Wednesday 2/10/10 Commodity Ideas

Opening Note:
After overnight action yesterday that was strong and steady up, the stock market and commodities opened near their highs in the morning Tuesday. But, after repeated attempts at dip buying failed the market reversed to a lower trend before slipping in some Greece at around 10:30 AM. I am not one to validate conspiracy theories and tend to keep my own to myself, but no more than five minutes after I said to a friend, "If they take out the intraday low one more time this is going to get ugly" did the rumor news of the EU bailing out Greece come to light. The news came as downside momentum was building and immediately caused a short covering rally that brought stocks and commodities to new highs on a large Euro rally and Dollar Index break. Looking back on it, the overnight uptrend that went from Monday's low close straight to above it's highs seems oddly foreboding of the news, and the timing of the rumor release could not have come at a better time for bulls holding losers on the precipice of a larger break. Information is evenly disseminated though, so we know this is obviously just coincidence....just saying. Done with my rant now; overnight many of the markets have held gains despite a break before the close. The market is watching news on a Greece bailout closely and because I am not a specialist on trading rumors I myself am staying flat as an increasingly volatile market tries to figure out which direction it is heading in what I will call volatile consolidation. Because I am technically and fundamentally bearish right now I can not recommend buying into the rally yet, but would strongly discourage fighting money flow. Other than copper, which flew out of the top, a number of the sell zones that I listed yesterday have held strong despite the news and I will continue to list some as points of reference and entry if you choose. But, while flight itineraries can swing the market I would wait until things become more clear and would advise that unless they are in the Buys or Sells to Watch category they are do at your own risk for right now.

Buys to Watch:

Bean Oil vs. Soy Meal- The oil share had a nice rally yesterday as it eclipsed the Jan. 7th high of 1054 and despite a break overnight I am still looking for places to buy as the chart is breaking out. Crude oil saving itself from a downward projection to $60 should be looked at as more bullish the oil due to the energy relationship. The supply/demand report yesterday confirmed a bearish overtone and subsequent market reaction for soybeans, which I believe hurts the spread's possibilities for upside potential. As long as the beans maintain there $8.90 support level though the oil share should fine. The next resistance level is 1177 from the Nov. 16th high close and I would use 1050 now as support.

Sells to Watch:

July-November Soybean Spread- This one may be in the one day too late category for optimal entry as I noticed it a half hour after the newsletter was sent yesterday. Including yesterday's high the inter-crop spread now has a four point top trendline from it's highs on December 15th, which is a good reference for stop placement as it sits today at 38 1/4. With the supply and demand report for grains released yesterday and an adequate amount of soybeans to prevent a supply shortage on top of the huge South American crop I am bearish the spread. With the March-May and May-July spreads sitting at a carry it is odd to me that July-Nov remains at such a premium. I know there are some fundamental/cash traders and analysts that believe there still is a possible shortage this year, which has held it up, but I believe that it should roll at a carry. Be aware that on days that outright soybeans rally the spread often rallies off of this action, whether it is right, wrong, or even fundamentally bearish the spread.

Put on the Radar:

S&P 500- The S&P 500 was again the loser in gains among the stock indexes yesterday. The rally on the Greece rumor reached 1077, just below my sell zone from 1077.5 to 1083.5. The NASDAQ however traced my sell zone from 1757 to 1768 nearly perfectly before breaking out of it. With the NASDAQ being the strength on buying days I would pay attention to it's sell zones closely and use them to execute in the S&P 500 as the financial sector continues to weigh the S&P down, giving it less upside pop and failure at reaching it's own sells. As I said in the opening note be cautious here as the news can change direction quickly, but after failing to hold larger gains yesterday this is one of the better sells. It is looking like a buy the rumor, sell the fact that fundamentals are still not good.

Silver or Copper- After being hammered for the past two weeks the metals have had a nice rally rebound over the last three days. Silver has almost reached my low volume sell zone from $15.70 to $16.10 and should continue to be one of the weakest commodities if they break. The silver was propped up on inflation speculation over the last year and has a lot of room still to break. The head and shoulders weekly top projection still maintains to the low $14's The copper, which I believed yesterday should lead the way down in commodities, ran above my sell zone from 2.93 to 2.96 on the Greece news. The trade looked to be working well however until the short covering took hold in this thinner market. I have a small sell zone around 3.035 and another from 3.06 to 3.08. I am looking at this 3 to 4 day rally as a possible flag on the move from Jan. 27th to Feb. 5th that broke over 50 cents. Depending on where the rally stops would put the flag projection at 2.50 to 2.40 as long speculation unwinds further.

Euro/Yen Cross- A two day rally in the Euro/Yen took the spread into 124 on the YR CQG chart, but still held the psychological 125 resistance level. It is down over 100 ticks again today to the around 122.50 and looks like it may have the ability to continue out of the bottom. Until there is an actual plan to save Greece I am selling the fact that the Euro's fundamentals remain weak. Even if there is a Greece bailout the EU is setting a dangerous precedence that could leave them caught when Ireland and Portugal show up with palms open. Bailing out Greece in my mind is similar to the U.S. government bailing out Ohio, and because the EU countries' economies, like the states, are intertwined this is only a band-aid on the bigger picture. the next support level is the 120.68 low and the psychological 120 level. Continue to keep this on your screen as a proxy for where equities are heading in the coming months.

Notes:

Australian Dollar and Crude Oil- This has turned into pretty much an identical frustrating and tough trade. The markets both set off their breakout downside patterns with the Aussie projection to 8055 and Crude to $60, but both rallied out of the top of their patterns and look like they are creating a small right shoulder on their trek downwards. Crude resistance sits from $74.00 to $74.50 and the Aussie has resistance at 87.50 to 87.70. Both held these zones, but the rallies after their breakouts have been strong as money is willing to own them. I would take these off your list of things to trade right now because they can be volatile and I do not think the environment is right to try and predict where they will quit rallying. Wait for the double top breakout again to look for a place to sell.