Tuesday 2/9/10 Commodity Ideas

Opening Note:
After showing some strength early yesterday, facilitated by momentum changing bottom buying, the stock market fell from it's highs later in the day to make anyone that was a buyer for the day a loser by the close. As I noted early yesterday the momentum swinging, quick bottom buying was in the market for the first half of the day. Take a peak at a 15 minute NASDAQ chart and notice the spiky bottoms anytime the market broke. Overnight the sentiment of the market has obviously changed from yesterday though. A fairly straight uptrend was established across the board that led many markets above yesterday's highs in a manner that looked like the market was eager to run short-covering buy stops. The foreign currency sector was one of the leaders in the charge with sizable corrections in most of the markets. The next two days should show whether this is just a couple day pullback to sell or an extended period of consolidation around these levels. While Crude and the Aussie violated their pattern breakout's a couple markets have entered their sell zones with a couple more close by. I would take a smaller shot at selling this two and a half day pullback while waiting to see if the market is in for a longer correction with new money stepping up to the plate.

Buys to Watch:

Bean Oil vs. Soymeal- The spread closed right below the Jan. 7th close of 1054, which when above I believe should gain momentum. The weekly chart looks highly bullish and the fundamental story is supportive of bean oil as well. With the market undergoing a bullish correction the grains have been able to post gains in an oversold market. I believe soybeans should correct to between $9.60 and $9.70, and the gains in the market should favor the oil vs. the meal.

Sells to Watch:

Copper- What was one of the weaker markets since mid-January became a warning signal of strength on Friday and now has a two and a half day rally pullback. It is currently sitting in a low volume sell zone between 2.93 and 2.96, but I believe an accurate stop should be put above 2.98. Copper has led the moves so if this is a two day pullback I would expect copper to be one of the first markets to show it. This is currently my number one sell today as a barometer for the rest of the market and because a fairly tight risk can be put on it. Other markets have sell zones slightly higher, but copper should show weakness here if those are to be sold. It is day 10 now after the breakout, so if this is a 20 day move this is a great spot to sell it.

S&P 500- The S&P 500 chart appears to be barely eking out the Dow as the worst looking index chart right now. The financials continue to be the most worrisome sector of the stocks and should have more of the bearish news story as the year goes on. The S&P has a low volume sell zone from 1077.50 to 1083.50, but I am looking more at the upside leading NASDAQ for a spot to sell the S&P against. The NASDAQ has low volume price action from 1757 to 1768 and as this has been the leader on strong days I would look at this spot to sell the S&P against as it may not reach it's own sell zone.

Put on the Radar:

Crude Oil- As I suspected it might, crude oil went and took out it's pattern breakout of $72.40. This has been a theme in crude over the last year with downside moves followed by small ranges and volatile upswings. I put a lot less credence in this upswing than the ones in the past though. Last week the market was unable to hold a rally into the up channel that crude has travelled in for the second half of last year and I believe it is only a matter of time till the new buyers become losers as crude travels to $60. A low volume sell zone sits between $74.00 and $74.50 if the market rallies to it, but the trade obviously needs to clean out a few more shorts before it moves lower.

Australian Dollar- This is pretty much the same story as the crude oil with the chart looking fairly identical. The downside breakout of 8655 was violated but I still believe that it is a matter of time before the move to 8055 continues after some shorts are removed from the market. It is currently sitting in a low volume sell zone from the break last Thursday that extends to 8750. If you are looking to sell this one I would put a stop around 8790 to give a little room, but beware as buying is strong today and crude may have more room to lead the Aussie upward.

Euro/Yen- Finally the cross has a decent sized rally correction. Short covering in the Euro after reaching it's second leg projection of 136.50 has led the correction in the spread. I have low volume sell zones in the Euro from 137.90 to 138.20 and from 138.55 to 138.70 so I look for the correction to continue to around these levels. The downside move on the Euro/Yen still is significant and I expect that a rally pullback and continuation down will follow.

Notes:

Silver- If the commodity break continues I still expect silver to be one of the weakest markets. I have a low volume sell zone between $15.70 and $16.10, which could be reached on running stops if crude rallies into the $74 range. The head and shoulders projection to the low $14's is still in place as it has not been reached.

Meats- I do not follow the meats closely and do not have a great grasp on the fundamentals of the market, but if you have a chart that you would like me to look at technically shoot me an email. With the market still heavily pit traded I have kept it off my radar on the screen other than the swine flu hog market.

Summary:
Keep an eye on the Copper today as it should be an indicator and leader of the next move as it was on the rally the last two days. It it holds above 2.98 a larger rally correction and consolidation is in order and I would hold off on selling the other pullback zones as other markets reach them.