crude spread enter HOECLE and for the RBOB/Crude Oil enter RBECLE. Right now the Heat Crack Spread has a bearish head and shoulders pattern on it's daily chart with the neckline from the lows on May 10th to May 20th having a value of 924 today. A breakout below this level today projects a move to 622. The spread has already bounced off of this level today so it may need another day or two if it is to be set in motion. However, when you keep the same neckline dates of May 10th to May 20th on the RBOB/Crude Spread you can see that this market already has a breakout below 1147 yesterday with a projection to 802. For entry on this trade there is a good low volume zone from 1062 to 1106 with larger volume resistance near 1120 with another low volume area from 1140 to 1152 with larger volume resistance at 1175. This higher level has already been reached on the trade overnight, so I believe that entry on a rally into this lower zone is now a good level for short entry.
Put on the Radar:
Key Indicator Levels- I already discussed the important Euro level in the Opening Note, but I also have some other levels that should indicate whether this recent rally is just another small fakeout or if we could see a continuation higher to about halfway back on the recent break. For the S&P 500 the 1097 - 1105 level is important as it is a low volume reversal zone and also the 10% correction, 200 day moving average, and psychological 1100 level. A correlated level in the Nasdaq is from 1845.5 to 1857.5. I have a reversal breakout level for the Nasdaq at 1840 that has a projection range from 1914.5 to 1925, which would non-coincidentally fall into the range of a 50 to 61.8% correction on the recent break. The Nasdaq would likely be the strongest Equity Index on the recovery rally and I would not have a problem jumping on with some small size if the market rallies above this low volume zone and the larger volume 1865 level.
I have had the Bond market on a weekly cup and handle breakout above 123.25 with a projection to the 133 to 134 level for the last few days, but the market has now formed a bearish reversal and is testing this breakout level today. There is a large low volume level in Bonds from 123.01 to 123.31 that the market is sitting in currently. A break below 123 would signal to me that a pullback near the 120 level would be in order on a 50% pullback in conjunction with the Equity Indices.
Finally, I am watching the supportive Currency markets of the Australian and Canadian Dollars. The Canadian Dollar has already rejected it's weekly breakout level of .9274 over the last few days on a strong rally. The Aussie Dollar is in the midst of a large weekly bearish cup and handle pattern with the old breakout level of .8547, but now has a daily chart reversal above .8345 that has a projection range from .8625 to .8641. There is larger volume resistance for the Aussie around .8404 that has provided the highs for today, but I believe that it is a decent buy above this level with a smaller size on the rally continuation.
In Summary, watch these levels across the different sectors as an indicator for direction over the next couple weeks. If you are still looking to enter short positions these are all good levels to do it against, but I am waiting for confirmation at these levels to set up a game plan going forward for the next week and month. If the market macro market is able to rally through then I believe that we can expect a 50% correction on the recent break before becoming a good macro short again. If these levels continue to hold, then I expect a move below the February lows shortly in most of the supportive markets. As I said in the Opening Note, I am seeing the beginnings of some large topping patterns across the sectors and a 50% rally back would likely facilitate a better trade on a larger move lower.
Notes:
Copper- Refer to yesterday's newsletter for my explanation on why I want to short Copper and possibly use a Gold hedge. To help you get a similar picture to what I am seeing I wanted to provide the lines that I have on my Copper chart at the time being. On the daily chart connect:
High May 10th to High May 13th
High May 10th to Close May 13th
Low May 17th to Low May 21st
Low Feb 5th to Low May 17th
What you now have on your daily chart is an extremely large topping pattern similar to a head and shoulders as well as a bearish continuation triangle with two potential top trendlines. This shorter term triangle has had a bounce off of the lower top trendline for the last four days, but is threatening to rally above today and likely to the higher top trendline. It is a decent low risk trade to try a small initial sale against these top trendlines, especially if there is a rally to the next line for early entry on a possibly huge trade. A breakout below this triangle would set off the larger topping pattern that has an 81 cent projection, which points to the $2.10 to $2.15 level depending on the day. However, if this triangle does in fact fail on a larger macro rally I expect Copper to come back into play at a later date on a strong bearish head and shoulders pattern.
After a sizable break on the close yesterday on rumors of Chinese liquidation of Euro holdings the market has rebounded strongly overnight on European gains and squashing of these initial Chinese rumors. Despite finally posting a close in the Dow below the psychological 10,000 level yesterday the market has found a way to rebound again off of the base that appears to be forming. With the February lows now tested in the S&P 500 and many other supportive markets and relentless bullish reversals off of this base I believe that if the market can clear the next level of strong resistance that there could be a decent rally recovery after the month long move lower.
I am specifically keeping my eye on some key technical levels in the Stock Indices, Fixed Income, and Currency markets to evaluate whether this is just a weak test before continuation lower or if the market has a little more bounce in store. With the Euro continuing to test the weekly lows from '08 near 1.23 and with a new low close for recent action yesterday I believe that this market may be the short term key. As I have speculated for the last week and a half, I feel that global governments and the EU are seeing the same thing that I am and will protect the Euro around this base, especially as we go into the monthly close tomorrow. A move below 1.20 signals a move to .95 to me, so I am expecting that the market should see a little bounce going forward with a move above the high trade last week of 1.2674 meaning a move to roughly 1.32.
However, I remain fundamentally bearish and believe that this protection plan for the Euro will likely come up short in the long run with a move lower on the horizon for the overall market. With such a violent swing down over the last month it is likely that the market needs a bounce to get new longs in the market and clean out some of the shorts. I am beginning to see the initial formation of some large topping patterns in both the Metal and Equity sectors that could use a larger rally here for facilitation of a better trade in the future. There should be a slowdown in some of the bearish global news, but I believe that the World has too many nations wrought with debt problems that will emerge as we go forward. I recommend lightening up on short positions for the time being until the magnitude of this short term rally is better understood, but still focusing on the larger bearish picture with a 4-5 month macro move lower underway as I see it now.
Buys to Watch:
Sells to Watch:
Heating Oil and RBOB Crack Spreads- I do not have any of the volatile outright markets on my trade list for the time being, but these Energy Crack Spreads have set up some good looking bearish patterns to trade in the meantime. If you have access to CQG to see the Heating Oil/Crude spread enter HOECLE and for the RBOB/Crude Oil enter RBECLE. Right now the Heat Crack Spread has a bearish head and shoulders pattern on it's daily chart with the neckline from the lows on May 10th to May 20th having a value of 924 today. A breakout below this level today projects a move to 622. The spread has already bounced off of this level today so it may need another day or two if it is to be set in motion. However, when you keep the same neckline dates of May 10th to May 20th on the RBOB/Crude Spread you can see that this market already has a breakout below 1147 yesterday with a projection to 802. For entry on this trade there is a good low volume zone from 1062 to 1106 with larger volume resistance near 1120 with another low volume area from 1140 to 1152 with larger volume resistance at 1175. This higher level has already been reached on the trade overnight, so I believe that entry on a rally into this lower zone is now a good level for short entry.
Put on the Radar:
Key Indicator Levels- I already discussed the important Euro level in the Opening Note, but I also have some other levels that should indicate whether this recent rally is just another small fakeout or if we could see a continuation higher to about halfway back on the recent break. For the S&P 500 the 1097 - 1105 level is important as it is a low volume reversal zone and also the 10% correction, 200 day moving average, and psychological 1100 level. A correlated level in the Nasdaq is from 1845.5 to 1857.5. I have a reversal breakout level for the Nasdaq at 1840 that has a projection range from 1914.5 to 1925, which would non-coincidentally fall into the range of a 50 to 61.8% correction on the recent break. The Nasdaq would likely be the strongest Equity Index on the recovery rally and I would not have a problem jumping on with some small size if the market rallies above this low volume zone and the larger volume 1865 level.
I have had the Bond market on a weekly cup and handle breakout above 123.25 with a projection to the 133 to 134 level for the last few days, but the market has now formed a bearish reversal and is testing this breakout level today. There is a large low volume level in Bonds from 123.01 to 123.31 that the market is sitting in currently. A break below 123 would signal to me that a pullback near the 120 level would be in order on a 50% pullback in conjunction with the Equity Indices.
Finally, I am watching the supportive Currency markets of the Australian and Canadian Dollars. The Canadian Dollar has already rejected it's weekly breakout level of .9274 over the last few days on a strong rally. The Aussie Dollar is in the midst of a large weekly bearish cup and handle pattern with the old breakout level of .8547, but now has a daily chart reversal above .8345 that has a projection range from .8625 to .8641. There is larger volume resistance for the Aussie around .8404 that has provided the highs for today, but I believe that it is a decent buy above this level with a smaller size on the rally continuation.
In Summary, watch these levels across the different sectors as an indicator for direction over the next couple weeks. If you are still looking to enter short positions these are all good levels to do it against, but I am waiting for confirmation at these levels to set up a game plan going forward for the next week and month. If the market macro market is able to rally through then I believe that we can expect a 50% correction on the recent break before becoming a good macro short again. If these levels continue to hold, then I expect a move below the February lows shortly in most of the supportive markets. As I said in the Opening Note, I am seeing the beginnings of some large topping patterns across the sectors and a 50% rally back would likely facilitate a better trade on a larger move lower.
Notes:
Copper- Refer to yesterday's newsletter for my explanation on why I want to short Copper and possibly use a Gold hedge. To help you get a similar picture to what I am seeing I wanted to provide the lines that I have on my Copper chart at the time being. On the daily chart connect:
High May 10th to High May 13th
High May 10th to Close May 13th
Low May 17th to Low May 21st
Low Feb 5th to Low May 17th
What you now have on your daily chart is an extremely large topping pattern similar to a head and shoulders as well as a bearish continuation triangle with two potential top trendlines. This shorter term triangle has had a bounce off of the lower top trendline for the last four days, but is threatening to rally above today and likely to the higher top trendline. It is a decent low risk trade to try a small initial sale against these top trendlines, especially if there is a rally to the next line for early entry on a possibly huge trade. A breakout below this triangle would set off the larger topping pattern that has an 81 cent projection, which points to the $2.10 to $2.15 level depending on the day. However, if this triangle does in fact fail on a larger macro rally I expect Copper to come back into play at a later date on a strong bearish head and shoulders pattern.
Wednesday, May 26, 2010
Wednesday 5/26/10 Commodity Ideas
Opening Note:
Yesterday morning the Equity markets opened near their lows for the day on a test of the February and yearly lows. While the middle portion of the day saw the stock market crawl slightly higher it was a late day rally and continuation overnight that sealed a strong rejection of these February lows. The rest of the macro market had a strong reversal led by the Equities as many markets are now displaying two days in the last week with spiky lows that could be forming reversal patterns as shorts cover temporarily and dip buyers enter the market on the pullback. This rejection was not based on a specific news item, so I believe that it is just the market showing that it is currently oversold.
I have had a cautious approach at different times over the last week, but have been proven wrong as the rallies have remained minimal and the moves lower in conjunction with the direction that I would like to be positioned. However, this rejection yesterday and into this morning is different than the other ones throughout May. The strong technical and psychological level associated with the February lows looks like it will be able to hold the market flood lower for the time being as two strong rejections are now associated with the level. I do remain bearish the overall market for the next 4 - 5 months as the weekly charts for Equities have now reversed to a bear trend, but I recommend lightening short positions for the rest of the week if you are not a long term trader. Some markets like the Australian Dollar and Nasdaq do have nice bullish double bottom and cup and handle patterns that could be taken advantage of with a little more rally, but I will only attempt a minimal long position on the strongest patterns if they come into play. I am still focused on selling rallies in supportive Commodities as I believe that this will be a short term consolidation rally prior to a lower continuation as the global debt story unravels.
Buys to Watch:
Sells to Watch:
Put on the Radar: *This is a long explanation, but I will refer to this passage going forward for reference with comments on the trade's dynamics only in the future.
Sell Copper with a Long Gold Hedge- I mentioned this idea briefly yesterday, but the trade revolves around the weekly chart for Copper. The Copper market outperformed nearly every market on the recovery since March of '09, including Equities, and this was done on a historically large amount of open interest entering the market. About a month and a half ago when I warned of weakness in the Copper and Crude Oil markets that was based on this large amount of open interest that had entered late and was holding large losing positions and in some cases adding to them despite price drops. While the Copper market has basically cleaned all of these "bad buying" longs on the short term (Crude has not finished yet) I believe that if the weekly chart caves in that there could be a much larger liquidation of the all time highs in long positions. I believe that this wipe out on the weekly Copper chart is likely dependent on Equities falling below their February lows as well, so the trade should stay on the radar for the time being until better entry is available.
The Copper market has recently acted as a strength among the overall market in relation to other Commodities. This is a strong signal if the entire macro picture was strong as well. However, I believe that Copper is incorrectly being grouped with the precious metals of Gold and Silver as a long term store of value. I have commented in the past on why Silver is different than Gold because you have to carry 63 times as much for equal value, but with Gold at $1200/oz and Copper at $3.10/lb you need roughly 6,200 times the amount of Copper to equal Gold. Copper is a resource that has an industrial value, but it is not a strongly correlated market to the precious metals as it tends to fall much harder on larger macro breaks.
Because of this relationship I believe that you can use Gold as a hedge at least on an initial short in the Copper market to have an opportunity at a large long liquidation. To get a better view of what you are looking at use Gold/Copper on a weekly chart. If you notice in late '08 and early '09 a large spike formed in the ratio between the Commodities on the larger macro break as Gold held it's value much better than Copper. As I look around at the Currencies and other "run to safety" relationships and markets like Fixed Income I notice that some of these markets are projecting moves towards similar spikes in the market while this ratio is just beginning to breakout. I believe that there is a lag in this relationship right now with a great buying opportunity on a longer term trade.
For entry on the trade I am recommend using either a 1:1 or 3:2 Gold to Copper execution ratio to equal out the contract size and recent volatility in the market. The 1:1 will provide better opportunity on a large Copper break, but will not provide as much protection. Using the daily chart for Gold/Copper I believe that an initial small position can be entered on a pullback to the 3750 level, which is above all of the trade in the ratio since last July and the long consolidation range. I recommend this as an initial position only though and not as execution for the whole trade. I will be watching the outright Copper market for the next entry level in a spot that is a preferable short in the market. Because the magnitude of this trade is dependent on a larger macro break and a longer term position please take this into consideration when executing and establishing size.
Notes:
Australian Dollar- Yesterday I provided two aggressive short entry levels for the Australian Dollar market. Both low volume entry levels worked temporarily as they stalled the market and reversed prices lower, but the uptrend for the last 24 hours was strong and continued higher through both levels. Now the Aussie has a spiky bullish reversal pattern similar to a double bottom. The breakout for the pattern is .8345 and has a projection range from .8625 to .8641. This is in contradiction to the large weekly bearish cup and handle pattern that I have the market in right now that had a projection at .8547 and a projection to .7784. While I still believe that the Aussie is going lower over the next few months I do not want to fight a strong short term bullish pattern and believe that you may actually be able to make some quick money if some short covering momentum emerges. Note: There is a low volume zone from .8342 to .8380 with larger volume resistance at .8404 that could stall a rally and possibly create a new bearish reversal in the market. I recommend waiting until after this .8404 level if you are looking to join the bullish crowd.
Bonds- Late in the day the Bonds dipped into my low volume zone from 124.29 to 125.00 with larger volume resistance to 124.19. This level held well and actually worked a bit into the early morning, but with the reversal higher in the macro market continuing into the late morning the Bonds broke below this support. Two days ago I gave a large low volume zone for the bonds between 123.01 to 123.31 that should provide some support and possibly a bullish price reversal for the market. I still have the Bonds in a weekly bullish cup and handle pattern with the breakout at 123.25 and a projection range from 133 - 134. This recent reversal has been strong though and I recommend laying off buying for the time being unless the market enters this low volume zone and you have a strong opinion.
Nasdaq Bullish Reversal, but Caution- The Nasdaq has been the strongest Index on both rallies and breaks at times in the market lately, meaning a lot of two sided volatility. However, the bullish reversal pattern is strongest in this Index right now and should have the best rally potential. The breakout level for the pattern is 1840 with a projection range from 1914.5 to 1925. Use caution on execution if you decide to play the bullish side though. The Nasdaq has a low volume area from 1845.5 to 1857.5 that could stall or reject prices. The S&P 500 also has a low volume zone from 1097 to 1105 that could stall overall market prices as well. I believe that Equities will continue lower below the February 5th lows in the coming weeks and recommend only using a minimal position if you are looking to jump on the short covering rally.
Yesterday morning the Equity markets opened near their lows for the day on a test of the February and yearly lows. While the middle portion of the day saw the stock market crawl slightly higher it was a late day rally and continuation overnight that sealed a strong rejection of these February lows. The rest of the macro market had a strong reversal led by the Equities as many markets are now displaying two days in the last week with spiky lows that could be forming reversal patterns as shorts cover temporarily and dip buyers enter the market on the pullback. This rejection was not based on a specific news item, so I believe that it is just the market showing that it is currently oversold.
I have had a cautious approach at different times over the last week, but have been proven wrong as the rallies have remained minimal and the moves lower in conjunction with the direction that I would like to be positioned. However, this rejection yesterday and into this morning is different than the other ones throughout May. The strong technical and psychological level associated with the February lows looks like it will be able to hold the market flood lower for the time being as two strong rejections are now associated with the level. I do remain bearish the overall market for the next 4 - 5 months as the weekly charts for Equities have now reversed to a bear trend, but I recommend lightening short positions for the rest of the week if you are not a long term trader. Some markets like the Australian Dollar and Nasdaq do have nice bullish double bottom and cup and handle patterns that could be taken advantage of with a little more rally, but I will only attempt a minimal long position on the strongest patterns if they come into play. I am still focused on selling rallies in supportive Commodities as I believe that this will be a short term consolidation rally prior to a lower continuation as the global debt story unravels.
Buys to Watch:
Sells to Watch:
Put on the Radar: *This is a long explanation, but I will refer to this passage going forward for reference with comments on the trade's dynamics only in the future.
Sell Copper with a Long Gold Hedge- I mentioned this idea briefly yesterday, but the trade revolves around the weekly chart for Copper. The Copper market outperformed nearly every market on the recovery since March of '09, including Equities, and this was done on a historically large amount of open interest entering the market. About a month and a half ago when I warned of weakness in the Copper and Crude Oil markets that was based on this large amount of open interest that had entered late and was holding large losing positions and in some cases adding to them despite price drops. While the Copper market has basically cleaned all of these "bad buying" longs on the short term (Crude has not finished yet) I believe that if the weekly chart caves in that there could be a much larger liquidation of the all time highs in long positions. I believe that this wipe out on the weekly Copper chart is likely dependent on Equities falling below their February lows as well, so the trade should stay on the radar for the time being until better entry is available.
The Copper market has recently acted as a strength among the overall market in relation to other Commodities. This is a strong signal if the entire macro picture was strong as well. However, I believe that Copper is incorrectly being grouped with the precious metals of Gold and Silver as a long term store of value. I have commented in the past on why Silver is different than Gold because you have to carry 63 times as much for equal value, but with Gold at $1200/oz and Copper at $3.10/lb you need roughly 6,200 times the amount of Copper to equal Gold. Copper is a resource that has an industrial value, but it is not a strongly correlated market to the precious metals as it tends to fall much harder on larger macro breaks.
Because of this relationship I believe that you can use Gold as a hedge at least on an initial short in the Copper market to have an opportunity at a large long liquidation. To get a better view of what you are looking at use Gold/Copper on a weekly chart. If you notice in late '08 and early '09 a large spike formed in the ratio between the Commodities on the larger macro break as Gold held it's value much better than Copper. As I look around at the Currencies and other "run to safety" relationships and markets like Fixed Income I notice that some of these markets are projecting moves towards similar spikes in the market while this ratio is just beginning to breakout. I believe that there is a lag in this relationship right now with a great buying opportunity on a longer term trade.
For entry on the trade I am recommend using either a 1:1 or 3:2 Gold to Copper execution ratio to equal out the contract size and recent volatility in the market. The 1:1 will provide better opportunity on a large Copper break, but will not provide as much protection. Using the daily chart for Gold/Copper I believe that an initial small position can be entered on a pullback to the 3750 level, which is above all of the trade in the ratio since last July and the long consolidation range. I recommend this as an initial position only though and not as execution for the whole trade. I will be watching the outright Copper market for the next entry level in a spot that is a preferable short in the market. Because the magnitude of this trade is dependent on a larger macro break and a longer term position please take this into consideration when executing and establishing size.
Notes:
Australian Dollar- Yesterday I provided two aggressive short entry levels for the Australian Dollar market. Both low volume entry levels worked temporarily as they stalled the market and reversed prices lower, but the uptrend for the last 24 hours was strong and continued higher through both levels. Now the Aussie has a spiky bullish reversal pattern similar to a double bottom. The breakout for the pattern is .8345 and has a projection range from .8625 to .8641. This is in contradiction to the large weekly bearish cup and handle pattern that I have the market in right now that had a projection at .8547 and a projection to .7784. While I still believe that the Aussie is going lower over the next few months I do not want to fight a strong short term bullish pattern and believe that you may actually be able to make some quick money if some short covering momentum emerges. Note: There is a low volume zone from .8342 to .8380 with larger volume resistance at .8404 that could stall a rally and possibly create a new bearish reversal in the market. I recommend waiting until after this .8404 level if you are looking to join the bullish crowd.
Bonds- Late in the day the Bonds dipped into my low volume zone from 124.29 to 125.00 with larger volume resistance to 124.19. This level held well and actually worked a bit into the early morning, but with the reversal higher in the macro market continuing into the late morning the Bonds broke below this support. Two days ago I gave a large low volume zone for the bonds between 123.01 to 123.31 that should provide some support and possibly a bullish price reversal for the market. I still have the Bonds in a weekly bullish cup and handle pattern with the breakout at 123.25 and a projection range from 133 - 134. This recent reversal has been strong though and I recommend laying off buying for the time being unless the market enters this low volume zone and you have a strong opinion.
Nasdaq Bullish Reversal, but Caution- The Nasdaq has been the strongest Index on both rallies and breaks at times in the market lately, meaning a lot of two sided volatility. However, the bullish reversal pattern is strongest in this Index right now and should have the best rally potential. The breakout level for the pattern is 1840 with a projection range from 1914.5 to 1925. Use caution on execution if you decide to play the bullish side though. The Nasdaq has a low volume area from 1845.5 to 1857.5 that could stall or reject prices. The S&P 500 also has a low volume zone from 1097 to 1105 that could stall overall market prices as well. I believe that Equities will continue lower below the February 5th lows in the coming weeks and recommend only using a minimal position if you are looking to jump on the short covering rally.
Tuesday, May 25, 2010
Tuesday 5/25/10 Commodity Ideas
Opening Note:
While I believed that there could be some bounce in the market following Friday's higher close I was again proved foolish on my caution as the S&P 500 closed 13.5 points lower and traded another 34 lower already overnight. The fundamental concern today is still over more European woes and the side story of North Korean threats. Equities are now beginning to test the February dip lows and their lows from this calendar year. This technical and psychological level could provide some support for the short term, but I believe that we will continue lower shortly. With the weekly charts for the Stock Indices now just confirming a reversal into a bearish mode after their year long bullish run I believe we have at least another 5 months to go on this bearish move.
The concerning thing to me is that although I have heard speculation for nearly a year about the Chinese housing market bubble I have yet to really here much concern about this story in the media thus far. If you also take into account the U.S. debt now built up that was to be offset by growth and tax hikes that is not yet a front page story, you start to get a feel for how bad this so-called "correction" could really be. With the year long market rally led by stimulus on the recovery story I believe that the macro market is still over-valued for the time being and recommend selling rallies in supportive Commodities going forward.
Buys to Watch:
Bonds and other Fixed Income- I suggested a cautious entry level yesterday in the Bonds, but with the late break in the market yesterday followed by this morning I was left in the dust. The Bond market traded back down to the 124.08 price, but did not break below into the low volume zone in the 123's for a shot at a great buy. However, this move did keep the large weekly cup and handle pattern intact that still has a projection range from 133 - 134. Today there is a small low volume range from 124.29 to 125.00 with larger volume support from 124.19 to 124.22 for stop placement. This is a good lower risk entry on a much larger move, but if this level does not hold then I would revert back to the 123.01 to 123.31 low volume zone as the next spot for entry on the large move. I believe that you can also look at using call options for the move with the move likely completed by September.
The Ten Year Note is also now battling with it's weekly cup and handle breakout today above 121.215 that has a projection to 127.145. The Five Year Notes are also nearing their weekly breakout of 118.21 that has a projection to just under 123. When looking at this line of projections I believe that with the earlier breakout and stronger likelihood of completion on the longer yields, that you can also look at buying some of the long vs. short spreads on this longer term move as a hedged bet. I recommend using the Bonds or Ten Years though if you are just purchasing an outright.
Sells to Watch:
Australian Dollar- This morning the Aussie Dollar has the largest break of any of the major Currencies percentage-wise, but unfortunately a rally into the low volume zone I suggested never occurred yesterday. While the market did trade to .8321, the cautious entry level above .8342 was never met. Still the Aussie has a weekly cup and handle chart pattern that projects to .7784 and that is now over halfway complete on this move. For short entry today I have a low volume area from .8116 - .8150 with higher volume resistance from .8176 to .8182 for stop placement. Above this level I also have a strong resistance level from .8250 to .8276 with the area just below this from .8232 to .8250 being a good entry level if this first zone does not hold.
Put on the Radar:
Euro/Yen Cross Rate (Symbol YR on CQG)- As the Euro continues to weaken and test it's lows from late '08 so does this key directional indicator cross rate. The Euro/Yen today is below the lows from Oct. '08 and Jan. '09 of 111.83 on a decisive move this morning. This is a touchy indicator because it does include the volatility of the Euro, but a breakout below this level is extremely troubling for the macro market. As I stated in Friday's letter, I believe that the Equity and Commodity markets tend to run about 5 months behind the Currency markets and if this is a reliable indicator it is saying that we test the lows from '09. In contrast to this, I believe that with stimulus and tighter restrictions in our markets that we are in a different place than two years ago, but do not ignore this cross rates signal.
Copper- Copper has been like the fly on the back of my neck over the last month and a half because every time I think I have gotten rid of it it seems to come right back to me each time I look at the chart. All you need to really do is look at a weekly chart for the market and put up open interest and volume. You can see that more than almost any other market over the last year Copper has had an astronomical rise in open interest and volume compared to any period in it's history. Also factor in that Copper was the "darling" of the inflation, emerging market, and housing recovery trade along with the fact that it was stockpiled by China and many other buyers and I believe that you have a loaded powder keg ready to blow. Copper has held up well in relation to many Commodities recently based on the Metal Sector's strength, but I believe that this is an unfair grouping for Copper to travel in as it is not as strong of a store of value and an industrial metal. With the "supply" of Copper still high with the stockpiling and huge open interest for the market we could see a massive exodus of long positions from the market.
The options market for Copper is pretty much non-existent, but I still would like to be in the market for some downside. If you look at the Gold/Copper chart (the ratio) on a weekly scale you can see that during the last major market break that Gold held up significantly better than Copper and that this chart now looks like it is beginning a rally breakout. I am exploring buying some Gold so that I can sell some Copper with the option of removing the Gold hedge once the market begins to move.
Canadian Dollar- The Canadian Dollar is broken out this morning on a weekly cup and handle chart below the .9274 level. For the chart I have a projection range from .8479 to .8768. This may be fundamentally difficult sale for some as Canada has one of the better standing economies, but this is strictly a risk trade. The Canadian Dollar is entered as a way to play macro growth and Commodity inflation and with the market strength now broken out on weakness there could be massive movement out of the Currency and into the U.S. Dollar as the market is surprised. I have a nearby low volume zone from .9306 to .9338 with resistance to .9352 for entry on a rally. There also is another zone from .9382 to .9408 with resistance to .9432 that provided the high overnight and is a great sale on a rally as well.
Notes:
Stock Indices- I continue to recommend selling rallies in the Equities, but with large volatility from day to day it is difficult for me to accurately produce a good zone for a sale that will be hit. However, take into account that the February low for the S&P 500 on the weekly chart is 1040.75 and for the Dow it is 9791. These levels will be tested today and are one of the last major support levels before we begin to see a pullback to halfway back on the entire year long rally. I also recommend using the NASDAQ Index for Equity shorts as I believe it has the most downside potential of all the groups as it was over-invested on the recovery trade.
While I believed that there could be some bounce in the market following Friday's higher close I was again proved foolish on my caution as the S&P 500 closed 13.5 points lower and traded another 34 lower already overnight. The fundamental concern today is still over more European woes and the side story of North Korean threats. Equities are now beginning to test the February dip lows and their lows from this calendar year. This technical and psychological level could provide some support for the short term, but I believe that we will continue lower shortly. With the weekly charts for the Stock Indices now just confirming a reversal into a bearish mode after their year long bullish run I believe we have at least another 5 months to go on this bearish move.
The concerning thing to me is that although I have heard speculation for nearly a year about the Chinese housing market bubble I have yet to really here much concern about this story in the media thus far. If you also take into account the U.S. debt now built up that was to be offset by growth and tax hikes that is not yet a front page story, you start to get a feel for how bad this so-called "correction" could really be. With the year long market rally led by stimulus on the recovery story I believe that the macro market is still over-valued for the time being and recommend selling rallies in supportive Commodities going forward.
Buys to Watch:
Bonds and other Fixed Income- I suggested a cautious entry level yesterday in the Bonds, but with the late break in the market yesterday followed by this morning I was left in the dust. The Bond market traded back down to the 124.08 price, but did not break below into the low volume zone in the 123's for a shot at a great buy. However, this move did keep the large weekly cup and handle pattern intact that still has a projection range from 133 - 134. Today there is a small low volume range from 124.29 to 125.00 with larger volume support from 124.19 to 124.22 for stop placement. This is a good lower risk entry on a much larger move, but if this level does not hold then I would revert back to the 123.01 to 123.31 low volume zone as the next spot for entry on the large move. I believe that you can also look at using call options for the move with the move likely completed by September.
The Ten Year Note is also now battling with it's weekly cup and handle breakout today above 121.215 that has a projection to 127.145. The Five Year Notes are also nearing their weekly breakout of 118.21 that has a projection to just under 123. When looking at this line of projections I believe that with the earlier breakout and stronger likelihood of completion on the longer yields, that you can also look at buying some of the long vs. short spreads on this longer term move as a hedged bet. I recommend using the Bonds or Ten Years though if you are just purchasing an outright.
Sells to Watch:
Australian Dollar- This morning the Aussie Dollar has the largest break of any of the major Currencies percentage-wise, but unfortunately a rally into the low volume zone I suggested never occurred yesterday. While the market did trade to .8321, the cautious entry level above .8342 was never met. Still the Aussie has a weekly cup and handle chart pattern that projects to .7784 and that is now over halfway complete on this move. For short entry today I have a low volume area from .8116 - .8150 with higher volume resistance from .8176 to .8182 for stop placement. Above this level I also have a strong resistance level from .8250 to .8276 with the area just below this from .8232 to .8250 being a good entry level if this first zone does not hold.
Put on the Radar:
Euro/Yen Cross Rate (Symbol YR on CQG)- As the Euro continues to weaken and test it's lows from late '08 so does this key directional indicator cross rate. The Euro/Yen today is below the lows from Oct. '08 and Jan. '09 of 111.83 on a decisive move this morning. This is a touchy indicator because it does include the volatility of the Euro, but a breakout below this level is extremely troubling for the macro market. As I stated in Friday's letter, I believe that the Equity and Commodity markets tend to run about 5 months behind the Currency markets and if this is a reliable indicator it is saying that we test the lows from '09. In contrast to this, I believe that with stimulus and tighter restrictions in our markets that we are in a different place than two years ago, but do not ignore this cross rates signal.
Copper- Copper has been like the fly on the back of my neck over the last month and a half because every time I think I have gotten rid of it it seems to come right back to me each time I look at the chart. All you need to really do is look at a weekly chart for the market and put up open interest and volume. You can see that more than almost any other market over the last year Copper has had an astronomical rise in open interest and volume compared to any period in it's history. Also factor in that Copper was the "darling" of the inflation, emerging market, and housing recovery trade along with the fact that it was stockpiled by China and many other buyers and I believe that you have a loaded powder keg ready to blow. Copper has held up well in relation to many Commodities recently based on the Metal Sector's strength, but I believe that this is an unfair grouping for Copper to travel in as it is not as strong of a store of value and an industrial metal. With the "supply" of Copper still high with the stockpiling and huge open interest for the market we could see a massive exodus of long positions from the market.
The options market for Copper is pretty much non-existent, but I still would like to be in the market for some downside. If you look at the Gold/Copper chart (the ratio) on a weekly scale you can see that during the last major market break that Gold held up significantly better than Copper and that this chart now looks like it is beginning a rally breakout. I am exploring buying some Gold so that I can sell some Copper with the option of removing the Gold hedge once the market begins to move.
Canadian Dollar- The Canadian Dollar is broken out this morning on a weekly cup and handle chart below the .9274 level. For the chart I have a projection range from .8479 to .8768. This may be fundamentally difficult sale for some as Canada has one of the better standing economies, but this is strictly a risk trade. The Canadian Dollar is entered as a way to play macro growth and Commodity inflation and with the market strength now broken out on weakness there could be massive movement out of the Currency and into the U.S. Dollar as the market is surprised. I have a nearby low volume zone from .9306 to .9338 with resistance to .9352 for entry on a rally. There also is another zone from .9382 to .9408 with resistance to .9432 that provided the high overnight and is a great sale on a rally as well.
Notes:
Stock Indices- I continue to recommend selling rallies in the Equities, but with large volatility from day to day it is difficult for me to accurately produce a good zone for a sale that will be hit. However, take into account that the February low for the S&P 500 on the weekly chart is 1040.75 and for the Dow it is 9791. These levels will be tested today and are one of the last major support levels before we begin to see a pullback to halfway back on the entire year long rally. I also recommend using the NASDAQ Index for Equity shorts as I believe it has the most downside potential of all the groups as it was over-invested on the recovery trade.
Subscribe to:
Posts (Atom)