Commodity Ideas Thursday 2/11/10

Opening Note:
Overnight commodities and equities have shown moderate strength with Copper, Aussie Dollar, Crude and Soybeans showing the most. It appears right now that the real game going on is more money flow than reason, making whatever the funds decide to come into long the real story for the day. The currencies, copper, crude, and to a lesser degree the stock indexes also seem to have a pretty good game of buy against the low uptrend going on right now. Despite some strong buying coming back into the market most of these rallies have done little to make up the difference in last week's losses across the board and currencies, which originally were the catalyst for the market break this year, look more like a triangle consolidation formation than a true rally. I have my eyes focused more on the currencies right now as they could again start a breakout to reluctantly lead the rest of the market. As long as the bulls have levels to buy against they will continue to, and often times with market running size. I would not focus on picking a top to sell in the market right now, but would hold out for downside breakouts from consolidation to wait to execute, as going with the money is much easier in this environment. I remain bearish on the overall market still and would only recommend buying against support on a day trade level as I believe that this rally does not look or feel like the ones from last year that really swung the market to new highs. Be cautious as news from the EU on the Greece bailout should continue to come out, which could be the catalyst either way out of this consolidation.

Buys to Watch:

Bean Oil vs. Soy Meal- The trade is becoming tired and reluctant to hold higher moves. Support still rests at 1050 with resistance at the November 16th high of 1177. As soybeans and crude have rallied I believed that the bean oil should have been supported more along with it's fundamental story, but the spread has sat mostly sideways to slightly up. I am close to taking this off the buys list as I believe that time can be focused better elsewhere in the coming days.

Sells to Watch:

July- November Soybean Spread- Depending on what you snap your topside trendline to it sits at 39 1/2 or 37 3/4 today. After failing hard on Monday and Tuesday against these levels, Wednesday painted a different picture as a strong rally all day ended with a close of 39 cents, just off the highs. Overnight the market rallied to 40 1/4, but fell back a cent and half before the 7:15 a.m. close. I do not feel as good about this trade as I did yesterday and I have my stop at 42 1/4. Above this level it should continue to rally and it is time to forget about it for a while. I believe that the fundamentals are bearish overall for the spread though as Chinese demand will likely begin to wane and with an enormous South American crop there is little reason to tighten the U.S. supplies. This will be one to revisit later in the spring if it rallies above 42 cents right now.

Put on the Radar:

Canadian Dollar vs. British Pound- The leader and the lagger in the currency market seems to change on a daily basis, but these two currencies have remained consistently strong and weak with less counter-move volatility. Looking at the weekly differential chart, other than a couple spikes the current level is above almost all of the price action for the last year, and basically in traded history. Like it did during the equity break in '08, the British Pound continues to be weak with the worries about Europe also spreading to the U.K. this is basically in open water right now historically and has a nice steady uptrend with the Canadian being relatively stable among the currencies. I believe this is a great relationship play on further market downside with minimal longer term risk.

Euro/Yen Cross- As I am writing this the Euro is breaking out below it's consolidation bottom trendline of 137.12 today and the Euro/Yen is resting on it's own at 12286. I believe the Euro/Yen should at least replicate it's move from Feb. 3rd to Feb. 5th if it holds it's breakout taking it to around 118 on the YR symbol CQG chart. With the Japanese Yen nearing the deflate the currency, government intervention 115 level I expect most of the Euro/Yen move to come from Euro downside and not Yen gains. As stocks tend to follow this spread, with about a month lag, a continuation downwards projects awfully for equities.


Notes:

I had a breakfast meeting this morning and am running out of time now, but I wanted to list a couple more resistance levels across the board for reference if they hold. I still recommend waiting for downside consolidation breakouts instead of trying to sell highs, but if you catch a long momentum run these are also levels to take profits. Please send me a message if you would like me to look at an individual market or chart as I did not have a lot of time to cover the board today.

NASDAQ (to sell S&P off of)- Resistance remains from 1757 to 1768 as the market had difficulty rallying into and holding these levels.

Silver- 15.70 to 16.10 is a large sell zone

Copper- $3.06 to $3.08

Crude Oil- A small sell zone at $76.10 with larger resistance at $76.75 - $76.80