Commodity Ideas Friday 2/5/10 From 7:15 AM (Late Post)

Opening Note:
With a huge downside move in the Euro/Yen cross yesterday and continued liquidation in metals, equities, and most other commodities it has become very clear to me that a large scale exodus out of riskier assets is under way. One of the more interesting notes on the action yesterday is that despite a $50 fall in gold, over a $4 drop in crude oil, and a 35 point lower close in the S&P 500, that the markets had little to no rally bounce off of their lows intra-day. Gartman often states that even a dead cat bounces when dropped, but yesterday was evidence that sometimes it just lies flat. Markets like crude and the stock indexes found support at their lows from last Friday's close as large protective buy orders flowed into the market to save the closes. This money action leads me to believe that there is some big money that was not expecting a break of this magnitude this early in the year and that many of them are caught with large open long positions left to liquidate as the market falls further. The only thing that the bulls have left to hold onto right now is this morning's unemployment report, which I believe whether bullish or bearish will likely set off further liquidation today as markets fail at key levels. Just for repetition's sake, I do not encourage holding long positions in commodities or equities other than the Dollar Index, Japanese Yen, and Treasuries.

Buys to Watch:

Dollar Index- The Dollar Index continued it's climb yesterday with a strong two day rally out of a low volume pullback. It has already reached my minimal projection of 8050 but I still have a projection to 8200 and I believe that if stubborn commodity markets like crude oil fail below critical levels that 8200 is still a modest projection as market participants run to the safety of the Dollar.


Sells to Watch:

Silver- In one of the more brutal moves I have seen in a long time silver added another $1 down to it's 2 day continuation out of a rally pullback, bringing the 2 day break to $1.40. As I stated in my opening note, I believe metals are currently the weakest sector with their continued drop in open interest. As bear markets develop metals are often one of the leaders down and I expect the break in silver to continue. A head and shoulders weekly formation projects to the low $14 range, which like the dollar index, is a modest projection if the other commodities begin large liquidation.

Australian Dollar or Euro- Again, it is take your pick of which currency is worse. The Australian Dollar sneakily had a larger percentage down day yesterday than the Euro, but I believe you can not go wrong shorting either one. The Aussie set off a weekly double top below 8665 that projects to 8055. The Euro has reached my initial projection of 136.50 and without having a reliable pattern projection I believe that the Euro continues to between 125 and 128 by extrapolating the Aussie projection.

NASDAQ- It is definitely the most volatile index of the bunch and I believe that it has the most downside potential. Like the currencies above I do not think you will go wrong picking any of the indexes to short though. The NASDAQ closed right near it's low from last Friday of 1731.75 and after this support is breached it is in free fall.

Crude Oil- Energies have been one of the more resilient performers with a large bounce off of their swing low during the beginning of the week but with an easy breakout entry point I put this one in the sells now. Below 72.40 on the March contract a top formation quickly leads the market back to $60 and with a poor unemployment number entry should be easy.

Copper- Pretty much no bounce in the market as it continues to have concrete shoes on. From the rumors I hear there are more longs with large positions caught in this market than the others, which is evidence from the large open interest drop and continued sliding. Look for half day pullbacks to sell this as it appears to have little bullish news to rally on.

Put on the Radar:

Euro/Yen Cross- I already covered it in my midday update yesterday, but one of the largest moves ever in the euro/yen. It looks like it has the potential to continue back down to the base levels it set in January and February of last year as it bottomed prior to the end of the stock market crash, and should not find much support until then.

Treasuries- A bullish reversal yesterday as commodities and equities headed into liquidation mode. I am not too confident that this will have the same momentum move as the other markets though as I believe the liquidation in commodities will be larger than the run into treasuries.

Notes:

Grains- I am running out of time so briefly I do not believe the rally in grains from yesterday will hold up. The grains were the only commodity that closed higher on my board yesterday and I believe it was due to fund money and reallocation out of energies and metals that caused it. Beans have a support level of $8.90, but I think it is just a hope that it will hold as the rest of the world heads into liquidation. *If you are looking at buying the Bean Oil vs. Meal shoot me a response and I can give you my brief opinion on it as I had a couple requests yesterday to look at it.