Tuesday 2/23/10 Commodity Ideas

Opening Note:
With very little to report yesterday other than a large sugar break, the overnight market action has taken a different tone with downside volatility in a number of markets and the threat of violating uptrends over the last two and a half weeks. While European strength around 1 a.m. Central Time has been a theme that has spilled over into buying on the U.S. open for the last eleven days, it was market weakness on the European open this morning that has set the pace of the markets. While foreign currencies like the British Pound and Euro showed increasing strength until 1 a.m., by 3 a.m. they violently swung from significant gains on the day to moderate losses as Europe began trading. Furthermore, strengths like Copper and Crude Oil over the latest recovery also reversed from their highs on the session to lows that test the validity of their recent uptrends. While testing their uptrends and supporting them has been common in the commodity markets lately, today's action has a different tone than the rest of those days. The lows in commodities have often come around 1 a.m. followed by buying support that continued until around 12 p.m. on the U.S. session. Overnight it was highs followed by selling action that indicates that there is a less likely chance of support for the markets today. This is the first time I recall over the last 2+ weeks that this tone has been taken by the markets, which is why I will be keeping a close eye today on the violation of commodity market uptrends to look for opportunities to sell, rather than catching buying momentum moves on an intra-day level. Heading into the end of the month this week it is likely that some profit taking will occur. I would hold off on entering overnight positions for the beginning part of today as the market sorts out whether the recent trend in commodities and equities holds strong.


Buys to Watch:

Canadian Dollar vs. British Pound- The relationship trade set up a downtrend that held for nearly 24 hours, but since the early morning hours has had a nice recovery rally taking it back it's recent highs. Major support around from -6030 to -6050 easily held, while the pullback buy zone from -6000 to -5920 level was entered overnight fueling a rally beginning at 1 a.m. The weekly cup and handle pattern maintains a projection to -5188 with only a resistance spike to -5656 from last January standing in its path to completion. The previously mentioned buy zone still is a spot of entry, but has less strength with the market already reaching these levels. Below -6050 I would abandon the trade.

Sells to Watch: With many markets disregarding support and resistance levels I am hesitant to enter into short positions that are not relationship trades for the time being. In the put on the radar section I list some markets that I am watching as sells after confirmation.


Put on the Radar:

Ten Year or Five Year Note- I moved this out of the sells to watch section for right now because after a bearish head and shoulders technical breakout on Friday the markets have sat sideways to slightly up. I have the least amount of confidence in the head and shoulders pattern of any, and despite the markets now entering their sell zones, I have less confidence in the trade as downside momentum has been lost. The Ten Year Note has a neckline of 117.16 with a final projection to 116.00. A low volume sell zone entry sits between 117.10 and 117.145 with a proper stop probably being placed just above resistance at 117.23. The Five Year Note has a neckline of 116.09 today with a projection to 115.09. A low volume sell zone also sits between 116.05 and 116.085 with resistance around 116.13 to place a stop above. Note: I think that the success of this trade may depend largely on commodities holding their uptrends today. Over the last couple days the fixed income markets have resumed price movement contrary to commodity markets, so support of commodities should give this trade a better chance.

Copper- Using a trendline from the lows of Feb. 5th to the lows of Feb. 16th shows the largest amount of support touches while only having the lows of the Feb. 9th below the trend. Today the trend value is sitting at 330.30, with the market decidedly below this level currently. Today does not have the feel of a pullback "buy day" for Copper thus far and I do not have a good low volume support or entry point for this argument. As this market had one of the strongest recoveries over the last two weeks, I believe it has the potential to be one of the weakest. Because it trades such a low volume, entry and exit from the market can cause volatile swings. I would look at Copper as one of the best sells with a confirmed violation of it's trendline tomorrow.

Silver- Keeping the trendline the same as Copper provides a value of 16.10 for silver today, but another trend drawn from the lows on Feb. 5th to the lows of Feb. 12th gives another value of 15.99. The market has not violated these levels like Copper, supporting them thus far. Silver in comparison to many of the commodities has a flatter uptrend, with little price recovery on it's break over the last two weeks. I still have a bearish head and shoulders weekly projection to the low $14's that has not been reached yet, for some insight into a potential down move.

Crude Oil- Just for radar's sake, the trendline for Crude has a value of 7763 today.


Notes:

Grains- I remain fundamentally bearish on the soybeans and the wheat, but the bullish action over the last two days has caused me to remove them from the sells to watch list. While my sell values of 9.68 in beans and 5.14 in wheat caused temporary resistance in both markets, volatility carried prices beyond both of these levels at different times. Corn strength supported the other grains yesterday on a consolidation rally. I still feel strongly that both markets will at least test their contract lows in the coming months, but it may still be an uphill battle as speculative money may continue to enter in the spring. I do not have great levels to sell anymore and would rather focus on the other markets for right now, but with an eye on opportunities to sell in the future.