Opening Note:
Yesterday
The Unemployment rate dropped to 9.4% Friday, which is Bullish at first blush. However, the jobs created was still disappointing. The early reaction to the Report was mixed across the market with a lot of spiky back and forth trade. After some early allocation though Commodities moved lower for the day, Equities modestly lower, and Treasuries higher. The Energies, Grains, and Metals were unanimously weaker as the Commodity Sector is looking very heavy. The Treasury markets actually provided the first clue that the day would turn sour as they held constructive moves despite trading out of line with the rest of the market.
Today
As of 7 am the market is mixed, but definitely weaker than last evening's open. The Foreign Currencies are mostly lower, as the Dollar is higher, and producing pressure on the rest of the market. The Energies and Metals are higher to unchanged, but are well off their overnight highs. The Equities are actually the weakest Sector this morning in a twist from their leadership role last week. Finally, the Treasury markets are beginning to creep higher. This could be a similar signal of market weakness today as it was Friday.
I believe it is pretty clear now that the risk in the market is to the downside. After a strong 4 months for the market it looks like there will finally be at least a moderate pullback across the board. I advise using caution on long positions in Commodities and Equities for the next couple weeks. There is rebalancing for Funds across the Commodity Sector this week as well, which will make the market more choppy.
Buys to Watch:
Buy Gold vs. Sell Silver- On Friday my entry suggestion to buy against support from -$83 to -$92 on the (Gold - Silver/2) differential worked great. The differential traded down to -$88 mid-morning, but rallied throughout the rest of the session to settle near -$65. This morning there has been early buying on the Metal open to push the spread in Silver's favor again, but this looks like just a pullback on the longer term move I am looking for in Gold's favor. The suggested execution ratio is Long 1 Gold : Short 1 Silver. I still recommend a stop loss on the trade just below the higher volume support down to -$92. This means you can also enter new positions on pullbacks towards this higher volume support. The target for the longer term trade is $60 to $70 with Gold premium, so a $130+ move from today's level. If you have questions on how to chart or trade this spread you can always send me an email.
Sells to Watch:
Euro- This morning the Euro has actually turned into one of the stronger Currencies, but I still believe that it is the best sale among the Sector with the weakest chart. My initial target range for the Euro is still 1.2669 - 1.2744. There is not an outstanding setup for short entry this morning, but I recommend using a stop loss on the trade above higher volume resistance to 1.2992. You can therefore use a pullback towards this level for new entry. Possible longer term objective for the Euro still 1.2144.
Put on the Radar:
Buy Treasuries- The 5 Year Note is already broken out on a rally above its recent consolidation range and both the 10 Year and Bonds look to follow. Above 117.302 the 5 Year has an objective of 119.032. I still am holding off on entry though until either the 10 Year or Bonds follow suit and trade above their own consolidation. Above 120.26 the 10 Year has a target of 122.24 and above 122.07 the Bonds have a target of 125.04. All of these are conservative projections and should be viewed as minimums as well. Stay away for today, but if the 10 Year settles above 120.26 then I think it is time for an initial position in the 5 Year.
Notes:
Grains
Wednesday is the January report for the Grain market. While I am Bullish on the Grain Sector overall for this Spring and Summer I am not getting a good vibe as we head into the report this week. It is difficult to find anyone that is not constructive on the Grains this year. It appears that this enthusiasm may already be slightly over-allocated in the market as many fundamental analysts believe the USDA will have to lower stocks and raise demand for both Corn and Beans. The spreads for Beans, Corn, and Wheat have all Bearishly widened over the last week though as the outright prices have dipped as well. Furthermore, there is rebalancing this week, which will put pressure on all of the major Grain markets. I believe the Grains will see a further pullback this week, so for now I am not looking to buy and do not have interest in carrying a position into this report. Please refer to Friday's letter for my target ranges on the pullback. I strongly advise only looking to buy the Grains though over the long term and discourage carrying a short position into the report.
Monday, January 10, 2011
Friday, January 7, 2011
Friday 1/7/10 Commodity Ideas (Pre-Unemployment)
Opening Note:
Because I am crunched for time to get this letter out prior to Unemployment I am going to forgo the recap today and instead lay out my game plan for Unemployment today. You will notice few entry parameters as well because who knows what could happen with volatility after the number.
Unemployment Game Plan
The ADP Employment number Wednesday was the best number we have seen in a long time and has increased Bullish expectations for Unemployment this morning. Because of this I believe there is now slightly more risk to the downside because a Bearish number versus expectations would likely produce a larger magnitude move than a Bullish one. I have absolutely no opinion or estimate on the number though and have never tried to crunch data. Instead I always like to have a trading plan for both a Bullish and Bearish number. I always like to have backup markets, so there are more than a few suggestions listed in order of preference. I do not necessarily jump into all the markets and sometimes none if I do not like the reaction. If something is not working I am quick to cut it and ride the winners instead.
Bullish: Buy Nasdaq, Sell Bonds, Sell Euro, Sell Gold, Buy Canadian Dollar I will foremost be looking to buy the Nasdaq as the overall market strength, especially over the last few days. My next move is to sell Bonds. The Treasury market is in a tight consolidation and a Bullish number should break the Bonds out of this range (more below). Third I sell the Euro. There has been a shift over the last several days that has seen the Dollar rally on positive economic news. This is contrary to the relationship over the last year so I have a little less confidence in how tight this correlation is now. Still, because the Euro chart looks awful this is my go to currency move. Fourth I am selling Gold. Gold has Bearish confirmation now and there should be an exodus on the run to safety trade. This is also a potential hedge to the other market positions. Lastly, the Canadian Dollar is the best looking Currency chart and with a high correlation to the stock market I am buying it.
Bearish: Buy Gold vs. Sell Silver, Sell Australian Dollar, Wait and then Sell Euro, Sell Crude Oil The Metals are on the verge of collapse and now have Bearish confirmation of the move. Because I have difficulty selling outright Silver I am doing it with a long Gold hedge. Next, the Aussie Dollar is the Canadian's drunk uncle right now, so I am selling this laggard. Third, because I believe the Dollar has a positive correlation to the Equity markets I am holding off on directly selling the Euro. The chart is absolutely awful though and I can not see the market recovering above 1.31 on the number. It should regain its laggard status before long, so I sell the rally. Finally, Crude Oil is a strength this morning as the spreads have come back in. However, there is a potential trap of vulnerable longs on the horizon, so I lastly look to sell Crude.
Buys to Watch:
Buy Gold vs. Sell Silver- Gold now has confirmation on the Bearish head and shoulders pattern and is trading below the $1361.6 swing low. Both breakout patterns project a move to just ticks from $1299. Yesterday Silver also finally established a close below its never ending Bull trend on the daily chart. This morning it is the absolute weakness on my board, so barring a miraculous recovery it should provide confirmation as well. Buying Gold versus Selling Silver is now in play. I recommend a Long 1 Gold:Short 1 Silver ratio for execution. There is a nice higher volume support level from -$83 to -$92 that is good for long entry against on a pullback. The differential is currently trading premium to Silver near -$68 and my target for the trade is $60 - $70 premium the Gold. To chart this enter (Gold - Silver/2) on CQG. If you are having difficulty charting then your system uses different decimals. An example of how you calculate is: 1360.0 (Gold) - 2850.0 (Silver)/2 = -$65. The ticks have the same value as the Gold contract.
Sells to Watch:
Euro- Yesterday the Euro did break below the 1.3096 base trend as well as the 1.3050 previous swing low. It is also the laggard of the Currencies again this morning and is testing the 1.2963 low tick before open water below. My initial target for this Euro move is 1.2669 - 1.2744. Long term target possibly is 1.2144 on the move. Entry parameters to come Monday after Unemployment is settled.
Put on the Radar:
Bond Consolidation Nearing the Bearish Breakout- The Treasuries have traded a tight consolidation range lately, but the Bonds (also 10 years) are close to the bottom of this range. A Bullish number this morning could be the catalyst for a Bearish Bond breakout today. Below 119.10 I have a projection of 112.27 for the Bond market. Conversely, if the Bonds reject the move lower then the Bullish breakout level is 122.10 with a projection near 128.00.
Crude Oil Bearish Fundamentals and Open Interest- The Crude Oil spreads have widened considerably over the last week and the Feb - Mch spread has moved below the -$1 level. Anything below -$1 has a direct negative effect on the outright price so I am more concerned about a Bearish move on the horizon. Open interest in Crude has also set up another potential open interest trap for the Bulls. As of yesterday's number, since Dec. 17th 130,000 new longs have entered at a price no better than $87.50. A move below this level would put all these positions under water and likely cause a liquidation run back towards the $82. Keep an eye on the spreads and the $87.50 level.
Notes:
Grains Technically Bearish
I was a bit surprised by Wednesday's rally, but yesterday's sell off confirmed to me that the short term move in the Grains is likely lower. Today is the start of fund rebalancing, which will not help the cause either. There will be selling coming in all of the Grain markets. As I said yesterday, I am only interested in taking longer term Bullish positions in the Grains. These are the levels that I am looking for the markets to form a base for fresh long entry. Corn $5.63 - $5.90, Wheat $7.00 - $7.42, Beans $12.90 - $13.17. I advise caution if you are long over the next week. I think it is better to play it safe and have some ammo for the dip if it happens.
Natural Gas- My long entry parameters for Natural Gas worked well yesterday through the Inventory Report with support holding. The market proceeded to test the $4.635 breakout level, but after an hour fell completely apart. My support was taken out as the market broke over 24 cents top to bottom from 10:30 am - Noon. There will be extensive buying on the rebalance this week, but I expect high volatility. Unless Natural Gas confirms a Bullish breakout then I recommend leaving it alone for the time being.
Because I am crunched for time to get this letter out prior to Unemployment I am going to forgo the recap today and instead lay out my game plan for Unemployment today. You will notice few entry parameters as well because who knows what could happen with volatility after the number.
Unemployment Game Plan
The ADP Employment number Wednesday was the best number we have seen in a long time and has increased Bullish expectations for Unemployment this morning. Because of this I believe there is now slightly more risk to the downside because a Bearish number versus expectations would likely produce a larger magnitude move than a Bullish one. I have absolutely no opinion or estimate on the number though and have never tried to crunch data. Instead I always like to have a trading plan for both a Bullish and Bearish number. I always like to have backup markets, so there are more than a few suggestions listed in order of preference. I do not necessarily jump into all the markets and sometimes none if I do not like the reaction. If something is not working I am quick to cut it and ride the winners instead.
Bullish: Buy Nasdaq, Sell Bonds, Sell Euro, Sell Gold, Buy Canadian Dollar I will foremost be looking to buy the Nasdaq as the overall market strength, especially over the last few days. My next move is to sell Bonds. The Treasury market is in a tight consolidation and a Bullish number should break the Bonds out of this range (more below). Third I sell the Euro. There has been a shift over the last several days that has seen the Dollar rally on positive economic news. This is contrary to the relationship over the last year so I have a little less confidence in how tight this correlation is now. Still, because the Euro chart looks awful this is my go to currency move. Fourth I am selling Gold. Gold has Bearish confirmation now and there should be an exodus on the run to safety trade. This is also a potential hedge to the other market positions. Lastly, the Canadian Dollar is the best looking Currency chart and with a high correlation to the stock market I am buying it.
Bearish: Buy Gold vs. Sell Silver, Sell Australian Dollar, Wait and then Sell Euro, Sell Crude Oil The Metals are on the verge of collapse and now have Bearish confirmation of the move. Because I have difficulty selling outright Silver I am doing it with a long Gold hedge. Next, the Aussie Dollar is the Canadian's drunk uncle right now, so I am selling this laggard. Third, because I believe the Dollar has a positive correlation to the Equity markets I am holding off on directly selling the Euro. The chart is absolutely awful though and I can not see the market recovering above 1.31 on the number. It should regain its laggard status before long, so I sell the rally. Finally, Crude Oil is a strength this morning as the spreads have come back in. However, there is a potential trap of vulnerable longs on the horizon, so I lastly look to sell Crude.
Buys to Watch:
Buy Gold vs. Sell Silver- Gold now has confirmation on the Bearish head and shoulders pattern and is trading below the $1361.6 swing low. Both breakout patterns project a move to just ticks from $1299. Yesterday Silver also finally established a close below its never ending Bull trend on the daily chart. This morning it is the absolute weakness on my board, so barring a miraculous recovery it should provide confirmation as well. Buying Gold versus Selling Silver is now in play. I recommend a Long 1 Gold:Short 1 Silver ratio for execution. There is a nice higher volume support level from -$83 to -$92 that is good for long entry against on a pullback. The differential is currently trading premium to Silver near -$68 and my target for the trade is $60 - $70 premium the Gold. To chart this enter (Gold - Silver/2) on CQG. If you are having difficulty charting then your system uses different decimals. An example of how you calculate is: 1360.0 (Gold) - 2850.0 (Silver)/2 = -$65. The ticks have the same value as the Gold contract.
Sells to Watch:
Euro- Yesterday the Euro did break below the 1.3096 base trend as well as the 1.3050 previous swing low. It is also the laggard of the Currencies again this morning and is testing the 1.2963 low tick before open water below. My initial target for this Euro move is 1.2669 - 1.2744. Long term target possibly is 1.2144 on the move. Entry parameters to come Monday after Unemployment is settled.
Put on the Radar:
Bond Consolidation Nearing the Bearish Breakout- The Treasuries have traded a tight consolidation range lately, but the Bonds (also 10 years) are close to the bottom of this range. A Bullish number this morning could be the catalyst for a Bearish Bond breakout today. Below 119.10 I have a projection of 112.27 for the Bond market. Conversely, if the Bonds reject the move lower then the Bullish breakout level is 122.10 with a projection near 128.00.
Crude Oil Bearish Fundamentals and Open Interest- The Crude Oil spreads have widened considerably over the last week and the Feb - Mch spread has moved below the -$1 level. Anything below -$1 has a direct negative effect on the outright price so I am more concerned about a Bearish move on the horizon. Open interest in Crude has also set up another potential open interest trap for the Bulls. As of yesterday's number, since Dec. 17th 130,000 new longs have entered at a price no better than $87.50. A move below this level would put all these positions under water and likely cause a liquidation run back towards the $82. Keep an eye on the spreads and the $87.50 level.
Notes:
Grains Technically Bearish
I was a bit surprised by Wednesday's rally, but yesterday's sell off confirmed to me that the short term move in the Grains is likely lower. Today is the start of fund rebalancing, which will not help the cause either. There will be selling coming in all of the Grain markets. As I said yesterday, I am only interested in taking longer term Bullish positions in the Grains. These are the levels that I am looking for the markets to form a base for fresh long entry. Corn $5.63 - $5.90, Wheat $7.00 - $7.42, Beans $12.90 - $13.17. I advise caution if you are long over the next week. I think it is better to play it safe and have some ammo for the dip if it happens.
Natural Gas- My long entry parameters for Natural Gas worked well yesterday through the Inventory Report with support holding. The market proceeded to test the $4.635 breakout level, but after an hour fell completely apart. My support was taken out as the market broke over 24 cents top to bottom from 10:30 am - Noon. There will be extensive buying on the rebalance this week, but I expect high volatility. Unless Natural Gas confirms a Bullish breakout then I recommend leaving it alone for the time being.
Thursday, January 6, 2011
Thursday 1/6/10 Commodity Ideas
Opening Note:
Yesterday
My thinking yesterday morning that a weak Commodity sector would spill over into the strength of the Equity market proved to be the opposite of what actually happened. Yesterday morning's ADP Employment Report jump started the Equity market off of its lows at 7:15 am to lead a Bullish charge for the broad market. Whether it was actually the ADP report or fresh allocation as the main source for the rally is debatable. However, I think that without that report the day would have looked much different. Friday's Unemployment Report now has a bit more intrigue as the number will likely have more effect than I previously thought.
The Grain markets were independently strong as opportunistic Bulls took advantage of Tuesday's break to buy the entire Grain board despite some Bearish technical signals. Crude Oil made a $2.50 rally off of session lows as it followed the Equity markets after its 9:30 storage numbers. The Treasury markets were extraordinarily weak on the Equity rally, but still remain range bound over the last couple weeks. Finally, my main takeaway from yesterday is that the Euro and Metals (other than Copper) appear extremely soft in relation to the rest of the market. The Euro settled over 150 ticks lower and is now testing a critical support level. Meanwhile, both Gold and Silver may have settled near unchanged, but in relation to Tuesday's 12:30 pm close they are still severely lagged most other markets.
Today
As of 7 am the market is mixed, but the leader/laggard relationships throughout this week are still guiding the sectors. The Equity Sector is the strength again so far today while the Metals and Euro are the weaknesses. Crude Oil also looks a little worrisome with yesterday's rally possibly just a disguise.
Over the last couple months it seems like whenever I finally come to a macro direction conclusion that by the next day I look like an imbecile. This has proven to me that for right now it is incorrect to umbrella the broad market and assume that it is in sync. So instead for now it is necessary to focus just on the individual sector's and market's trajectory rather than the economy when trading.
The Equity market is strictly a buy for me right now because if I was looking to sell something I could come up with at least 10 better markets. The ferocity that Tuesday's sell off in the Grains was bought yesterday leads me to believe that the Grains should be looked at as strictly a buy into the summer. There may be times that you should not buy or hold a long, but I definitely do not want to get caught the wrong way in the short term when I am Bullish overall on the sector. The Metals and the Euro are the markets that are in trouble right now and, with some more confirmation, look like the best upcoming sales.
Buys to Watch:
Natural Gas- Natural Gas has not rallied above its breakout level yet, but I am impressed with the technical action in the market and there is a good pre-emptive entry setup for today. With confirmation above $4.635 the February contract would have an objective of $5.285. Although the market was rather weak yesterday it managed to form a base in the gap left over last weekend between $4.454 - $4.491 and has acted supportive since. For the daily chart the RSI indicator has a Bullish trend from the Dec. 16th - Dec. 27th that was encountered yesterday as well. This trend has held though and as long as it does then the market continues to look constructive. There is a low volume zone for long entry left from both yesterday and overnight from $4.511 - $4.535 with higher volume support from $4.462 - $4.510 for stop placement below. This morning Nat. Gas has traded into this low volume zone and has found support thus far. I recommend using just an initial position for entry today though as this is still a pre-emptive breakout trade.
Sells to Watch:
Put on the Radar:
Buy Gold vs. Sell Silver- To discuss this trade in greater depth I need to break down each market individually. Gold yesterday settled in violation of the neckline on a Bearish head and shoulders pattern from the low Nov. 16 - Dec. 16. Today this neckline has a value of $1381.0 with the target projection of $1298.9 for the pattern if confirmed. Furthermore, if Gold were to travel below $1361.6 then it would have a similar objective of $1298.8 on a Bearish cup and handle. To make a third coincidence, the 50% retracement from the low July 28 - Dec. 7 high is exactly $1297.7. If Gold settles below $1381 today then set $1299 as the next target, but beware that the sideways action over the last couple months provides a number of support levels. Silver spiked nearly 50 cents below the $29.05 Bull trend line from Aug 24 - Oct 22 yesterday, but still managed to rally back above this level for settlement. This trend has a value of $29.17 today, yet again it has found support this morning after spiking below this level on its open. RSI for the Silver daily chart settled yesterday at the lowest value since Aug. 23rd, which you will recall is the day prior to the beginning of the large rally. A move below 35 in RSI would mark a definite Bearish shift and is within shouting distance now. The 50% retracement level is $24.55 and the 38.2% retracment level is $26.13 as possible targets pending a Bearish move.
Gold and Silver are the Top 2 on my Bearish watch list, but because it is so difficult to trade and manage risk in either outright I am recommending this spread vehicle. Based on the differential (Gold - Silver/2) a move to both 50% retracement levels projects a move to $70 in favor of Gold. On my own calculation based on pattern objectives I also arrived at a similar value of $60 in favor of Gold. This makes my objective range for the trade $60 - $70 premium Gold. Until silver gives Bearish confirmation I will not move this trade to the Buy list. However, the last couple mornings between 5 - 7 am I have entered a small position based on the intraday chart for the session with a tighter stop loss (and actually taken a net profit out of it). If this move is going to breakout then it will happen around the 7:20 am Metal open and could leave those not already in in the dust. Stay out of the way today though...the support is busted.
Euro Testing Critical Support- The Euro is testing the base on its triangle range from the low Nov. 30 - Dec. 23 at 1.3096 this morning. The recent swing low also sits at 1.3050 to provide further support. So far the market has held up despite a spike below the trend base, making it less likely that the breakout occurs today. A move below 1.3050 would provide an initial objective range of 1.2669 - 1.2744. When you take into account the extended break from the high Nov. 4th though you can also produce an extended 2nd leg lower for the Euro that projects to 1.2144. I believe that if the move is confirmed then you look to take profits in the initial range and then re-evaluate.
Notes:
Yesterday
My thinking yesterday morning that a weak Commodity sector would spill over into the strength of the Equity market proved to be the opposite of what actually happened. Yesterday morning's ADP Employment Report jump started the Equity market off of its lows at 7:15 am to lead a Bullish charge for the broad market. Whether it was actually the ADP report or fresh allocation as the main source for the rally is debatable. However, I think that without that report the day would have looked much different. Friday's Unemployment Report now has a bit more intrigue as the number will likely have more effect than I previously thought.
The Grain markets were independently strong as opportunistic Bulls took advantage of Tuesday's break to buy the entire Grain board despite some Bearish technical signals. Crude Oil made a $2.50 rally off of session lows as it followed the Equity markets after its 9:30 storage numbers. The Treasury markets were extraordinarily weak on the Equity rally, but still remain range bound over the last couple weeks. Finally, my main takeaway from yesterday is that the Euro and Metals (other than Copper) appear extremely soft in relation to the rest of the market. The Euro settled over 150 ticks lower and is now testing a critical support level. Meanwhile, both Gold and Silver may have settled near unchanged, but in relation to Tuesday's 12:30 pm close they are still severely lagged most other markets.
Today
As of 7 am the market is mixed, but the leader/laggard relationships throughout this week are still guiding the sectors. The Equity Sector is the strength again so far today while the Metals and Euro are the weaknesses. Crude Oil also looks a little worrisome with yesterday's rally possibly just a disguise.
Over the last couple months it seems like whenever I finally come to a macro direction conclusion that by the next day I look like an imbecile. This has proven to me that for right now it is incorrect to umbrella the broad market and assume that it is in sync. So instead for now it is necessary to focus just on the individual sector's and market's trajectory rather than the economy when trading.
The Equity market is strictly a buy for me right now because if I was looking to sell something I could come up with at least 10 better markets. The ferocity that Tuesday's sell off in the Grains was bought yesterday leads me to believe that the Grains should be looked at as strictly a buy into the summer. There may be times that you should not buy or hold a long, but I definitely do not want to get caught the wrong way in the short term when I am Bullish overall on the sector. The Metals and the Euro are the markets that are in trouble right now and, with some more confirmation, look like the best upcoming sales.
Buys to Watch:
Natural Gas- Natural Gas has not rallied above its breakout level yet, but I am impressed with the technical action in the market and there is a good pre-emptive entry setup for today. With confirmation above $4.635 the February contract would have an objective of $5.285. Although the market was rather weak yesterday it managed to form a base in the gap left over last weekend between $4.454 - $4.491 and has acted supportive since. For the daily chart the RSI indicator has a Bullish trend from the Dec. 16th - Dec. 27th that was encountered yesterday as well. This trend has held though and as long as it does then the market continues to look constructive. There is a low volume zone for long entry left from both yesterday and overnight from $4.511 - $4.535 with higher volume support from $4.462 - $4.510 for stop placement below. This morning Nat. Gas has traded into this low volume zone and has found support thus far. I recommend using just an initial position for entry today though as this is still a pre-emptive breakout trade.
Sells to Watch:
Put on the Radar:
Buy Gold vs. Sell Silver- To discuss this trade in greater depth I need to break down each market individually. Gold yesterday settled in violation of the neckline on a Bearish head and shoulders pattern from the low Nov. 16 - Dec. 16. Today this neckline has a value of $1381.0 with the target projection of $1298.9 for the pattern if confirmed. Furthermore, if Gold were to travel below $1361.6 then it would have a similar objective of $1298.8 on a Bearish cup and handle. To make a third coincidence, the 50% retracement from the low July 28 - Dec. 7 high is exactly $1297.7. If Gold settles below $1381 today then set $1299 as the next target, but beware that the sideways action over the last couple months provides a number of support levels. Silver spiked nearly 50 cents below the $29.05 Bull trend line from Aug 24 - Oct 22 yesterday, but still managed to rally back above this level for settlement. This trend has a value of $29.17 today, yet again it has found support this morning after spiking below this level on its open. RSI for the Silver daily chart settled yesterday at the lowest value since Aug. 23rd, which you will recall is the day prior to the beginning of the large rally. A move below 35 in RSI would mark a definite Bearish shift and is within shouting distance now. The 50% retracement level is $24.55 and the 38.2% retracment level is $26.13 as possible targets pending a Bearish move.
Gold and Silver are the Top 2 on my Bearish watch list, but because it is so difficult to trade and manage risk in either outright I am recommending this spread vehicle. Based on the differential (Gold - Silver/2) a move to both 50% retracement levels projects a move to $70 in favor of Gold. On my own calculation based on pattern objectives I also arrived at a similar value of $60 in favor of Gold. This makes my objective range for the trade $60 - $70 premium Gold. Until silver gives Bearish confirmation I will not move this trade to the Buy list. However, the last couple mornings between 5 - 7 am I have entered a small position based on the intraday chart for the session with a tighter stop loss (and actually taken a net profit out of it). If this move is going to breakout then it will happen around the 7:20 am Metal open and could leave those not already in in the dust. Stay out of the way today though...the support is busted.
Euro Testing Critical Support- The Euro is testing the base on its triangle range from the low Nov. 30 - Dec. 23 at 1.3096 this morning. The recent swing low also sits at 1.3050 to provide further support. So far the market has held up despite a spike below the trend base, making it less likely that the breakout occurs today. A move below 1.3050 would provide an initial objective range of 1.2669 - 1.2744. When you take into account the extended break from the high Nov. 4th though you can also produce an extended 2nd leg lower for the Euro that projects to 1.2144. I believe that if the move is confirmed then you look to take profits in the initial range and then re-evaluate.
Notes:
Wednesday, January 5, 2011
Wednesday 1/5/10 Commodity Ideas
Opening Note:
Yesterday & Monday
On Monday the Equity markets led the rally to begin the new year with clearly the most new allocation. The Energy markets also looked relatively strong as well. There were some warning signs on Monday though as the Metals, Foreign Currencies, and Grains all struggled from their morning opens to post losses for the day in contrast to the strong stock market. Yesterday these warning signals proved relevant as the broad market fell under pressure as the morning began. Gold and Silver dropped $44 and $1.62 respectively, Corn led the Grains lower once again, and Crude Oil traded over $3 lower before a weak closing rally. The stock market still managed to settle near unchanged for the day, but gave back early gains and momentum from Monday's session.
Today
The broad market looks weak once again as every supportive Commodity I track is lower as of 6:50 am this morning. Wheat, Crude Oil, and Silver stand out as the laggards so far taking into account where Silver opened the evening session. There was very little rally bounce yesterday and just continued sinking overnight. I expect that we will see another large losing day for the Commodity markets that spills over into the Equities more today.
Expect Declines the Next Couple Weeks
Just like last year it appears that the market was over-allocated and over-optimistic heading into the new year. It just so happens that this year the market is also on the heels of a large broad rally since late August, when Quantitative Easing prospects first hit the market. The market action over the last 2 1/2 days has caused serious technical damage to some of the strongest markets over this time frame, as I will detail below. It has really been several months since the macro correlation has been this high and uniform directionally. For the next week or two I intend on being very cautious, but with a Bearish bias in regards to the physical Commodity markets. I believe the Equity Sector will remain the leader in the market, but it may be so as it declines itself.
I am still Bullish on Commodities and Equities throughout the year, especially the Grains. I think the dip this January will provide some great buying opportunities among the market. I just recommend being cautious on entering longs for a little while.
Late Note: This morning's ADP Employment number was rather Bullish and has provided a boost for the market off of its lows. This definitely sets a positive tone for the Friday report. Keep in mind though that the market has not traded along fundamental lines for a while and may not much past a gut reaction. Positive economic growth could actually be viewed as a negative signal for Commodity prices as much of the rally is tied to the notion that stimulus will continue to be infused into the market.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Gold vs. Sell Silver- For due diligence on this trade you need to look at a number of charts. First, notice that the Gold/Silver daily chart now has a confirmed negation of the overwhelming trend since August. Next, look at the differential (Gold - Silver/2) to see that the trend on this daily chart from Oct. 22 - Nov. 16 was also violated yesterday and is awaiting confirmation today. Finally, the long term Bullish trend for the Silver daily chart from the low Aug. 24 - Oct. 22 sits at $29.05 today as the market is testing this level currently. Right now I have 2 out of the 3 indicators that I would like to see before taking a larger position on this trade, with the Silver daily chart trend violation the last piece. I already have a small "feeler" position in this spread, but it is based off the intraday Bull trend this session and not something I am attached to if today is not the day.
The execution ratio I recommend for this trade is 1 Gold:1 Silver, which means a position that would be in line with the above differential chart. The parameters of risk/reward and time length for the trade are difficult to define for the time being, but I am basing my expectations around the Silver chart. If the Silver trend is violated then the 38.2% correction value is $26.13 and 50% is $24.55, which will be the range that I will be looking to take profits on the spread position is initiated. Be cautious for now because Silver may find support on this trend at least temporarily. More definitive terms to come once the trade is moved to the Buys.
Grains Looking Short Term Bearish- Several days ago both Corn and Soybeans turned technically Bearish as daily chart RSI violated its Bull trend and Stochastics produced sell signals in both cases. Corn has taken the harder hit and may continue to. The chart for Beans/Corn is nearing a Bullish breakout that has already been initiated on the chart for Beans - Corn/2 projecting to $2.50 in Beans favor. Yesterday Wheat also settled at a technically Bearish level on the daily chart. After failing on a rally above the December 7th high, the March contract settled below several Bull trend lines. RSI also violated its own trend with Stochastics and MACD also contributing sell signals. My expectation is that Wheat will travel into the gap left from $7.00 - $7.42 and Corn will look to establish a base between $5.64 - $5.90 for the March contract.
Remember that the next Grain report is January 12th and a number of fundamental analysts are calling for increases in demand and stock reductions for both Corn and Beans. I do not wish to be short heading into the report. This pullback should actually provide a good buying opportunity for the Grains going forward. Recall that Soybeans still have a weekly chart objective of $17 and I recommend looking at purchasing the July $16-$18 call spread once there is a base.
Natural Gas Possible Bullish Breakout- The Natural Gas market has large allocation inflows at the start of this year, boosting the market over the last week and a half. The February contract now is testing the $4.635 swing high that would produce an objective of $5.285. Natural Gas can be volatile and loves false breakouts, so I recommend waiting for two consecutive closes for confirmation prior to entry. It is possible that the allocation trade is losing steam, so just keep it on the radar.
Notes:
Why I am concerned for the Stock Market right now
Until yesterday I was on the Bullish side of the outright Equity markets. The failure on yesterday's 8:30 am open though and loss of momentum concerned me. The Copper and Australian Dollar daily charts now have me even more cautious. These two markets arguably have the highest correlation to the U.S. Equity markets over the last several months, and especially over the last month. Both Copper and the Aussie negated their Bullish trends over the last month and are unlikely to recover prior to today's close. This technically points to a continued correction in both markets and indicates Equities will move lower as well. I believe that Equities could easily maintain their strength relative to the broad Commodity markets going forward though.
Yesterday & Monday
On Monday the Equity markets led the rally to begin the new year with clearly the most new allocation. The Energy markets also looked relatively strong as well. There were some warning signs on Monday though as the Metals, Foreign Currencies, and Grains all struggled from their morning opens to post losses for the day in contrast to the strong stock market. Yesterday these warning signals proved relevant as the broad market fell under pressure as the morning began. Gold and Silver dropped $44 and $1.62 respectively, Corn led the Grains lower once again, and Crude Oil traded over $3 lower before a weak closing rally. The stock market still managed to settle near unchanged for the day, but gave back early gains and momentum from Monday's session.
Today
The broad market looks weak once again as every supportive Commodity I track is lower as of 6:50 am this morning. Wheat, Crude Oil, and Silver stand out as the laggards so far taking into account where Silver opened the evening session. There was very little rally bounce yesterday and just continued sinking overnight. I expect that we will see another large losing day for the Commodity markets that spills over into the Equities more today.
Expect Declines the Next Couple Weeks
Just like last year it appears that the market was over-allocated and over-optimistic heading into the new year. It just so happens that this year the market is also on the heels of a large broad rally since late August, when Quantitative Easing prospects first hit the market. The market action over the last 2 1/2 days has caused serious technical damage to some of the strongest markets over this time frame, as I will detail below. It has really been several months since the macro correlation has been this high and uniform directionally. For the next week or two I intend on being very cautious, but with a Bearish bias in regards to the physical Commodity markets. I believe the Equity Sector will remain the leader in the market, but it may be so as it declines itself.
I am still Bullish on Commodities and Equities throughout the year, especially the Grains. I think the dip this January will provide some great buying opportunities among the market. I just recommend being cautious on entering longs for a little while.
Late Note: This morning's ADP Employment number was rather Bullish and has provided a boost for the market off of its lows. This definitely sets a positive tone for the Friday report. Keep in mind though that the market has not traded along fundamental lines for a while and may not much past a gut reaction. Positive economic growth could actually be viewed as a negative signal for Commodity prices as much of the rally is tied to the notion that stimulus will continue to be infused into the market.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Gold vs. Sell Silver- For due diligence on this trade you need to look at a number of charts. First, notice that the Gold/Silver daily chart now has a confirmed negation of the overwhelming trend since August. Next, look at the differential (Gold - Silver/2) to see that the trend on this daily chart from Oct. 22 - Nov. 16 was also violated yesterday and is awaiting confirmation today. Finally, the long term Bullish trend for the Silver daily chart from the low Aug. 24 - Oct. 22 sits at $29.05 today as the market is testing this level currently. Right now I have 2 out of the 3 indicators that I would like to see before taking a larger position on this trade, with the Silver daily chart trend violation the last piece. I already have a small "feeler" position in this spread, but it is based off the intraday Bull trend this session and not something I am attached to if today is not the day.
The execution ratio I recommend for this trade is 1 Gold:1 Silver, which means a position that would be in line with the above differential chart. The parameters of risk/reward and time length for the trade are difficult to define for the time being, but I am basing my expectations around the Silver chart. If the Silver trend is violated then the 38.2% correction value is $26.13 and 50% is $24.55, which will be the range that I will be looking to take profits on the spread position is initiated. Be cautious for now because Silver may find support on this trend at least temporarily. More definitive terms to come once the trade is moved to the Buys.
Grains Looking Short Term Bearish- Several days ago both Corn and Soybeans turned technically Bearish as daily chart RSI violated its Bull trend and Stochastics produced sell signals in both cases. Corn has taken the harder hit and may continue to. The chart for Beans/Corn is nearing a Bullish breakout that has already been initiated on the chart for Beans - Corn/2 projecting to $2.50 in Beans favor. Yesterday Wheat also settled at a technically Bearish level on the daily chart. After failing on a rally above the December 7th high, the March contract settled below several Bull trend lines. RSI also violated its own trend with Stochastics and MACD also contributing sell signals. My expectation is that Wheat will travel into the gap left from $7.00 - $7.42 and Corn will look to establish a base between $5.64 - $5.90 for the March contract.
Remember that the next Grain report is January 12th and a number of fundamental analysts are calling for increases in demand and stock reductions for both Corn and Beans. I do not wish to be short heading into the report. This pullback should actually provide a good buying opportunity for the Grains going forward. Recall that Soybeans still have a weekly chart objective of $17 and I recommend looking at purchasing the July $16-$18 call spread once there is a base.
Natural Gas Possible Bullish Breakout- The Natural Gas market has large allocation inflows at the start of this year, boosting the market over the last week and a half. The February contract now is testing the $4.635 swing high that would produce an objective of $5.285. Natural Gas can be volatile and loves false breakouts, so I recommend waiting for two consecutive closes for confirmation prior to entry. It is possible that the allocation trade is losing steam, so just keep it on the radar.
Notes:
Why I am concerned for the Stock Market right now
Until yesterday I was on the Bullish side of the outright Equity markets. The failure on yesterday's 8:30 am open though and loss of momentum concerned me. The Copper and Australian Dollar daily charts now have me even more cautious. These two markets arguably have the highest correlation to the U.S. Equity markets over the last several months, and especially over the last month. Both Copper and the Aussie negated their Bullish trends over the last month and are unlikely to recover prior to today's close. This technically points to a continued correction in both markets and indicates Equities will move lower as well. I believe that Equities could easily maintain their strength relative to the broad Commodity markets going forward though.
Monday, December 27, 2010
Monday 12/27/10 Commodity Ideas (Mid-Day Edition)
Opening Note:
Over the Christmas holiday China finally raised interest rates 1/4 percent to back up months of speculation on the issue. This was an intentionally sneaky move as hints have been leaked for weeks to brace the market and minimal damage was done over the slow weekend. Most of the market is lower still at noon today, but I am very impressed with the price action following the news. The Energies, Equities, Metals, and Foreign Currencies are only slightly lower overall. Meanwhile, the Grain Sector is strong thanks to the Soybean market amid Argentinian weather concerns.
For months, if not years, I have read analysts that predicted this Chinese "bubble" burst as the next catalyst to for another Bearish global market wash lower. The rationale made sense to me on a certain level along with the some of the evidence provided. I have to say that I am completely underwhelmed by the market reaction thus far though. The first stone has dropped and the market could not be less concerned.
I am adamantly Bullish on Physical Commodities for the coming 2011 year, especially Soybeans and Grains in general. I was actually hoping for maybe a 50 cent break in Beans once China did begin to raise rates to piece into some July call options. The Soybean market has instead rallied off of the news with Beans trading 25 cents higher mid-day. Until the market reacts differently to Chinese inflation curbing I believe that you must trade the Commodity and Equity markets with a Bullish bias once 2011 begins. To begin the year I believe that the Energy (minus Natural Gas) and Grain Sectors will be the leaders.
For this week the market will be slow with the possibility for some rogue moves. Most trade ideas are on the radar for now. I will write again later this week if I have new observations or trade ideas, but this may be the letter for the week.
Buys to Watch:
March'11 - May'11 Soybean Spread (May-July Too)- Last Monday I called for the March - May Soybean spread to find a bottom between (-8) - (-9). On Tuesday the spread widened to -8 1/4 cents, but this was the low tick as the market has since reversed. Bullish fundamentals based on Argentinian weather, increased export sales, and supply concerns for the coming year have caused the outright Bean market to rally and this spread to come in recently. There is also sentiment that the USDA will tighten supplies on the upcoming Jan. 12th crop report. I still believe that his March - May as well as the May - July spread is a great vehicle to play the Bullish Soybean story for the 2011 year. I do not believe that March - May will widen past -8 again in the near term and will come in to at least -2 within the next month. The May - July should not widen past -3 1/4 as well and will likely at least test the November 12th high of 3 cents inverted. Continue piecing into Bull spreads each time they widen.
Sells to Watch:
Put on the Radar:
Weekly Soybean Chart- Last week the front month January Soybean contract made a second consecutive close above the $12.91 1/4 high from 2009. The weekly chart now has an objective of $17.03, which will likely be reached by July of 2011. The technicals combined with the fundamentals of the Soybean market combine to make a very strong Bullish case over the spring and summer of the coming year. I believe that Beans will at least reach $18 if not more before all is said and done in 2011. Now that there is technical confirmation I recommend building a Bullish options position on breaks in the market. I personally like the $16 - $18 July call spread trading roughly 30 cents as of today. I believe there is a strong possibility to triple or quadruple this initial risk.
Possible Gold Bearish Head and Shoulders- The daily Gold chart has now ditched its Bullish trend line and is trading in more of a sideways range over the last couple months. From the low on Nov. 26 - Dec. 16 there is a neckline for a Bearish head and shoulders pattern at $1356.7 today. Clearly it will not be initiated today, but the pattern projects a move of $75.9 from the breakout level.
Buy Crude Oil- I now have a 2nd leg target of $97.71 for February Crude Oil based on the daily chart. I believe that Crude will be the one of the strongest performers to begin the new year as new allocation flows into the lagging sector. A breakout below the 4 month range in the Gold/Crude Oil chart technically supports this theory as well. There is some moderate volume support from $90.18 - $90.44 that the market found a base near this morning prior to reversing. Any pullback based on China looks like a good opportunity to buy this market, so if there is another test of this support I believe it is worth an initial position.
Buy Yield Curve Flattening (Buy Bonds vs. Sell 5 Years)- To chart this spread enter (Bonds*3 - 5 Years *7). The daily chart is nearing a Bullish cup and handle breakout above -457.03 that projects a move to -451.15. The execution ratio for the trade is Long 3 Bonds vs. Short 7 Five Year Notes. Because this is nearly 1:2 you can also use this execution ratio for smaller positions if you convert the chart to (Bonds - 5 Year Notes *2). It is prudent to wait for 2 consecutive closes above the breakout for confirmation prior to entry so just keep this trade on the radar for now.
Notes:
Euro Has Not Made New Lows- For all the talk of a weak Euro or a 3rd leg lower the market still has not made a new low below the November 30th 1.2963 trade. Momentum now looks to possibly turn Bullish for the Euro with Stochastics and RSI both nearing buy signals on the daily chart. I am not looking at the Euro as a buy just yet, but I am definitely avoiding a short bias for now on this possible reversal. If the Euro trades above 1.35 within the next couple weeks then expect a move back to 1.40.
Over the Christmas holiday China finally raised interest rates 1/4 percent to back up months of speculation on the issue. This was an intentionally sneaky move as hints have been leaked for weeks to brace the market and minimal damage was done over the slow weekend. Most of the market is lower still at noon today, but I am very impressed with the price action following the news. The Energies, Equities, Metals, and Foreign Currencies are only slightly lower overall. Meanwhile, the Grain Sector is strong thanks to the Soybean market amid Argentinian weather concerns.
For months, if not years, I have read analysts that predicted this Chinese "bubble" burst as the next catalyst to for another Bearish global market wash lower. The rationale made sense to me on a certain level along with the some of the evidence provided. I have to say that I am completely underwhelmed by the market reaction thus far though. The first stone has dropped and the market could not be less concerned.
I am adamantly Bullish on Physical Commodities for the coming 2011 year, especially Soybeans and Grains in general. I was actually hoping for maybe a 50 cent break in Beans once China did begin to raise rates to piece into some July call options. The Soybean market has instead rallied off of the news with Beans trading 25 cents higher mid-day. Until the market reacts differently to Chinese inflation curbing I believe that you must trade the Commodity and Equity markets with a Bullish bias once 2011 begins. To begin the year I believe that the Energy (minus Natural Gas) and Grain Sectors will be the leaders.
For this week the market will be slow with the possibility for some rogue moves. Most trade ideas are on the radar for now. I will write again later this week if I have new observations or trade ideas, but this may be the letter for the week.
Buys to Watch:
March'11 - May'11 Soybean Spread (May-July Too)- Last Monday I called for the March - May Soybean spread to find a bottom between (-8) - (-9). On Tuesday the spread widened to -8 1/4 cents, but this was the low tick as the market has since reversed. Bullish fundamentals based on Argentinian weather, increased export sales, and supply concerns for the coming year have caused the outright Bean market to rally and this spread to come in recently. There is also sentiment that the USDA will tighten supplies on the upcoming Jan. 12th crop report. I still believe that his March - May as well as the May - July spread is a great vehicle to play the Bullish Soybean story for the 2011 year. I do not believe that March - May will widen past -8 again in the near term and will come in to at least -2 within the next month. The May - July should not widen past -3 1/4 as well and will likely at least test the November 12th high of 3 cents inverted. Continue piecing into Bull spreads each time they widen.
Sells to Watch:
Put on the Radar:
Weekly Soybean Chart- Last week the front month January Soybean contract made a second consecutive close above the $12.91 1/4 high from 2009. The weekly chart now has an objective of $17.03, which will likely be reached by July of 2011. The technicals combined with the fundamentals of the Soybean market combine to make a very strong Bullish case over the spring and summer of the coming year. I believe that Beans will at least reach $18 if not more before all is said and done in 2011. Now that there is technical confirmation I recommend building a Bullish options position on breaks in the market. I personally like the $16 - $18 July call spread trading roughly 30 cents as of today. I believe there is a strong possibility to triple or quadruple this initial risk.
Possible Gold Bearish Head and Shoulders- The daily Gold chart has now ditched its Bullish trend line and is trading in more of a sideways range over the last couple months. From the low on Nov. 26 - Dec. 16 there is a neckline for a Bearish head and shoulders pattern at $1356.7 today. Clearly it will not be initiated today, but the pattern projects a move of $75.9 from the breakout level.
Buy Crude Oil- I now have a 2nd leg target of $97.71 for February Crude Oil based on the daily chart. I believe that Crude will be the one of the strongest performers to begin the new year as new allocation flows into the lagging sector. A breakout below the 4 month range in the Gold/Crude Oil chart technically supports this theory as well. There is some moderate volume support from $90.18 - $90.44 that the market found a base near this morning prior to reversing. Any pullback based on China looks like a good opportunity to buy this market, so if there is another test of this support I believe it is worth an initial position.
Buy Yield Curve Flattening (Buy Bonds vs. Sell 5 Years)- To chart this spread enter (Bonds*3 - 5 Years *7). The daily chart is nearing a Bullish cup and handle breakout above -457.03 that projects a move to -451.15. The execution ratio for the trade is Long 3 Bonds vs. Short 7 Five Year Notes. Because this is nearly 1:2 you can also use this execution ratio for smaller positions if you convert the chart to (Bonds - 5 Year Notes *2). It is prudent to wait for 2 consecutive closes above the breakout for confirmation prior to entry so just keep this trade on the radar for now.
Notes:
Euro Has Not Made New Lows- For all the talk of a weak Euro or a 3rd leg lower the market still has not made a new low below the November 30th 1.2963 trade. Momentum now looks to possibly turn Bullish for the Euro with Stochastics and RSI both nearing buy signals on the daily chart. I am not looking at the Euro as a buy just yet, but I am definitely avoiding a short bias for now on this possible reversal. If the Euro trades above 1.35 within the next couple weeks then expect a move back to 1.40.
Monday, December 20, 2010
Monday 12/20/10 Commodity Ideas
Opening Note:
Trade Light
Talking about what happened yesterday or the day prior is less useful right now. What the markets are showing is an unclear picture that is full of chop day to day. The relationships between the markets make sense one morning, but little the next. The technicals and chart patterns are difficult because of the vast amount of reversals. And, there are many battling fundamental stories yet not one real one to override them all. There is a reason I have only had a couple trade suggestions for the entire month. As the second half of December begins I expect that the randomness will increase rather than retreat. I think it is smart to tighten up the reins now and make sure that this rangy December does not hit the account too hard before a fresh 2011 begins.
Treasury Talk
The one thing that is clear over the last month is that the Treasury markets are getting annihilated, with Bonds taking the biggest hit. I began calling for a technical top on the Bonds the latter half of October, but I was not expecting this much liquidation before the end of the year. A lot of big money was certainly caught off guard by the the violent reversal from the prevailing trend since April. The Bulls thinking was The Fed is continuing to purchase Treasuries with the intention of keeping rates low to stimulate the economy, therefore prices will rise. This logic has proved faulty over the last two months though and there are a number of reasons this could be.
First is the theory that interest rates are rising because we are seeing real improvement in the economy. As someone that studies the market relationships, I had a difficult time over the summer substantiating why exactly the Bond market was rallying out of "fear" yet the stock market and Commodities held their value relatively well at the same time. It is possible that this relationship is finally snapping back into line with the stock market prevailing. I definitely think that this is part of the story, but I have a difficult time buying into this as the driving idea until the data and Unemployment show bigger signs of growth. Second is the thought that comparatively the Treasury markets have less value at current levels than Commodities, Equities, or other assets. I agree with this assumption. However, since early November when Treasuries initiated their top we have not seen dramatic inflows into Equities, Commodities, or even the Dollar. Comparative value makes sense, but it is not the culprit here.
The third theory (and the one I buy the most for the current move) is that the outstanding U.S. debt has now reached a level that the Treasury markets are beginning to price in more risk. Fundamental analysts have predicted this scenario for years, but with QE 2 underway and the possibility of QE 3, 4, or 5 in the future the vigilantes might have finally woken up. If this turns out to be the real reason for the move then some interesting relationship reversals would occur in the market. Instead of the inverse relationship between Treasury prices and Equities we would likely see the two travel more in unison (U.S. debt concerns would likely mean weaker Equity markets). This would also be interesting for Commodity prices, which could rise as interest rates do on inflationary pressures. Treasury Prices Down, Equity Prices Down, Commodity Prices Up could be the new relationship standard...hmm.
Nothing is certain for now and I am just speculating. It is surely some combination of all 3 theories (and others) causing the current Treasury liquidation. The Treasuries are the sector to watch going forward though. I believe they will be the guide to the new market relationships once we get a better understanding of the driving factor for these Treasury moves.
Today
Nearly all of the markets are higher on the day, including even the risk aversion category. Cotton is already locked limit up as it has advanced to new yearly highs. The Grain markets are strong across the board after constructive closes in both Corn and Beans last week. The Euro is the clear laggard of the entire market this morning as it tests the lower end of its recent range. The Euro is the only market lower as of 7:30 am. After watching the Metal open this morning I also am underwhelmed by Silver's performance so far. It is still higher, but it is lagging to Gold. I expect Silver to be much stronger on a morning when my entire board is green, although it is still early.
Buys to Watch:
March '11 - May '11 Soybean Spread- The consensus believes that you begin bull spreading the Grain delivery spreads on the 3rd or 4th day of the Goldman Roll, which was around December 10th this month. Many spread traders began bull spreading the Jan/March spread from (-9) - (-10) and some of the bold ones have added more from (-10) - (-11). Now that it has leaked out past -11 though and out to -12 there is a lot of puking going on. It appears that many traders loaded their full position on this spread too early and are now running over each other to reduce the position size.
A perfect storm of cash, fundamentals, and over-subscription caused the Jan/Mch to move out so far. China dried up in the market and wants to stall cargo, cold weather has stalled the pipeline, overall exports continue to fall below expectations, and the commercials have not stepped in to cash in their profit yet . I think this is one of those times every couple years that if you sit out of the spreads that you can take advantage of an unusual opportunity.
Because Jan/March goes into delivery at the end of December, traders that are not on a membership can not take this position. If this is the case then bull spreading March/May is the way to take advantage. The same guys that are overloaded on the Jan/Mch are overloaded on the Mch/May as well and are puking as it moves further out than expected. We know though that China will come back into the market at some point despite their recent withdrawal and any sort of weather problems in South America or a Bullish Jan. Crop Report should bring Mch/May in. Technically this leg lower for the spread projects to - 8 1/2 and I expect that (-8) - (-9) will be the range where this spread bottoms out. For now I recommend piecing into the position between this range with the goal of putting half of a full position size on, or what you would feel comfortable holding for possibly several weeks. The spread is still in free fall, so it is wise to keep some ammo in case it does move out further. I believe that the prospect of a move in to -2 or better is likely over the next month and a half with a number of possible Bullish catalysts over that time frame.
Sells to Watch:
Put on the Radar:
January Soybean Meal Bullish Pattern- Two consecutive settlements above $353.8 for the January Soy Meal contract projects a move to new yearly highs of $374.6. Over the Soybean Bull trend the Bean Oil has outperformed the Meal, but for now the differential between the two products is correcting and does not favor the Oil. Daily chart Stochastics produced a Bullish cross over Friday and MACD looks like it may also produce a buy signal with a strong close today.
Gold Trend Violation...Or Not- The Bullish trend line on the daily chart for Gold from the low July 28- Nov. 16 was violated with two consecutive settlements lower Thursday and Friday. Despite hitting some patches of Bearish stops over the last two days the market has held up relatively well though. This morning Gold is trading back above the trend value of $1382.3 today. It looks like it is a waiting game for Gold now before a possible price correction. The trend continues to climb higher and the price of Gold will have to as well to avoid some liquidation. $1300 is near the 50% reatracement for the entire move since late July and is a likely target for a pullback if it occurs.
Silver Trend Still Strong, But Gaining- Gold's trend has been violated, but Silver's is still intact. Silver has adopted the trend from the low Nov. 17 - Nov. 29 that is sitting at $29.19 today. The major trend on the daily chart from the low Aug. 24 - Oct. 22 at $27.84 is also in good standing. For now it looks like the next short term move in Silver will be higher with an advance above $29.985 projecting to $31.62. However, if the price does decline below the recent $28.01 swing low then it would produce an objective of $26.04 and likely violate the major trend. Like Gold, Silver is a waiting game for now. The Bullish trend has extended for such a long time that the market is well overdue for a correction. Until a move outside the trading range is established though it is best to just watch and wait.
Gold/Silver Bear Trend Nearly Over- I have discussed the differential between Gold and Silver in the past, but since it has run through support I have removed it from my radar. The important chart for the Metals is now the ratio between the Gold and Silver. The bear trend from the high Aug. 23 - Oct. 22 sits at 47.24 today with today's settlement possibly violating this line for the first time since it was established. If this trend does end then it is a signal that the correction in Metals is on the horizon.
Notes:
Soybean Weekly Chart- For the first time this year Soybeans have made a front month contract weekly close above the $12.91 1/4 swing high from June 2009. On Friday the January contract settled at $12.98 3/4 in spite of a Bearish Informa report that predicted an increase in planted Bean acres versus Corn acres for 2011. A second consecutive weekly close above this level Friday would produce the longer term objective of $17.03 for Soybeans, likely some time in the Summer of 2011.
Trade Light
Talking about what happened yesterday or the day prior is less useful right now. What the markets are showing is an unclear picture that is full of chop day to day. The relationships between the markets make sense one morning, but little the next. The technicals and chart patterns are difficult because of the vast amount of reversals. And, there are many battling fundamental stories yet not one real one to override them all. There is a reason I have only had a couple trade suggestions for the entire month. As the second half of December begins I expect that the randomness will increase rather than retreat. I think it is smart to tighten up the reins now and make sure that this rangy December does not hit the account too hard before a fresh 2011 begins.
Treasury Talk
The one thing that is clear over the last month is that the Treasury markets are getting annihilated, with Bonds taking the biggest hit. I began calling for a technical top on the Bonds the latter half of October, but I was not expecting this much liquidation before the end of the year. A lot of big money was certainly caught off guard by the the violent reversal from the prevailing trend since April. The Bulls thinking was The Fed is continuing to purchase Treasuries with the intention of keeping rates low to stimulate the economy, therefore prices will rise. This logic has proved faulty over the last two months though and there are a number of reasons this could be.
First is the theory that interest rates are rising because we are seeing real improvement in the economy. As someone that studies the market relationships, I had a difficult time over the summer substantiating why exactly the Bond market was rallying out of "fear" yet the stock market and Commodities held their value relatively well at the same time. It is possible that this relationship is finally snapping back into line with the stock market prevailing. I definitely think that this is part of the story, but I have a difficult time buying into this as the driving idea until the data and Unemployment show bigger signs of growth. Second is the thought that comparatively the Treasury markets have less value at current levels than Commodities, Equities, or other assets. I agree with this assumption. However, since early November when Treasuries initiated their top we have not seen dramatic inflows into Equities, Commodities, or even the Dollar. Comparative value makes sense, but it is not the culprit here.
The third theory (and the one I buy the most for the current move) is that the outstanding U.S. debt has now reached a level that the Treasury markets are beginning to price in more risk. Fundamental analysts have predicted this scenario for years, but with QE 2 underway and the possibility of QE 3, 4, or 5 in the future the vigilantes might have finally woken up. If this turns out to be the real reason for the move then some interesting relationship reversals would occur in the market. Instead of the inverse relationship between Treasury prices and Equities we would likely see the two travel more in unison (U.S. debt concerns would likely mean weaker Equity markets). This would also be interesting for Commodity prices, which could rise as interest rates do on inflationary pressures. Treasury Prices Down, Equity Prices Down, Commodity Prices Up could be the new relationship standard...hmm.
Nothing is certain for now and I am just speculating. It is surely some combination of all 3 theories (and others) causing the current Treasury liquidation. The Treasuries are the sector to watch going forward though. I believe they will be the guide to the new market relationships once we get a better understanding of the driving factor for these Treasury moves.
Today
Nearly all of the markets are higher on the day, including even the risk aversion category. Cotton is already locked limit up as it has advanced to new yearly highs. The Grain markets are strong across the board after constructive closes in both Corn and Beans last week. The Euro is the clear laggard of the entire market this morning as it tests the lower end of its recent range. The Euro is the only market lower as of 7:30 am. After watching the Metal open this morning I also am underwhelmed by Silver's performance so far. It is still higher, but it is lagging to Gold. I expect Silver to be much stronger on a morning when my entire board is green, although it is still early.
Buys to Watch:
March '11 - May '11 Soybean Spread- The consensus believes that you begin bull spreading the Grain delivery spreads on the 3rd or 4th day of the Goldman Roll, which was around December 10th this month. Many spread traders began bull spreading the Jan/March spread from (-9) - (-10) and some of the bold ones have added more from (-10) - (-11). Now that it has leaked out past -11 though and out to -12 there is a lot of puking going on. It appears that many traders loaded their full position on this spread too early and are now running over each other to reduce the position size.
A perfect storm of cash, fundamentals, and over-subscription caused the Jan/Mch to move out so far. China dried up in the market and wants to stall cargo, cold weather has stalled the pipeline, overall exports continue to fall below expectations, and the commercials have not stepped in to cash in their profit yet . I think this is one of those times every couple years that if you sit out of the spreads that you can take advantage of an unusual opportunity.
Because Jan/March goes into delivery at the end of December, traders that are not on a membership can not take this position. If this is the case then bull spreading March/May is the way to take advantage. The same guys that are overloaded on the Jan/Mch are overloaded on the Mch/May as well and are puking as it moves further out than expected. We know though that China will come back into the market at some point despite their recent withdrawal and any sort of weather problems in South America or a Bullish Jan. Crop Report should bring Mch/May in. Technically this leg lower for the spread projects to - 8 1/2 and I expect that (-8) - (-9) will be the range where this spread bottoms out. For now I recommend piecing into the position between this range with the goal of putting half of a full position size on, or what you would feel comfortable holding for possibly several weeks. The spread is still in free fall, so it is wise to keep some ammo in case it does move out further. I believe that the prospect of a move in to -2 or better is likely over the next month and a half with a number of possible Bullish catalysts over that time frame.
Sells to Watch:
Put on the Radar:
January Soybean Meal Bullish Pattern- Two consecutive settlements above $353.8 for the January Soy Meal contract projects a move to new yearly highs of $374.6. Over the Soybean Bull trend the Bean Oil has outperformed the Meal, but for now the differential between the two products is correcting and does not favor the Oil. Daily chart Stochastics produced a Bullish cross over Friday and MACD looks like it may also produce a buy signal with a strong close today.
Gold Trend Violation...Or Not- The Bullish trend line on the daily chart for Gold from the low July 28- Nov. 16 was violated with two consecutive settlements lower Thursday and Friday. Despite hitting some patches of Bearish stops over the last two days the market has held up relatively well though. This morning Gold is trading back above the trend value of $1382.3 today. It looks like it is a waiting game for Gold now before a possible price correction. The trend continues to climb higher and the price of Gold will have to as well to avoid some liquidation. $1300 is near the 50% reatracement for the entire move since late July and is a likely target for a pullback if it occurs.
Silver Trend Still Strong, But Gaining- Gold's trend has been violated, but Silver's is still intact. Silver has adopted the trend from the low Nov. 17 - Nov. 29 that is sitting at $29.19 today. The major trend on the daily chart from the low Aug. 24 - Oct. 22 at $27.84 is also in good standing. For now it looks like the next short term move in Silver will be higher with an advance above $29.985 projecting to $31.62. However, if the price does decline below the recent $28.01 swing low then it would produce an objective of $26.04 and likely violate the major trend. Like Gold, Silver is a waiting game for now. The Bullish trend has extended for such a long time that the market is well overdue for a correction. Until a move outside the trading range is established though it is best to just watch and wait.
Gold/Silver Bear Trend Nearly Over- I have discussed the differential between Gold and Silver in the past, but since it has run through support I have removed it from my radar. The important chart for the Metals is now the ratio between the Gold and Silver. The bear trend from the high Aug. 23 - Oct. 22 sits at 47.24 today with today's settlement possibly violating this line for the first time since it was established. If this trend does end then it is a signal that the correction in Metals is on the horizon.
Notes:
Soybean Weekly Chart- For the first time this year Soybeans have made a front month contract weekly close above the $12.91 1/4 swing high from June 2009. On Friday the January contract settled at $12.98 3/4 in spite of a Bearish Informa report that predicted an increase in planted Bean acres versus Corn acres for 2011. A second consecutive weekly close above this level Friday would produce the longer term objective of $17.03 for Soybeans, likely some time in the Summer of 2011.
Tuesday, December 14, 2010
Tuesday 12/14/10 Commodity Ideas...Late Post
Opening Note:
Yesterday
In spite of the market strength yesterday an afternoon sell off in the Nasdaq caused the Equity Indices to settle near unchanged, or slightly lower for the session in the Nasdaq's case. The weekend news that China refrained from raising interest rates to curb inflation induced a bid in the risk trade. The Metals, Grains (especially Soybeans and Bean Oil), and the Australian Dollar all posted impressive gains with their higher correlations to Chinese demand. Both the Euro and Swiss Franc also moved significantly higher as short covering fueled the rally. The troublesome Commodity for the day proved to be Crude Oil and the rest of the Energies. Crude had a nice run to start the month of December, but continues to be a difficult long position to hold and a laggard in relation to the other Commodities.
Today
Yesterday's strength in the risk trade looked like it would continue early this morning. However, since 7 am the market has come under pressure. Of particular worry is the sell off on the open of the nearly always strong Silver, especially in relation to Gold. The Equity markets remain in slightly positive territory, but the weak Crude Oil and British Pound markets from yesterday have already reversed lower like Silver. The Foreign Currencies as a Sector appear to be the overall strength with the Australian Dollar, Euro, and Swiss Franc leading the gainers.
This afternoon is the FOMC meeting. Little is expected to develop as far as policy or interest rate change, but the focus will be on the language of the statement. I believe that there is very little chance the Fed delivers anything resembling Bearish news for the time being. They have already said that boosting the stock market to induce the wealth effect is something they are aiming for. It still appears that there is profit taking and position reduction going on in advance of the meeting. I am looking at this morning's correction as an opportunity though to possibly enter long positions in the strength markets of the Euro, Australian Dollar, Swiss Franc, or Equities. I also suggest still looking to buy the dips in the risk trade. For today I say this with trepidation though as the pullback looks like it could extend further this morning.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Australian Dollar Bullish Head and Shoulders- Yesterday the Australian Dollar settled above the .9825 lower breakout level and today is seeking an advance above the higher neckline value of .9864. If initiated and confirmed then the Aussie would have a projection range of 1.0226 - 1.0282 on the pattern. Overnight the Aussie found support right near this lower neckline and produced a base to rally from. Although the pattern is not confirmed there is a low risk entry setup today that I believe is worth a shot on an initial position. From .9830 - .9868 there is higher volume support for stop placement below with the low volume zone from .9870 - .9876 providing a good level for long entry.
Euro and Swiss Franc Bullish Targets- The Swiss Franc eclipsed its own swing high of 1.0293 to produce an objective of 1.0490. There is higher volume support in the Franc from 1.0338 - 1.0362 as a level to initiate long positions against today. The Euro however has travelled back below its swing high this morning on a possible reversal. Above 1.3428 the Euro has an objective of 1.3799. There is higher volume support from 1.3374 - 1.3992, but with a strong test already done this morning and a blip of trade below this I recommend holding off for today. The Aussie and Swiss Franc look like better trades at least for today with their entry parameters.
Dollar Index Bearish Head and Shoulders- The reason you see so many potential Currency buys right now is because the Dollar Index initiated its own Bearish head and shoulders pattern yesterday. The neckline for the pattern extends from the low Nov. 22 - Dec. 7 with a value of 80.05 yesterday. This neckline has an up slope making it unlikely that it is rejected, but for today the value is 80.15 for reference. Like the Euro, the entry parameters for the Dollar Index today are not looking great. It is wise to hold off until tomorrow for entry now. The long term objective for the pattern is 77.20.
Notes:
Yesterday
In spite of the market strength yesterday an afternoon sell off in the Nasdaq caused the Equity Indices to settle near unchanged, or slightly lower for the session in the Nasdaq's case. The weekend news that China refrained from raising interest rates to curb inflation induced a bid in the risk trade. The Metals, Grains (especially Soybeans and Bean Oil), and the Australian Dollar all posted impressive gains with their higher correlations to Chinese demand. Both the Euro and Swiss Franc also moved significantly higher as short covering fueled the rally. The troublesome Commodity for the day proved to be Crude Oil and the rest of the Energies. Crude had a nice run to start the month of December, but continues to be a difficult long position to hold and a laggard in relation to the other Commodities.
Today
Yesterday's strength in the risk trade looked like it would continue early this morning. However, since 7 am the market has come under pressure. Of particular worry is the sell off on the open of the nearly always strong Silver, especially in relation to Gold. The Equity markets remain in slightly positive territory, but the weak Crude Oil and British Pound markets from yesterday have already reversed lower like Silver. The Foreign Currencies as a Sector appear to be the overall strength with the Australian Dollar, Euro, and Swiss Franc leading the gainers.
This afternoon is the FOMC meeting. Little is expected to develop as far as policy or interest rate change, but the focus will be on the language of the statement. I believe that there is very little chance the Fed delivers anything resembling Bearish news for the time being. They have already said that boosting the stock market to induce the wealth effect is something they are aiming for. It still appears that there is profit taking and position reduction going on in advance of the meeting. I am looking at this morning's correction as an opportunity though to possibly enter long positions in the strength markets of the Euro, Australian Dollar, Swiss Franc, or Equities. I also suggest still looking to buy the dips in the risk trade. For today I say this with trepidation though as the pullback looks like it could extend further this morning.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Australian Dollar Bullish Head and Shoulders- Yesterday the Australian Dollar settled above the .9825 lower breakout level and today is seeking an advance above the higher neckline value of .9864. If initiated and confirmed then the Aussie would have a projection range of 1.0226 - 1.0282 on the pattern. Overnight the Aussie found support right near this lower neckline and produced a base to rally from. Although the pattern is not confirmed there is a low risk entry setup today that I believe is worth a shot on an initial position. From .9830 - .9868 there is higher volume support for stop placement below with the low volume zone from .9870 - .9876 providing a good level for long entry.
Euro and Swiss Franc Bullish Targets- The Swiss Franc eclipsed its own swing high of 1.0293 to produce an objective of 1.0490. There is higher volume support in the Franc from 1.0338 - 1.0362 as a level to initiate long positions against today. The Euro however has travelled back below its swing high this morning on a possible reversal. Above 1.3428 the Euro has an objective of 1.3799. There is higher volume support from 1.3374 - 1.3992, but with a strong test already done this morning and a blip of trade below this I recommend holding off for today. The Aussie and Swiss Franc look like better trades at least for today with their entry parameters.
Dollar Index Bearish Head and Shoulders- The reason you see so many potential Currency buys right now is because the Dollar Index initiated its own Bearish head and shoulders pattern yesterday. The neckline for the pattern extends from the low Nov. 22 - Dec. 7 with a value of 80.05 yesterday. This neckline has an up slope making it unlikely that it is rejected, but for today the value is 80.15 for reference. Like the Euro, the entry parameters for the Dollar Index today are not looking great. It is wise to hold off until tomorrow for entry now. The long term objective for the pattern is 77.20.
Notes:
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