Looking back over the newsletters for the last week I realize that I may not have properly stressed the risk of carrying Grain positions into reports. I apologize if there was any confusion or if you felt you were not properly warned as the report had a significant impact on the Grain market. Also, to clarify, all market suggestions and trade ideas were made this morning prior to analyzing the Grain report as any Grain analysis is likely not valid anymore.
You have most likely already looked at the report, but there obviously was very little bullish news to take from it. The old crop Soybean market was severely caught off guard this morning as bullish sentiment was building in the market going into the report. There was a tri-fecta of long covering on the open as money with long outright positions, beans vs. corn spreads, and old crop vs. new crop spreads scrambled to liquidate. This made for a very attractive short on the open in the May and July contracts if you came into the report flat Soybeans. The May contract already looks like it may have found support for the day, but there is stronger support from $9.23 1/2 to 9.27 near the lows of the range this month.
The July - November Soybean spread completely tanked on the open today as the stocks number was bearish against a prospective planting number that was near the average market prediction. Furthermore, there are rumors today that strides have already been made in resolving the Argentina strike situation. I do not see any reason to be bullish July-Nov anymore and would not recommend buying it because any potential further gains appear limited after the break.
For May Corn I still have a bearish head and shoulders pattern intact that has a projection to $3.30 1/2. I also have a continuation leg down projection for May Wheat to $4.48. Although the May Soybeans look disastrous the biggest story of the day is the break in Soy Meal. The Meal chart looked even better than the Soybeans, so it took most of the downside brunt on the long covering break opposed to the Bean Oil.
On important Grain report days in the future I intend on providing a market update after analyzing the reports prior to the open so any Grain trades and predictions are up to date. I will also give more ample risk warning leading up to the report so that more passive Grain traders are not caught off guard.
Wednesday, March 31, 2010
Wednesday 3/31/10 Commodity Ideas
Opening Note:
Yesterday was a very quiet day volatility wise for the market and other than some Currency jiggles there was not much to report from yesterday. Overnight the market is moderately supportive thus far, with the Dollar Index down and Commodity markets firmer. The stock indexes are weaker than Commodities right now, which is a small emerging trend. After leading the way for much of the last two months Equities have lagged behind the other correlated markets despite supportive macro price movement. Right now I am keeping my eye closely on the Euro/Yen Cross Rate, which is a good indicator of macro market and Commodity direction. Using the YR symbol chart on CQG, the Euro/Yen has a bullish cup and handle pattern that has set off today on a rally above the sideways base from the last two months. The breakout on the pattern was 125.13 with a projection to 129.26. Looking at the individual pieces of this rate it appears that a bearish move in the Yen is the catalyst for this move with the Euro sitting in more uncertain sideways territory. This move is an indicator of strength for the overall market and especially for Commodities as they have a tighter correlation to the Currency market than Equities currently. Because of this move I recommend caution when trying to short the market for the next couple weeks. There are a number of bullish Commodity patterns right now, so I would focus on looking for momentum strength to buy and taking profits on decent moves as continuation is uncertain on the recent moves. The important Grain stocks and prospective plantings report is this morning at 7:30 as well, and the Grains will trade this news, so do not get caught in the dark.
Buys to Watch:
July - November Soybean Spread- Port and trucker strikes in Argentina have begun to spread, as was rumored over the last couple weeks. This fundamental news is very bullish the inter-crop spread at least for the short term and should support the technical double bottom pattern further. With a breakout from 40-45 cents the double bottom pattern has a projection range that has a projection range from 60 to 75 cents. Yesterday the spread settled well above the 50 cent resistance level and old school technicals dictate that a move above 50 leads to 75 cents. However, there is moderate resistance at the 60 cent level, so this is the next level to watch. I have a small low volume zone from 50 to 50 1/4 cents, which was entered as the bottom overnight, with stronger support from 47 to 49 for stop placement. Note: The stocks and prospective plantings report is this morning. A bullish stocks number is obviously supportive of the spread, but a supportive prospective plantings number could also continue the spread rally on its own. May Soybeans are on the cusp of a bullish cup and handle pattern this morning with a breakout of 9.76 1/2 and a projection to 10.11 1/4. Bullish report numbers should rally the outright market as well, leading the spread higher.
Cocoa- Like yesterday I still have two separate bullish cup and handle pattern breakout levels with differing projections. The more modest cup and handle had a breakout level of $2929 with a projection to $3076 and the larger pattern had a breakout of $2963 with a projection to $3144. Yesterday the market broke into the low volume buy zone that I was watching and found support in the overnight gap between 2940 and 2944, closing near the high of it's range yesterday. The market is again stronger this morning and with a higher close will confirm these patterns. I have a lower volume entry level from 2958 to 2966 from yesterday's action with mild support from 2951 to 2957 as well. While open interest has not had a huge spurt during this move it has increased on a trending scale during much of the formation of Cocoa's base over the last month. Stochastics momentum indicator has also confirmed the buy signal from two days ago as well.
Crude Oil (or Heating Oil)- Crude has a bullish double (or triple) bottom technical pattern on it's daily chart that has a breakout of $83.36 and a projection to $87.18. I believe that there are still a number of shorts in the market after last week's "commodity leg down" fake out, which is fueling the rally through short covering. Stochastics produced a buy signal on Monday, which was confirmed yesterday, and Open Interest appears to be increasing and falling with price as a sign of a strong bull market. I would wait for the breakout and possibly confirmation before entering a position. It is likely that if this move is to happen with conviction that it should happen today. The Heating Oil has a similar, and possibly stronger, chart than the Crude right now so this could be the same trade with some added edge as the RBOB looks weaker.
Sells to Watch:
Japanese Yen- The Yen has sat on the radar the last couple days, but is finally ripe for selling. The topping pattern that can most closely be associated with a double top had a breakout level of 108.60 with a projection to 104.10. Yesterday the Yen rallied just above the low volume sell zone from 108.30 to 108.50 into the resistance from 108.50 to 109.00, but topped at 108.60 before closing near it's lows. This morning the Yen again has rallied off of it's lows and I am watching the first low volume sell zone of 107.43 to 107.56 with greater resistance above from 107.60 to 107.82. A rally above this resistance takes the market into another low volume pocket from 107.86 to 107.92 with better resistance from 108.00 to 108.20. As I stated in the Opening Note the Euro/Yen cross is on a bullish pattern move now so the Yen should continue to weaken.
Put on the Radar:
Copper- Despite stronger Commodities this morning Copper is having difficulty holding prices above the old high contract trade of 355. The RSI momentum indicator is approaching overbought territory now showing some potential weakness in the product right now. Although it did settle above this level at 366.35 I would wait for further confirmation to look at buying this strength.
Silver- Although Copper is the strength in the Metal sector I am watching Silver for possible momentum on a short covering rally. Above $17.60 Silver has a projection to $18.65. Overnight the 17.60 breakout level was tested, but failed. Stochastics now has a confirmed buy signal in Silver from two days ago, but the Metals have been a tricky trade as of lat with many false patterns. Another encouraging indicator though is that the Gold versus Silver ration (Gold - Silver/2) has a downside move out of it's consolidation range indicating Silver strength. I am looking for a strong breakout on the pattern to buy the momentum and would hold off on executing a long if the move is not decisive.
Dollar Index- Although the Dollar had a nice rebound out of dangerous territory yesterday it has again given up overnight and sits on the precipice of negating it's third leg bullish continuation. The final support level is from 81.00 to 81.15 with a move below this support negating the 83.48 projection. I believe that if the Euro/Yen cross continues to rally that the Dollar will break into its range from the last two months.
Notes:
Five Year Note- With a rally this morning I am taking the 5 Year Note off of the sell list. It has sat in or just below the low volume zone from 114.215 to 114.245 and has finally rallied into higher resistance over a 4 day span. This no longer is a strong sell despite the bearish head and shoulders pattern as it has sat idle to higher for too long.
Yesterday was a very quiet day volatility wise for the market and other than some Currency jiggles there was not much to report from yesterday. Overnight the market is moderately supportive thus far, with the Dollar Index down and Commodity markets firmer. The stock indexes are weaker than Commodities right now, which is a small emerging trend. After leading the way for much of the last two months Equities have lagged behind the other correlated markets despite supportive macro price movement. Right now I am keeping my eye closely on the Euro/Yen Cross Rate, which is a good indicator of macro market and Commodity direction. Using the YR symbol chart on CQG, the Euro/Yen has a bullish cup and handle pattern that has set off today on a rally above the sideways base from the last two months. The breakout on the pattern was 125.13 with a projection to 129.26. Looking at the individual pieces of this rate it appears that a bearish move in the Yen is the catalyst for this move with the Euro sitting in more uncertain sideways territory. This move is an indicator of strength for the overall market and especially for Commodities as they have a tighter correlation to the Currency market than Equities currently. Because of this move I recommend caution when trying to short the market for the next couple weeks. There are a number of bullish Commodity patterns right now, so I would focus on looking for momentum strength to buy and taking profits on decent moves as continuation is uncertain on the recent moves. The important Grain stocks and prospective plantings report is this morning at 7:30 as well, and the Grains will trade this news, so do not get caught in the dark.
Buys to Watch:
July - November Soybean Spread- Port and trucker strikes in Argentina have begun to spread, as was rumored over the last couple weeks. This fundamental news is very bullish the inter-crop spread at least for the short term and should support the technical double bottom pattern further. With a breakout from 40-45 cents the double bottom pattern has a projection range that has a projection range from 60 to 75 cents. Yesterday the spread settled well above the 50 cent resistance level and old school technicals dictate that a move above 50 leads to 75 cents. However, there is moderate resistance at the 60 cent level, so this is the next level to watch. I have a small low volume zone from 50 to 50 1/4 cents, which was entered as the bottom overnight, with stronger support from 47 to 49 for stop placement. Note: The stocks and prospective plantings report is this morning. A bullish stocks number is obviously supportive of the spread, but a supportive prospective plantings number could also continue the spread rally on its own. May Soybeans are on the cusp of a bullish cup and handle pattern this morning with a breakout of 9.76 1/2 and a projection to 10.11 1/4. Bullish report numbers should rally the outright market as well, leading the spread higher.
Cocoa- Like yesterday I still have two separate bullish cup and handle pattern breakout levels with differing projections. The more modest cup and handle had a breakout level of $2929 with a projection to $3076 and the larger pattern had a breakout of $2963 with a projection to $3144. Yesterday the market broke into the low volume buy zone that I was watching and found support in the overnight gap between 2940 and 2944, closing near the high of it's range yesterday. The market is again stronger this morning and with a higher close will confirm these patterns. I have a lower volume entry level from 2958 to 2966 from yesterday's action with mild support from 2951 to 2957 as well. While open interest has not had a huge spurt during this move it has increased on a trending scale during much of the formation of Cocoa's base over the last month. Stochastics momentum indicator has also confirmed the buy signal from two days ago as well.
Crude Oil (or Heating Oil)- Crude has a bullish double (or triple) bottom technical pattern on it's daily chart that has a breakout of $83.36 and a projection to $87.18. I believe that there are still a number of shorts in the market after last week's "commodity leg down" fake out, which is fueling the rally through short covering. Stochastics produced a buy signal on Monday, which was confirmed yesterday, and Open Interest appears to be increasing and falling with price as a sign of a strong bull market. I would wait for the breakout and possibly confirmation before entering a position. It is likely that if this move is to happen with conviction that it should happen today. The Heating Oil has a similar, and possibly stronger, chart than the Crude right now so this could be the same trade with some added edge as the RBOB looks weaker.
Sells to Watch:
Japanese Yen- The Yen has sat on the radar the last couple days, but is finally ripe for selling. The topping pattern that can most closely be associated with a double top had a breakout level of 108.60 with a projection to 104.10. Yesterday the Yen rallied just above the low volume sell zone from 108.30 to 108.50 into the resistance from 108.50 to 109.00, but topped at 108.60 before closing near it's lows. This morning the Yen again has rallied off of it's lows and I am watching the first low volume sell zone of 107.43 to 107.56 with greater resistance above from 107.60 to 107.82. A rally above this resistance takes the market into another low volume pocket from 107.86 to 107.92 with better resistance from 108.00 to 108.20. As I stated in the Opening Note the Euro/Yen cross is on a bullish pattern move now so the Yen should continue to weaken.
Put on the Radar:
Copper- Despite stronger Commodities this morning Copper is having difficulty holding prices above the old high contract trade of 355. The RSI momentum indicator is approaching overbought territory now showing some potential weakness in the product right now. Although it did settle above this level at 366.35 I would wait for further confirmation to look at buying this strength.
Silver- Although Copper is the strength in the Metal sector I am watching Silver for possible momentum on a short covering rally. Above $17.60 Silver has a projection to $18.65. Overnight the 17.60 breakout level was tested, but failed. Stochastics now has a confirmed buy signal in Silver from two days ago, but the Metals have been a tricky trade as of lat with many false patterns. Another encouraging indicator though is that the Gold versus Silver ration (Gold - Silver/2) has a downside move out of it's consolidation range indicating Silver strength. I am looking for a strong breakout on the pattern to buy the momentum and would hold off on executing a long if the move is not decisive.
Dollar Index- Although the Dollar had a nice rebound out of dangerous territory yesterday it has again given up overnight and sits on the precipice of negating it's third leg bullish continuation. The final support level is from 81.00 to 81.15 with a move below this support negating the 83.48 projection. I believe that if the Euro/Yen cross continues to rally that the Dollar will break into its range from the last two months.
Notes:
Five Year Note- With a rally this morning I am taking the 5 Year Note off of the sell list. It has sat in or just below the low volume zone from 114.215 to 114.245 and has finally rallied into higher resistance over a 4 day span. This no longer is a strong sell despite the bearish head and shoulders pattern as it has sat idle to higher for too long.
Tuesday, March 30, 2010
Tuesday 3/30/10 Commodity Ideas
Opening Note:
Yesterday was an interesting day for the strength of commodities and foreign currencies, but the lack of volatility in Equities and the yield curve stood out as odd with a market that was in motion. Much of the commodity strength was likely based on short covering rallies. Early last week I was on the commodity leg down bandwagon as well, so it is understandable to me that there were still a lot of shorts out there waiting on a Metal or Energy break. The weakness of the Dollar also fed into this rally. However, this Commodity and Currency move should have supported Equity prices more than it did. The stock indexes continue to post small gains on higher closes, but I have been skeptical of the continuation of this trend for a while now as we approach nearly two straight months of the same action. Keep an eye on the Commodity versus Equity sector relationship to see if stronger Commodities than Equities is an emerging trend. This relationship could be an indicator for market direction as the new quarter and allocation begin. The new leg up on the Dollar Index has now come under serious pressure as it needs to have a rally rebound soon if it is to continue. With the European Currencies trading the daily restructuring news and the Aussie and Canadian strength on Commodities I recommend sitting out of the Currency sector for the time being until things become more clear on a Dollar Index leg up. With all of this taken into account I am still expecting sideways to firmer trade across the market. With Copper, Silver, and Crude rejecting bearish patterns and now on the precipice of larger rally breakouts, and old crop Soybeans and other Food products showing bottom reversal strength, I believe Commodities have more short covering rally potential and should show strength for the next few days.
Buys to Watch:
July - November Soybean Spread- The Soybean spread continued to show strength yesterday with a breakout above the 45 cent level and a close of 49 cents that tested the high close since last summer of 49 1/4 cents from December 15th. Fundamental news of South American strike rumors has been quiet lately, but technically the chart is very strong. The double bottom pattern with a projection range from 60 to 75 cents is now in motion with a close above 45 cents yesterday and is looking for confirmation on another higher close today. The 50 cent level now stands as resistance in the face of a rally with the next level of resistance at 60 cents. Old school wisdom usually says July - Nov above 50 cents means 75 cents though, so this is likely the spread's destination if it clears the 60 cent resistance. I have a tiny low volume area at 44 3/4 and 45 cents for a place of entry on a pullback with greater support from 42 to 44 1/2. Note: Keep an eye on the old crop (May and July) Soybean outright charts. They appear to have a potential bottom to rally off of that would support the spread, but likely will not breakout until after tomorrow's report.
Cocoa- After sitting in a sideways range for nearly a month Cocoa finally looks like it has formed a base and is rallying to new highs above it's cup and handle breakout. I have two separate pattern breakouts and projections for the May contract right now based off the high close day of the range and the high trade, so there is a range of projections. The high close cup and handle pattern's breakout is $2929 with a projection to $3076 and the high trade pattern's breakout is $2963 with a projection to $3144. This provides a projection range from $3076 to 3144. Stochastics momentum indicator produced a buy signal yesterday, which is looking for confirmation today on higher trade. Also, similarly to the Copper market that had a rally explosion yesterday, open interest has steadily climbed throughout this month long base indicating a coiling of momentum. I have a low volume pullback buy zone from 2925 to 2945 with a small trade gap between 2940 and 2944 and with support from 2920 to 2890 for stop placement. You can also look at the minor support on the intraday chart today from 2950 to 2960 if you feel that the earlier pullback will not be achieved.
Sells to Watch:
Five Year Note- After establishing it's bearish head and shoulders pattern last week the Five Year has basically been a sleeper since. Entering it's third consolidation day after rejecting lower prices I believe that the market needs to continue lower by tomorrow or I will abandon the trade. The head and shoulders pattern had a breakout level of 115.01 with a projection to 113.21. The market has again entered the low volume sell zone today between 114.215 and 114.245 with stronger resistance above from 114.25 to 114.295. I would be tempted to just place my stop above the 114.25 level to limit the trade to a small loss if it trades above yesterday's action, but still have good reward if the market finally starts to break today.
Put on the Radar:
Buy Copper- Copper is now the obvious leader in the Metal sector and arguably the leader of all Commodities. Yesterday's close of 353.55 is the new high close for the May contract. The bullish cup and handle pattern has now reached it's projection of 355.15 this morning on a stop running rally to new contract highs above 355. I recommend taking profits on this trade now, but keeping it on your radar now as it is possible that market strength continues with more short covering potential. The previous high trade was 355 so I would look at a close above this level as continuation on a new leg and to look for long reentry spots. This is also a good indicator of Commodity direction as the leader.
Buy Silver- Despite Copper being the leader in the Metals I still have my eye on Silver because it could have strong short covering rally potential. Gold had a pretty dull day yesterday with a gain of only $6, but Silver closed with gains of nearly 50 cents. The Gold versus Silver ratio (Gold - Silver/2) had a breakout below consolidation displaying further Silver strength, and therefore Commodity strength in my opinion, as Silver has more volatility on Commodity sector moves. Open interest has also trended upwards on the sideways action with another strong gain yesterday displaying a coiling of momentum. I am weary of the Silver because it has been tricky with a number of bullish and bearish breakout attempts so I would look for a strong breakout on a short covering rally to buy the Silver. I am focusing on the $17.60 level at the top of this month's range, which has a projection to $18.65. This last shoulder is also awkward with a larger dip so the projection level is not as likely to be reached as most cases.
Dollar Index- The Dollar Index has it's final strong support from 81.15 to 81.00. I would take a break in the market below 81.00 as a sign that the Dollar is not continuing on a third leg up and rather heading back into the range that it traded for nearly the last two months. While you could get great value and risk/reward buying against this support I would recommend waiting for some signs of strength before looking to get long. With Commodities showing signs of strength it is fundamentally feasible that the Dollar weakens back into a range trade. The third leg up has a projection to 83.48 if it continues.
Notes:
Sugar and Coffee- Both Sugar and Coffee look like they have rally potential. The Sugar has a reversal cup and handle pattern breakout that it traded above this morning, but has subsequently failed. The small pattern breakout is 17.91 with a projection to 19.40. I do not know how to properly describe the Coffee chart right now, but the new leg on the base looks kind of like a parabola, or a market that creeps up exponentially. I would look to buy these markets rather than sell them now.
Yesterday was an interesting day for the strength of commodities and foreign currencies, but the lack of volatility in Equities and the yield curve stood out as odd with a market that was in motion. Much of the commodity strength was likely based on short covering rallies. Early last week I was on the commodity leg down bandwagon as well, so it is understandable to me that there were still a lot of shorts out there waiting on a Metal or Energy break. The weakness of the Dollar also fed into this rally. However, this Commodity and Currency move should have supported Equity prices more than it did. The stock indexes continue to post small gains on higher closes, but I have been skeptical of the continuation of this trend for a while now as we approach nearly two straight months of the same action. Keep an eye on the Commodity versus Equity sector relationship to see if stronger Commodities than Equities is an emerging trend. This relationship could be an indicator for market direction as the new quarter and allocation begin. The new leg up on the Dollar Index has now come under serious pressure as it needs to have a rally rebound soon if it is to continue. With the European Currencies trading the daily restructuring news and the Aussie and Canadian strength on Commodities I recommend sitting out of the Currency sector for the time being until things become more clear on a Dollar Index leg up. With all of this taken into account I am still expecting sideways to firmer trade across the market. With Copper, Silver, and Crude rejecting bearish patterns and now on the precipice of larger rally breakouts, and old crop Soybeans and other Food products showing bottom reversal strength, I believe Commodities have more short covering rally potential and should show strength for the next few days.
Buys to Watch:
July - November Soybean Spread- The Soybean spread continued to show strength yesterday with a breakout above the 45 cent level and a close of 49 cents that tested the high close since last summer of 49 1/4 cents from December 15th. Fundamental news of South American strike rumors has been quiet lately, but technically the chart is very strong. The double bottom pattern with a projection range from 60 to 75 cents is now in motion with a close above 45 cents yesterday and is looking for confirmation on another higher close today. The 50 cent level now stands as resistance in the face of a rally with the next level of resistance at 60 cents. Old school wisdom usually says July - Nov above 50 cents means 75 cents though, so this is likely the spread's destination if it clears the 60 cent resistance. I have a tiny low volume area at 44 3/4 and 45 cents for a place of entry on a pullback with greater support from 42 to 44 1/2. Note: Keep an eye on the old crop (May and July) Soybean outright charts. They appear to have a potential bottom to rally off of that would support the spread, but likely will not breakout until after tomorrow's report.
Cocoa- After sitting in a sideways range for nearly a month Cocoa finally looks like it has formed a base and is rallying to new highs above it's cup and handle breakout. I have two separate pattern breakouts and projections for the May contract right now based off the high close day of the range and the high trade, so there is a range of projections. The high close cup and handle pattern's breakout is $2929 with a projection to $3076 and the high trade pattern's breakout is $2963 with a projection to $3144. This provides a projection range from $3076 to 3144. Stochastics momentum indicator produced a buy signal yesterday, which is looking for confirmation today on higher trade. Also, similarly to the Copper market that had a rally explosion yesterday, open interest has steadily climbed throughout this month long base indicating a coiling of momentum. I have a low volume pullback buy zone from 2925 to 2945 with a small trade gap between 2940 and 2944 and with support from 2920 to 2890 for stop placement. You can also look at the minor support on the intraday chart today from 2950 to 2960 if you feel that the earlier pullback will not be achieved.
Sells to Watch:
Five Year Note- After establishing it's bearish head and shoulders pattern last week the Five Year has basically been a sleeper since. Entering it's third consolidation day after rejecting lower prices I believe that the market needs to continue lower by tomorrow or I will abandon the trade. The head and shoulders pattern had a breakout level of 115.01 with a projection to 113.21. The market has again entered the low volume sell zone today between 114.215 and 114.245 with stronger resistance above from 114.25 to 114.295. I would be tempted to just place my stop above the 114.25 level to limit the trade to a small loss if it trades above yesterday's action, but still have good reward if the market finally starts to break today.
Put on the Radar:
Buy Copper- Copper is now the obvious leader in the Metal sector and arguably the leader of all Commodities. Yesterday's close of 353.55 is the new high close for the May contract. The bullish cup and handle pattern has now reached it's projection of 355.15 this morning on a stop running rally to new contract highs above 355. I recommend taking profits on this trade now, but keeping it on your radar now as it is possible that market strength continues with more short covering potential. The previous high trade was 355 so I would look at a close above this level as continuation on a new leg and to look for long reentry spots. This is also a good indicator of Commodity direction as the leader.
Buy Silver- Despite Copper being the leader in the Metals I still have my eye on Silver because it could have strong short covering rally potential. Gold had a pretty dull day yesterday with a gain of only $6, but Silver closed with gains of nearly 50 cents. The Gold versus Silver ratio (Gold - Silver/2) had a breakout below consolidation displaying further Silver strength, and therefore Commodity strength in my opinion, as Silver has more volatility on Commodity sector moves. Open interest has also trended upwards on the sideways action with another strong gain yesterday displaying a coiling of momentum. I am weary of the Silver because it has been tricky with a number of bullish and bearish breakout attempts so I would look for a strong breakout on a short covering rally to buy the Silver. I am focusing on the $17.60 level at the top of this month's range, which has a projection to $18.65. This last shoulder is also awkward with a larger dip so the projection level is not as likely to be reached as most cases.
Dollar Index- The Dollar Index has it's final strong support from 81.15 to 81.00. I would take a break in the market below 81.00 as a sign that the Dollar is not continuing on a third leg up and rather heading back into the range that it traded for nearly the last two months. While you could get great value and risk/reward buying against this support I would recommend waiting for some signs of strength before looking to get long. With Commodities showing signs of strength it is fundamentally feasible that the Dollar weakens back into a range trade. The third leg up has a projection to 83.48 if it continues.
Notes:
Sugar and Coffee- Both Sugar and Coffee look like they have rally potential. The Sugar has a reversal cup and handle pattern breakout that it traded above this morning, but has subsequently failed. The small pattern breakout is 17.91 with a projection to 19.40. I do not know how to properly describe the Coffee chart right now, but the new leg on the base looks kind of like a parabola, or a market that creeps up exponentially. I would look to buy these markets rather than sell them now.
Monday, March 29, 2010
Monday 3/29/10 Commodity Ideas
Opening Note:
Following a quiet day on Friday other than the currencies, the market is firmer this morning with a supportive foreign currency rally leading Commodities and Equities higher. One thing that is clear to me is that the broad Commodity sector is not heading towards a correlated leg down right now. While it appeared early last week that bearish patterns in the Metal sector could be the leader down on a weaker market, they have corrected the last 3 days, rallying back into their sideways range for the last month. As the quarter comes to an end over the last three days I suspect that the market will trade sideways to slightly higher as it is unlikely that a strong leg down will begin. Starting Thursday there will likely be some new allocation and position adjustment, which should hopefully shake up this sideways action. Many of the inter-sector correlations throughout the market are not too active, so I do not see a lot of profitable spreads between outright products across the market currently. However, there are some individual outright markets with patterns and pullbacks for entry right now. Repeating what I said Friday, I believe that looking for half day and 1 day trades and taking profits once you catch a decent sized move are the best strategies right now. Much of the market is sitting in a range trade with tomorrow often looking different than today, so do not expect large continuation moves in this environment.
Buys to Watch:
Copper- Copper was in this buy section on Friday, but could not gather the momentum to rally above it's breakout last week. This was a different story overnight though with a strong move after the open setting the market in motion. The bullish cup and handle pattern has a breakout of 343.60 with a projection to 355.15. There is low volume buy zone from 344.30 to 345.40 with mild support below to the breakout level for entry on a pullback. The first level of resistance is 348.70 from the high of the recent range on March 1st, which was eclipsed as I am writing this just prior to 7 am. Technically the market has a number of qualities that make it an attractive buy. Stochastics provided a buy signal on Friday, which should be further confirmed today on the strong action. Furthermore, open interest continues to climb, showing a "coiling of momentum" over the sideways action, with a 3% increase on Friday to just under a total of 140,000 contracts. The projection of the pattern is right to the previous contract highs and after being a strength for much of last year Copper could have the momentum to slingshot above these levels to regain it's Commodity leader qualities.
July - November Soybean Spread- After a strong rejection on the breakout attempt on Thursday the market recovered nicely Friday and is firmer overnight as well. Fundamentally based on South American labor strikes and exporting inefficiency and strong Chinese demand, the spread has a technical double bottom with a breakout between 40 and 45 cents with a projection zone from 60 to 75 cents. Before finding strength on Friday the spread briefly pulled back into the low volume zone I was looking for between 33 1/2 and 35 cents. I look at the brief entry and support at these levels as another sign of continued strength. Sitting around 44 cents currently there is support from 40 1/4 to 42 cents. However, there is a low volume zone from 38 1/2 to 40 cents for an opportunity to buy a dip in the spread. A close above 45 cents is strictly a go with move with the next temporary resistance level at 50 cents on it's rally to the projection.
Dollar Index- After a weak day Friday and a lower open yesterday evening the Dollar Index has pulled back into the low volume zone I have had my eye on for the last several trading sessions. The 3rd leg up has an estimate final projection of 83.48. This current low volume zone sits between 81.49 and 81.63 with medium support below from 81.48 to 81.40, which has supported the market thus far today. Be cautious of this trade though because below 81.37 there is another low volume area that does not have strong support until 81.15. Although it is a strong one this is still just a 2 day pullback for the market and I expect it to continue a rally from these levels towards it's third leg projection.
Sells to Watch:
Five Year Note- The Five Year Note has been quiet the last few days after breaking out on it's bearish head and shoulders pattern, but has finally rallied into the low volume zone I have had my eye on. The head and shoulders pattern had a breakout of 115.01 with a projection to 113.21 with the neckline of the pattern sitting at 115.03 today. The low volume zone between 114.215 and 114.245 with resistance above from 114.25 to 114.295 was briefly entered on this morning's highs. While the 10 Year and Bonds both also have bearish projections presently, the Five Year has been the most consistent with less volatile swings. The Bonds have acted as the tail on a large yield curve swing and is therefore less predictable in my opinion, so I recommend executing a short in the Five Year still.
Put on the Radar:
Euro- I have more confidence in the Dollar Index trade right now, so I am keeping the Euro on the radar for right now. As I warned on Friday, the market rallied all the way back to the 1.35 level after rallying above 1.3430. There is stronger resistance at and just above 1.35 to enter a short position against. The Euro still remains broken out on a bearish leg down that has a rough estimate projection to 1.2750. The Euro is not particularly strong this morning with the Aussie and Canadian having much larger percentage gains so far, so I still believe that it is a decent shot to sell at this previous breakout level with the expectation that the leg down continues.
Japanese Yen- Slightly under the radar compared to the Euro, the Yen may actually be the better sell. It is very quiet thus far today, but has not had the same rally pullback as the other currencies over the last two days and has a bearish pattern intact. The breakout below 108.60 on the double top pattern has a projection to 104.10. There is a good low volume sell zone between 108.30 and 108.50 with resistance above from 108.50 to 109.00 that was entered both Friday and overnight Note: Because the Japanese Yen has an interest rate related carry trade, where you can borrow cheaper in Japan and invest for a higher rate of return elsewhere, I have noticed an interesting correlation that is very strong right now. The Japanese Yen has an artificial boundary top around the 115 level where the government has repeatedly intervened to devalue the currency. Taking this into account put the Japanese Yen and Five Year chart up side by side and compare. They are nearly identical lately. With the Five Year in a bearish head and shoulders pattern you can use it as an indicator right now for Yen movement with a continuation in the 5 likely leading the Yen further down.
Sugar- Sugar looks like it might have found a bottom after the large-scale collapse over the last month and a half. I would hold off on entry for the time being, but keep it on your radar because there are good prospects for a sizable rally correction.
Notes: (We can just call this the grain section today)
Corn- With the stocks and prospective plantings report release on Wednesday and a supportive macro market I am concerned that the Corn will not continue it's bearish head and shoulders pattern. The breakout level was 3.59 and provides a projection to 3.30 1/2 with the neckline sitting at 3.58 1/2 today on the pattern. The Corn does not have a good resistance level until just above 3.60, so I believe that it will likely test these levels and likely will not have the catalyst to break further prior to the report.
Bean Oil- The flag pattern on the daily chart has a projection to 37.63 with the breakout line on the pattern at 39.35 today. Like the Corn I am not to keen on the prospects of continuation in the market prior to the report. There is resistance above the current market from 39.28 to 39.33, which could be a decent short term fade, but I would not position for a long term trade currently prior to the report Wednesday.
Soybeans- After the large down day Thursday the Soybeans have continually strengthened into this morning. The market finally has rallied to the first decent resistance level from 9.60 to 9.64, which could be a decent short term fade against these levels today.
Following a quiet day on Friday other than the currencies, the market is firmer this morning with a supportive foreign currency rally leading Commodities and Equities higher. One thing that is clear to me is that the broad Commodity sector is not heading towards a correlated leg down right now. While it appeared early last week that bearish patterns in the Metal sector could be the leader down on a weaker market, they have corrected the last 3 days, rallying back into their sideways range for the last month. As the quarter comes to an end over the last three days I suspect that the market will trade sideways to slightly higher as it is unlikely that a strong leg down will begin. Starting Thursday there will likely be some new allocation and position adjustment, which should hopefully shake up this sideways action. Many of the inter-sector correlations throughout the market are not too active, so I do not see a lot of profitable spreads between outright products across the market currently. However, there are some individual outright markets with patterns and pullbacks for entry right now. Repeating what I said Friday, I believe that looking for half day and 1 day trades and taking profits once you catch a decent sized move are the best strategies right now. Much of the market is sitting in a range trade with tomorrow often looking different than today, so do not expect large continuation moves in this environment.
Buys to Watch:
Copper- Copper was in this buy section on Friday, but could not gather the momentum to rally above it's breakout last week. This was a different story overnight though with a strong move after the open setting the market in motion. The bullish cup and handle pattern has a breakout of 343.60 with a projection to 355.15. There is low volume buy zone from 344.30 to 345.40 with mild support below to the breakout level for entry on a pullback. The first level of resistance is 348.70 from the high of the recent range on March 1st, which was eclipsed as I am writing this just prior to 7 am. Technically the market has a number of qualities that make it an attractive buy. Stochastics provided a buy signal on Friday, which should be further confirmed today on the strong action. Furthermore, open interest continues to climb, showing a "coiling of momentum" over the sideways action, with a 3% increase on Friday to just under a total of 140,000 contracts. The projection of the pattern is right to the previous contract highs and after being a strength for much of last year Copper could have the momentum to slingshot above these levels to regain it's Commodity leader qualities.
July - November Soybean Spread- After a strong rejection on the breakout attempt on Thursday the market recovered nicely Friday and is firmer overnight as well. Fundamentally based on South American labor strikes and exporting inefficiency and strong Chinese demand, the spread has a technical double bottom with a breakout between 40 and 45 cents with a projection zone from 60 to 75 cents. Before finding strength on Friday the spread briefly pulled back into the low volume zone I was looking for between 33 1/2 and 35 cents. I look at the brief entry and support at these levels as another sign of continued strength. Sitting around 44 cents currently there is support from 40 1/4 to 42 cents. However, there is a low volume zone from 38 1/2 to 40 cents for an opportunity to buy a dip in the spread. A close above 45 cents is strictly a go with move with the next temporary resistance level at 50 cents on it's rally to the projection.
Dollar Index- After a weak day Friday and a lower open yesterday evening the Dollar Index has pulled back into the low volume zone I have had my eye on for the last several trading sessions. The 3rd leg up has an estimate final projection of 83.48. This current low volume zone sits between 81.49 and 81.63 with medium support below from 81.48 to 81.40, which has supported the market thus far today. Be cautious of this trade though because below 81.37 there is another low volume area that does not have strong support until 81.15. Although it is a strong one this is still just a 2 day pullback for the market and I expect it to continue a rally from these levels towards it's third leg projection.
Sells to Watch:
Five Year Note- The Five Year Note has been quiet the last few days after breaking out on it's bearish head and shoulders pattern, but has finally rallied into the low volume zone I have had my eye on. The head and shoulders pattern had a breakout of 115.01 with a projection to 113.21 with the neckline of the pattern sitting at 115.03 today. The low volume zone between 114.215 and 114.245 with resistance above from 114.25 to 114.295 was briefly entered on this morning's highs. While the 10 Year and Bonds both also have bearish projections presently, the Five Year has been the most consistent with less volatile swings. The Bonds have acted as the tail on a large yield curve swing and is therefore less predictable in my opinion, so I recommend executing a short in the Five Year still.
Put on the Radar:
Euro- I have more confidence in the Dollar Index trade right now, so I am keeping the Euro on the radar for right now. As I warned on Friday, the market rallied all the way back to the 1.35 level after rallying above 1.3430. There is stronger resistance at and just above 1.35 to enter a short position against. The Euro still remains broken out on a bearish leg down that has a rough estimate projection to 1.2750. The Euro is not particularly strong this morning with the Aussie and Canadian having much larger percentage gains so far, so I still believe that it is a decent shot to sell at this previous breakout level with the expectation that the leg down continues.
Japanese Yen- Slightly under the radar compared to the Euro, the Yen may actually be the better sell. It is very quiet thus far today, but has not had the same rally pullback as the other currencies over the last two days and has a bearish pattern intact. The breakout below 108.60 on the double top pattern has a projection to 104.10. There is a good low volume sell zone between 108.30 and 108.50 with resistance above from 108.50 to 109.00 that was entered both Friday and overnight Note: Because the Japanese Yen has an interest rate related carry trade, where you can borrow cheaper in Japan and invest for a higher rate of return elsewhere, I have noticed an interesting correlation that is very strong right now. The Japanese Yen has an artificial boundary top around the 115 level where the government has repeatedly intervened to devalue the currency. Taking this into account put the Japanese Yen and Five Year chart up side by side and compare. They are nearly identical lately. With the Five Year in a bearish head and shoulders pattern you can use it as an indicator right now for Yen movement with a continuation in the 5 likely leading the Yen further down.
Sugar- Sugar looks like it might have found a bottom after the large-scale collapse over the last month and a half. I would hold off on entry for the time being, but keep it on your radar because there are good prospects for a sizable rally correction.
Notes: (We can just call this the grain section today)
Corn- With the stocks and prospective plantings report release on Wednesday and a supportive macro market I am concerned that the Corn will not continue it's bearish head and shoulders pattern. The breakout level was 3.59 and provides a projection to 3.30 1/2 with the neckline sitting at 3.58 1/2 today on the pattern. The Corn does not have a good resistance level until just above 3.60, so I believe that it will likely test these levels and likely will not have the catalyst to break further prior to the report.
Bean Oil- The flag pattern on the daily chart has a projection to 37.63 with the breakout line on the pattern at 39.35 today. Like the Corn I am not to keen on the prospects of continuation in the market prior to the report. There is resistance above the current market from 39.28 to 39.33, which could be a decent short term fade, but I would not position for a long term trade currently prior to the report Wednesday.
Soybeans- After the large down day Thursday the Soybeans have continually strengthened into this morning. The market finally has rallied to the first decent resistance level from 9.60 to 9.64, which could be a decent short term fade against these levels today.
Friday, March 26, 2010
Friday 3/26/10 Commodity Ideas
Opening Note:
Following a moderate Commodity and stronger Equity rally coming into yesterday many markets gave up all of their gains later in the day on bearish European rumors. However, this morning after the (not greatly bullish) Greece recovery plan announcement many Commodity markets are already battling with their highs from yesterday. The Euro and Metal sector have already rallied above yesterday's highs today, which leaves me less confident that a broad Commodity leg down is in process. The prospects for this new leg down were led by breakouts in the Dollar Index and Euro. The Metal sector has been more highly correlated to the Currencies over the last week and a half, so I believe that their failure to break in conjunction with the Euro move is an indicator that Commodities are not heading for an overall down move. Fundamentally bearish news appears to have finally caught up with the Grain sector after the European catalyst yesterday, but I am skeptical right now of their lower continuation prospects prior to the report on Tuesday. Despite an ugly looking candlestick yesterday I believe that Equities are still the best sector to buy and should continue to rally, with the prospect of a strong recovery rally today heading into the weekend. This paragraph seems like a bit of a jumble to me because I believe that the market action is a all over right now and we could see some sideways to higher action coming in the next week. I recommend looking for 1 day trades for right now and focusing on taking profits when you catch a decent sized move.
Buys to Watch:
Copper- Technically the Copper has a bullish cup and handle pattern that is approaching it's breakout of 343.60 with a projection to 355.15, but it is the relationship movement and nuances of the market right now that make this trade more attractive. While Gold and Silver both set off bearish patterns this week Copper has resisted, sitting in a sideways (almost coiling) pattern. During this time Open Interest has significantly rallied, increasing almost 9,000 contracts since March 19th to over 138,000 total after yesterday's close. Stochastics has sat in a tight downward channel for the last week and a half, but just on the verge of producing a buy signal with a strong day up. Throughout last year Copper was one of the strongest commodities while it kept pace with Equities and often out-performed them. However, over the last month the Copper has traded mostly sideways to down. I believe that with a strong rally it has explosive potential that could quickly lead it back to the contract highs near 355 as it attempts to reestablish it's relationship with Equities.
Dollar Index- Despite being down overnight on the Euro's knee jerk Greece reaction, the Dollar Index still has a very strong chart withe a new rally leg projection of 83.48. I do not have a good buy entry point right now for the market other than the low volume area from 81.63 to 81.49, but would not recommend buying a break to these levels for today on such a strong move. Instead I would focus on a 15 or 60 minute chart for support and momentum on entry. There is good support near the lows overnight from 81.95 to 81.90 so I would use this area for stop placement and take liquidate below these levels.
Sells to Watch:
5 Year Note: The Head and Shoulders Pattern on the 5 Year has a projection to 113.21, which is nearly 50% complete at the time being. The low volume sell zone I indicated yesterday from 114.215 to 114.245 was just above yesterday's highs, so I believe that a rally to these levels is still a good sale with resistance above from 114.25 to 114.295 for stop placement. The 10 Year and Bonds also have bearish patterns in motion right now, but they have acted much more volatile the last few days so I have the most confidence in the 5 Year right now for continuation.
Euro- The Euro had a strong knee-jerk reaction to the Greece announcement this morning, but I believe that it has likely put in it's high for today and should continue to deflate. I have a low volume zone that was reached this morning from 1.3392 to 1.3400 with resistance above from 1.3410 to 1.3430. Above these levels I would liquidate the trade as it is likely to rally back to the 1.3500 breakout level. The third leg down still has a projection to 1.2750.
Put on the Radar:
Japanese Yen- With all of the talk about the Euro lately the Japanese Yen has flown under the radar despite having a huge break on Wednesday as well. The Yen's chart looking at just the last 3 days is actually the most bearish of any of the Currencies, with little rally recovery. There is a low volume zone form 108.28 to 108.46 that set today's high thus far with greater resistance above it from 108.58 to 109.00. Below the 108.60 breakout level there is an awkward double top-like pattern that has a projection to roughly 104.10. This market is acting the easiest to trade and hold downside moves in right now, so it could potentially be a better sale than the Euro.
Corn- The unexpected 10 cent break in May Corn yesterday set off a bearish head and shoulders pattern below $3.59 that has a projection to $3.30 1/2. I believed that the break would likely come after the stocks and plantings report on the 31st, but overall market pressure aided the break yesterday. Because the breakout was on acceleration into the close there is not great resistance to place a stop behind until $3.60, so I would use caution, especially in initiating for right now. I do not have strong conviction right now that this move will hold or continue prior to this report so that is why it is on the radar.
July - November Soybean Spread- Like Corn the Soybeans also had a strong acceleration break into the close yesterday, causing the July-Nov spread to fall apart under the bearish pressure. I had support levels from 37 1/2 to 38 3/4 cents, but these levels did not hold strong yesterday or overnight. As it is currently sitting below them I believe that the next support rests between 33 1/2 and 35 cents, which is a good spot to look for re-entry into the spread. The breakout is still 40 to 45 cents with a projection from 60 to 75 cents. Be cautious though as we are heading into the report on Tuesday and Beans have the potential to continue to break on the Corn's lead.
Notes:
Gold and Silver- Both markets are resting just below their resistance levels in low volume areas, but I recommend liquidating short positions. The markets could break off of these highs, but I believe that they already had their chance to do damage on their bearish patterns. I am staying flat in them for the time being.
Soybeans- It might be easy to get excited about the large break yesterday, but use caution right now when entering or holding a short. Because yesterday's break was fluid with little to no pullback I do not see good resistance levels from the action for stop placement. I think that the market could just as easily rally back to $9.60.
Bean Oil- With that being said about the Beans, the breakout on the flag pattern look like it is in jeopardy as well. The breakout line sits at 39.29 today with a projection to 37.63. Yesterday I recommended waiting for a break below 39.00 to avoid being chopped up on initiation, but there are not great resistance levels to place your stop above. I have a mild resistance level from 39.10 to 39.15, but a stronger one that is from 39.28 to 39.33. If you are not willing to place your stop above the stronger one I would recommend waiting for the open and taking profits.
Following a moderate Commodity and stronger Equity rally coming into yesterday many markets gave up all of their gains later in the day on bearish European rumors. However, this morning after the (not greatly bullish) Greece recovery plan announcement many Commodity markets are already battling with their highs from yesterday. The Euro and Metal sector have already rallied above yesterday's highs today, which leaves me less confident that a broad Commodity leg down is in process. The prospects for this new leg down were led by breakouts in the Dollar Index and Euro. The Metal sector has been more highly correlated to the Currencies over the last week and a half, so I believe that their failure to break in conjunction with the Euro move is an indicator that Commodities are not heading for an overall down move. Fundamentally bearish news appears to have finally caught up with the Grain sector after the European catalyst yesterday, but I am skeptical right now of their lower continuation prospects prior to the report on Tuesday. Despite an ugly looking candlestick yesterday I believe that Equities are still the best sector to buy and should continue to rally, with the prospect of a strong recovery rally today heading into the weekend. This paragraph seems like a bit of a jumble to me because I believe that the market action is a all over right now and we could see some sideways to higher action coming in the next week. I recommend looking for 1 day trades for right now and focusing on taking profits when you catch a decent sized move.
Buys to Watch:
Copper- Technically the Copper has a bullish cup and handle pattern that is approaching it's breakout of 343.60 with a projection to 355.15, but it is the relationship movement and nuances of the market right now that make this trade more attractive. While Gold and Silver both set off bearish patterns this week Copper has resisted, sitting in a sideways (almost coiling) pattern. During this time Open Interest has significantly rallied, increasing almost 9,000 contracts since March 19th to over 138,000 total after yesterday's close. Stochastics has sat in a tight downward channel for the last week and a half, but just on the verge of producing a buy signal with a strong day up. Throughout last year Copper was one of the strongest commodities while it kept pace with Equities and often out-performed them. However, over the last month the Copper has traded mostly sideways to down. I believe that with a strong rally it has explosive potential that could quickly lead it back to the contract highs near 355 as it attempts to reestablish it's relationship with Equities.
Dollar Index- Despite being down overnight on the Euro's knee jerk Greece reaction, the Dollar Index still has a very strong chart withe a new rally leg projection of 83.48. I do not have a good buy entry point right now for the market other than the low volume area from 81.63 to 81.49, but would not recommend buying a break to these levels for today on such a strong move. Instead I would focus on a 15 or 60 minute chart for support and momentum on entry. There is good support near the lows overnight from 81.95 to 81.90 so I would use this area for stop placement and take liquidate below these levels.
Sells to Watch:
5 Year Note: The Head and Shoulders Pattern on the 5 Year has a projection to 113.21, which is nearly 50% complete at the time being. The low volume sell zone I indicated yesterday from 114.215 to 114.245 was just above yesterday's highs, so I believe that a rally to these levels is still a good sale with resistance above from 114.25 to 114.295 for stop placement. The 10 Year and Bonds also have bearish patterns in motion right now, but they have acted much more volatile the last few days so I have the most confidence in the 5 Year right now for continuation.
Euro- The Euro had a strong knee-jerk reaction to the Greece announcement this morning, but I believe that it has likely put in it's high for today and should continue to deflate. I have a low volume zone that was reached this morning from 1.3392 to 1.3400 with resistance above from 1.3410 to 1.3430. Above these levels I would liquidate the trade as it is likely to rally back to the 1.3500 breakout level. The third leg down still has a projection to 1.2750.
Put on the Radar:
Japanese Yen- With all of the talk about the Euro lately the Japanese Yen has flown under the radar despite having a huge break on Wednesday as well. The Yen's chart looking at just the last 3 days is actually the most bearish of any of the Currencies, with little rally recovery. There is a low volume zone form 108.28 to 108.46 that set today's high thus far with greater resistance above it from 108.58 to 109.00. Below the 108.60 breakout level there is an awkward double top-like pattern that has a projection to roughly 104.10. This market is acting the easiest to trade and hold downside moves in right now, so it could potentially be a better sale than the Euro.
Corn- The unexpected 10 cent break in May Corn yesterday set off a bearish head and shoulders pattern below $3.59 that has a projection to $3.30 1/2. I believed that the break would likely come after the stocks and plantings report on the 31st, but overall market pressure aided the break yesterday. Because the breakout was on acceleration into the close there is not great resistance to place a stop behind until $3.60, so I would use caution, especially in initiating for right now. I do not have strong conviction right now that this move will hold or continue prior to this report so that is why it is on the radar.
July - November Soybean Spread- Like Corn the Soybeans also had a strong acceleration break into the close yesterday, causing the July-Nov spread to fall apart under the bearish pressure. I had support levels from 37 1/2 to 38 3/4 cents, but these levels did not hold strong yesterday or overnight. As it is currently sitting below them I believe that the next support rests between 33 1/2 and 35 cents, which is a good spot to look for re-entry into the spread. The breakout is still 40 to 45 cents with a projection from 60 to 75 cents. Be cautious though as we are heading into the report on Tuesday and Beans have the potential to continue to break on the Corn's lead.
Notes:
Gold and Silver- Both markets are resting just below their resistance levels in low volume areas, but I recommend liquidating short positions. The markets could break off of these highs, but I believe that they already had their chance to do damage on their bearish patterns. I am staying flat in them for the time being.
Soybeans- It might be easy to get excited about the large break yesterday, but use caution right now when entering or holding a short. Because yesterday's break was fluid with little to no pullback I do not see good resistance levels from the action for stop placement. I think that the market could just as easily rally back to $9.60.
Bean Oil- With that being said about the Beans, the breakout on the flag pattern look like it is in jeopardy as well. The breakout line sits at 39.29 today with a projection to 37.63. Yesterday I recommended waiting for a break below 39.00 to avoid being chopped up on initiation, but there are not great resistance levels to place your stop above. I have a mild resistance level from 39.10 to 39.15, but a stronger one that is from 39.28 to 39.33. If you are not willing to place your stop above the stronger one I would recommend waiting for the open and taking profits.
Thursday, March 25, 2010
Thursday 3/25/10 Commodity Ideas
Opening Note:
After an active break for the market on the European session yesterday there was only a slight continuation downwards on the U.S. session followed by uptrending strength overnight today. The break during the European session was based on fundamental news suggesting that Greece would not be bailed out by the EU and would have to go to the IMF for help. This news is obviously bearish the Euro, but should probably be more bearish the rest of the market than it has shown. I thought that the market had an opportunity during U.S. trading hours to break much more than it did. Paired with the straight uptrend overnight I find myself a little confused that there was not a larger fallback, and therefore cautious with my bearish commodity and equity opinion right now. I have the most confidence in the Currency sector moves right now as the Euro and Dollar Index are clearly stating they are beginning another leg. However, Equities again have pretty much thrown out bearish fundamental news from the rest of the world, sitting near their recent highs again, and have pulled the physical commodity markets along with them. Because of this move and deviation from expectations I would recommend lightening your bearish commodity position for the time being and to pick your spots carefully. Barring a low volatility sideways day, direction should become more clear during this session as we head into the end of the quarter. On a side-note, I have heard reports that the always long commodity funds are net losers on the year thus far, and with money beginning to flow out of them, the next wave of allocation in April should be lighter. Contrary to this however is a report that since the 4th Quarter of 2008 the U.S. government has purchased over $1 Trillion in Equities after not holding an Equity position for many years. So, take into consideration these money flow dynamics as we move forward.
Buys to Watch:
July - November Soybean Spread- At the cost of sounding repetitious, the fundamental story behind the spread is South American inefficiencies in managing the export of a historic crop along with labor strikes and continued Chinese demand strength. The Double bottom technical pattern has a breakout from 40 to 45 cents with the 40 to 42 cent portion being more important and a projection that ranges from 60 to 75 cents. Yesterday the spread settled at 40 1/4 cents, but overnight strength has rallied it to a 42 3/4 cent close on the morning session. In recent discussions I have said that I believe that it is a good buy above the 42 cent level and continue to feel the same way. There is good support from 37 1/2 to 38 3/4 cents for stop placement, with a break below this level likely continuing to 33 1/2 to 35 cents. One of the most impressive things about the spread is that on Tuesday when the outright July beans gave up their rally and suffered a significant down day on Wednesday the spread still continued to work. This is atypical action for the spread normally and shows great strength, which is why I feel confident buying it above the 42 cent level.
Dollar Index- Strengthened by the Euro move, the Dollar Index has decisively shown that it is beginning a new leg on the rally. The estimate projection for this rally is to 83.48. If the market provides the opportunity there is a good low volume price zone from 81.49 to 81.63 to buy with support from 81.40 to 81.48 for stop placement. I also encourage looking at June options positions to get a foot in on the rally as I know it is easier for me to hold options than outrights for the duration of a move.
Sells to Watch:
Euro- The Euro has the weakest technical chart of any of the currencies and has confirmed that it is beginning a new leg down. The rough projection estimate for this new leg down is 127.50. There is a good low volume price zone to sell, that correlates well to the Dollar's buy zone, from 1.3992 to 1.3400 with resistance above from 1.3412 to 1.3430. Like the Dollar Index I also recommend looking at bearish June options plays for entry and the ability to absorb more of the move. I feel the most confident in the currency moves right now so this is my favorite trade.
Five Year Note- Yesterdays bearish head and shoulders breakout was at 115.01 and has a projection to 113.21. I have a good low volume price sell zone that was almost achieved this morning from 114.215 to 114.245 with resistance above it from 114.25 to 114.295. This move has some interesting fundamental correlations to the rest of the market as I believe that the lowering of fixed income prices (raising of rates) should weaken the broader market, which is contrary to the usual contrary correlation. I also am taking the Buy Bonds vs. Sell 5 Year Notes trade off of my radar for the time being so this is good as just an outright trade. Note: The Bonds suffered a massive price break yesterday setting off a bearish double top technical pattern with a breakout of 115.27 and a projection to 113.10. I am very suspicious of this move as the breakout was managed on such a large move yesterday. I think that it does not have a great chance of holding this pattern and believe that a rejection should rally to between 116.31 and 117.08.
Silver- This trade is now just barely on the sell list and I would recommend lightening your short position currently if you have one. I thought that with the stronger correlation to the Currencies that the Metals should have had a larger break yesterday than they did and with the overnight uptrend I am worried about the success of this trade. However, the Silver still has a double top pattern with a breakout of $16.835 and a projection to $16.07. This is supported by the Gold topping head and shoulders pattern that remains intact with a projection to $1048.8. Neither of these Metals is a bad trade, but looking at the Gold vs Silver ratio (Gold - Silver/2) I believe that the Silver may weaken against the Gold. The Silver has resistance from $16.92 to $16.96 with a small low volume sell zone from $16.90 to .92. Above the resistance I would completely abandon the silver. Note: Today is option expiration for the Metals, which has a tendency to move towards a high volume traded strike price. If another rally gets going it is possible that the Silver moves to the $17 area. Also, Gold open interest has risen on the recent break...hmm
Put on the Radar:
Crude Oil- I have a low volume area in the Crude from 81.00 to 81.10 today with resistance above from 81.17 to 81.33, which the market has been battling with as I have written this letter. It is possible that this could be the top for the day, but I would take a strong rally above these levels as a sign to watch out on your commodity shorts and possibly liquidate. I do not think that selling this zone is a great trade right now so I would just use it as an indicator for the day as this top has appeared to stall the rest of the market. The farther out sell is the double top pattern with a breakout below 79.41 and a projection to 75.46.
Notes:
Corn- The top head and shoulders pattern has a breakout today of $3.59 with a projection to $3.30 1/2. Yesterday the market found support as it touched this breakout neckline. With the stocks and planting intentions report on Tuesday of next week I think that it is unlikely that this pattern is set in motion, so I would look at this neckline as continued support for May Corn.
Bean Oil- The market close below the bearish flag pattern breakout yesterday, but has rallied back above overnight rejecting the pattern. For purposes of not getting chopped up in this action I would wait for prices below 39.00 to sell Bean Oil on the pattern projection to 37.63.
After an active break for the market on the European session yesterday there was only a slight continuation downwards on the U.S. session followed by uptrending strength overnight today. The break during the European session was based on fundamental news suggesting that Greece would not be bailed out by the EU and would have to go to the IMF for help. This news is obviously bearish the Euro, but should probably be more bearish the rest of the market than it has shown. I thought that the market had an opportunity during U.S. trading hours to break much more than it did. Paired with the straight uptrend overnight I find myself a little confused that there was not a larger fallback, and therefore cautious with my bearish commodity and equity opinion right now. I have the most confidence in the Currency sector moves right now as the Euro and Dollar Index are clearly stating they are beginning another leg. However, Equities again have pretty much thrown out bearish fundamental news from the rest of the world, sitting near their recent highs again, and have pulled the physical commodity markets along with them. Because of this move and deviation from expectations I would recommend lightening your bearish commodity position for the time being and to pick your spots carefully. Barring a low volatility sideways day, direction should become more clear during this session as we head into the end of the quarter. On a side-note, I have heard reports that the always long commodity funds are net losers on the year thus far, and with money beginning to flow out of them, the next wave of allocation in April should be lighter. Contrary to this however is a report that since the 4th Quarter of 2008 the U.S. government has purchased over $1 Trillion in Equities after not holding an Equity position for many years. So, take into consideration these money flow dynamics as we move forward.
Buys to Watch:
July - November Soybean Spread- At the cost of sounding repetitious, the fundamental story behind the spread is South American inefficiencies in managing the export of a historic crop along with labor strikes and continued Chinese demand strength. The Double bottom technical pattern has a breakout from 40 to 45 cents with the 40 to 42 cent portion being more important and a projection that ranges from 60 to 75 cents. Yesterday the spread settled at 40 1/4 cents, but overnight strength has rallied it to a 42 3/4 cent close on the morning session. In recent discussions I have said that I believe that it is a good buy above the 42 cent level and continue to feel the same way. There is good support from 37 1/2 to 38 3/4 cents for stop placement, with a break below this level likely continuing to 33 1/2 to 35 cents. One of the most impressive things about the spread is that on Tuesday when the outright July beans gave up their rally and suffered a significant down day on Wednesday the spread still continued to work. This is atypical action for the spread normally and shows great strength, which is why I feel confident buying it above the 42 cent level.
Dollar Index- Strengthened by the Euro move, the Dollar Index has decisively shown that it is beginning a new leg on the rally. The estimate projection for this rally is to 83.48. If the market provides the opportunity there is a good low volume price zone from 81.49 to 81.63 to buy with support from 81.40 to 81.48 for stop placement. I also encourage looking at June options positions to get a foot in on the rally as I know it is easier for me to hold options than outrights for the duration of a move.
Sells to Watch:
Euro- The Euro has the weakest technical chart of any of the currencies and has confirmed that it is beginning a new leg down. The rough projection estimate for this new leg down is 127.50. There is a good low volume price zone to sell, that correlates well to the Dollar's buy zone, from 1.3992 to 1.3400 with resistance above from 1.3412 to 1.3430. Like the Dollar Index I also recommend looking at bearish June options plays for entry and the ability to absorb more of the move. I feel the most confident in the currency moves right now so this is my favorite trade.
Five Year Note- Yesterdays bearish head and shoulders breakout was at 115.01 and has a projection to 113.21. I have a good low volume price sell zone that was almost achieved this morning from 114.215 to 114.245 with resistance above it from 114.25 to 114.295. This move has some interesting fundamental correlations to the rest of the market as I believe that the lowering of fixed income prices (raising of rates) should weaken the broader market, which is contrary to the usual contrary correlation. I also am taking the Buy Bonds vs. Sell 5 Year Notes trade off of my radar for the time being so this is good as just an outright trade. Note: The Bonds suffered a massive price break yesterday setting off a bearish double top technical pattern with a breakout of 115.27 and a projection to 113.10. I am very suspicious of this move as the breakout was managed on such a large move yesterday. I think that it does not have a great chance of holding this pattern and believe that a rejection should rally to between 116.31 and 117.08.
Silver- This trade is now just barely on the sell list and I would recommend lightening your short position currently if you have one. I thought that with the stronger correlation to the Currencies that the Metals should have had a larger break yesterday than they did and with the overnight uptrend I am worried about the success of this trade. However, the Silver still has a double top pattern with a breakout of $16.835 and a projection to $16.07. This is supported by the Gold topping head and shoulders pattern that remains intact with a projection to $1048.8. Neither of these Metals is a bad trade, but looking at the Gold vs Silver ratio (Gold - Silver/2) I believe that the Silver may weaken against the Gold. The Silver has resistance from $16.92 to $16.96 with a small low volume sell zone from $16.90 to .92. Above the resistance I would completely abandon the silver. Note: Today is option expiration for the Metals, which has a tendency to move towards a high volume traded strike price. If another rally gets going it is possible that the Silver moves to the $17 area. Also, Gold open interest has risen on the recent break...hmm
Put on the Radar:
Crude Oil- I have a low volume area in the Crude from 81.00 to 81.10 today with resistance above from 81.17 to 81.33, which the market has been battling with as I have written this letter. It is possible that this could be the top for the day, but I would take a strong rally above these levels as a sign to watch out on your commodity shorts and possibly liquidate. I do not think that selling this zone is a great trade right now so I would just use it as an indicator for the day as this top has appeared to stall the rest of the market. The farther out sell is the double top pattern with a breakout below 79.41 and a projection to 75.46.
Notes:
Corn- The top head and shoulders pattern has a breakout today of $3.59 with a projection to $3.30 1/2. Yesterday the market found support as it touched this breakout neckline. With the stocks and planting intentions report on Tuesday of next week I think that it is unlikely that this pattern is set in motion, so I would look at this neckline as continued support for May Corn.
Bean Oil- The market close below the bearish flag pattern breakout yesterday, but has rallied back above overnight rejecting the pattern. For purposes of not getting chopped up in this action I would wait for prices below 39.00 to sell Bean Oil on the pattern projection to 37.63.
Wednesday, March 24, 2010
Wednesday 3/24/10 Commodity Ideas
Opening Note:
Yesterday the market was fairly quiet in outright commodity movement with another rejection of bearish metal patterns and more solid equity gains being the highlights to the unscrupulous eye. However, the most notable occurrence to me was a sneaky new low close in the Euro for the first time in a month of sideways consolidation. Thus far overnight the market seems to have taken note of this new low close and has turned my entire screen red other than the Dollar Index (and Sugar?). This new low close in the Euro and continuation today is bearish for commodities and equities as it signals confirmation of a new leg down in the Euro, and likely many of the other foreign currencies. While it is extremely unlikely today, still make sure that the Euro does have another lower close to confirm the leg down as rally attempts have continuously saved the Euro from this fate. The equities are still in continuation mode on an almost unbelievable rally that has lasted for 33 days now with very little pullback. I have noticed that this rally has been curiously saved a number of times, like Monday of this week and towards the end of February, but I believe that a new leg down in the Euro is more bearish news than this rally can handle without a downside correction. What is bearish for the Equities is even more so for commodities. The Equities have clearly been the strength over all other sectors with physical commodities continuing to lag on the rally. Because this move is initiated by currencies I believe that Metals continue to be the best sale (along with foreign currencies) because they have the closest sector correlation to them currently. Right now I see a number of reversal and continuation patterns, and therefore trades, but I hope to pare down these ideas into the best risk/reward moves and executions.
Buys to Watch:
July - November Soybean Spread- More reports of isolated port strikes in South America continue to come in with rumors that these isolated incidents are more likely to spread. South America is dealing with harvesting and exporting the largest Soybean crop they have ever handled, which is highlighting the inefficiencies in their infrastructure in dealing with such a sizable crop. Furthermore, Chinese Soybean demand is beginning to pick up and is believed to be larger than originally estimated. Both of these factors are contributing to more tightness in U.S. old crop stocks and causing the spread to rally. Yesterday the spread traded 40 cents which is the breakout level on the technical double bottom and a price level of significant resistance. The true breakout for the pattern is between 40 and 45 cents, but most of the resistance is between 40 and 42 cents. For preemptive entry on a break in the market I have a lower volume zone from 33 3/4 and 34 3/4 for entry, but I do not feel confident that this pullback will happen. Instead I recommend waiting for confirmation above 42 cents to buy the spread, with the all clear coming above 45 cents. The pattern has an initial projection to between 60 and 75 cents. Note: Be cautious of the resistance at 40 cents. It could be a battle to rally the spread above this level, especially only a week prior to the March 31st report.
Dollar Index- This morning the Dollar Index looks almost like an identical inversion of the Euro chart, meaning that it is above all the trade in the consolidation range and is confirming a new leg up. Unlike the Euro the Dollar Index did not make a new high close yesterday though, with the February 24th close of 81.24 still the highest. However, with the decisiveness of the Euro taken into account I believe that buying the Dollar Index on a leg up is now in play. Based off the previous leg, the projection for the new leg up in the Dollar Index is roughly 83.46. On a pullback today I have a decent low volume area from 81.49 to 81.63 to buy from the overnight acceleration. If you have difficulty staying with outright positions I recommend looking at purchasing outright call options, a call spread, or possibly a more risky combo of selling some 80 puts to fund the purchase of 83's. Note: If you are purchasing Dollar Index options I recommend purchasing the higher volume traded June contract as you likely have to give up a sizable edge on the wider market May options (I learned this the hard way). Also, I recommend putting your order into the ICE options pit as any screen traded market is much wider.
Sells to Watch:
Silver- I have finally decided that Silver is the better sell here than the Gold. On large-scale commodity moves Silver tends to have much higher directional volatility than the Gold because it is not traded as a run to safety. Furthermore, the Gold to Silver ratio (Gold - Silver/2) is showing strong reversal signs today, meaning the Gold should continue to gain on the Silver. The Silver has a bearish double top pattern with a breakout of $16.835 and a projection to $16.07, but I believe that with the gains on Gold and the currency moves that this projection could be modest in the bigger picture. As I noted over the last couple days, the Metals are more correlated to the Currencies than the Equities and Energies, making this the best sector to sell off the Currencies. For comparison's sake the Gold has a head and shoulders breakout of $1103.7 today with a projection to $1049.8. For silver entry today I would look for a pullback to the $16.65 to $16.75 area near this morning's open and look to place a stop above the resistance from $16.92 to $16.95 for today. Note: I had a discussion yesterday around noon about how the silver rallied all the way into the low volume area near $17.15, but that the Gold did not reach it's low volume area above $1110 at the same time. You can get burned on the trade from time to time, but if the setup is right I like to look at a Silver or Gold move to sell the other weakness off of.
Euro- The Pound and the Franc are not as weak as the Euro right now, so I believe the Euro is the best sell of the European Currency group right now. Unless there is a miracle the Euro is now beyond saving so I think that it is in play as a sell on this new leg down. Where the first and second leg begin and end on the Euro chart is highly debatable, but I estimate this third leg down projection to roughly 127.50 for right now. On a pullback today there is a decent low volume area between 133.95 and 134.05 to sell. I think that like the Dollar Index you can also look at using options now to capture more of this leg down.
Put on the Radar:
Buy Bonds vs Sell Five Year Note- I have become more disinterested in this trade with the new currency developments. This trade is still dependent on a bullish head and shoulders breakout in the Bonds or a bearish head and shoulders breakout in the 5 Years. The Bonds are not close today, but the 5 year head and shoulders has a breakout of 115.01 today with a projection to 113.21, which has set off today. Right now the Bonds are having a largely bearish move today so I would wait on this trade and possibly play the 5 year as an outright position.
Crude Oil- The Crude Oil double top pattern that was negated two days ago should come back into play later today or tomorrow. The double top pattern has a breakout of 79.41 with a projection to 75.46. On a side note Heating Oil may look like the worse chart among the energy crack, but a strong downside move in the RBOB vs. Heating Oil spread has the RBOB falling apart in a major way. I think that the RBOB could be the best sell here. Note: If you have been holding the RBOB vs. Heating Oil spread I would liquidate. It has a bearish double top and the fundamental story is not happening so far.
Notes:
Grains- The grains have the report on March 31st so large moves before this are less likely, but with the world down today and possibly continuing I think the grains could fall with it. I am running out of time so I will run down a few projections that I have. Wheat to 4.47 on a new leg down. Corn head and shoulders breakout at 3.59 1/4 today with a projection to 3.30 3/4. Bean Oil flag pattern breakout at 3917 today with a projection to 3763. I like the Bean Oil trade the best because it is based on open interest and long liquidation on the breaks. I also think that Meal looks fishy with this strong bottom rally, but I can not find a way to sell it and would hold off.
Stock Indexes- I would hold off on selling entry for Equities for right now. It looks like they could be forming a reversal volatility top, but the Equities have a way of disregarding anything else that is going on lately.
Yesterday the market was fairly quiet in outright commodity movement with another rejection of bearish metal patterns and more solid equity gains being the highlights to the unscrupulous eye. However, the most notable occurrence to me was a sneaky new low close in the Euro for the first time in a month of sideways consolidation. Thus far overnight the market seems to have taken note of this new low close and has turned my entire screen red other than the Dollar Index (and Sugar?). This new low close in the Euro and continuation today is bearish for commodities and equities as it signals confirmation of a new leg down in the Euro, and likely many of the other foreign currencies. While it is extremely unlikely today, still make sure that the Euro does have another lower close to confirm the leg down as rally attempts have continuously saved the Euro from this fate. The equities are still in continuation mode on an almost unbelievable rally that has lasted for 33 days now with very little pullback. I have noticed that this rally has been curiously saved a number of times, like Monday of this week and towards the end of February, but I believe that a new leg down in the Euro is more bearish news than this rally can handle without a downside correction. What is bearish for the Equities is even more so for commodities. The Equities have clearly been the strength over all other sectors with physical commodities continuing to lag on the rally. Because this move is initiated by currencies I believe that Metals continue to be the best sale (along with foreign currencies) because they have the closest sector correlation to them currently. Right now I see a number of reversal and continuation patterns, and therefore trades, but I hope to pare down these ideas into the best risk/reward moves and executions.
Buys to Watch:
July - November Soybean Spread- More reports of isolated port strikes in South America continue to come in with rumors that these isolated incidents are more likely to spread. South America is dealing with harvesting and exporting the largest Soybean crop they have ever handled, which is highlighting the inefficiencies in their infrastructure in dealing with such a sizable crop. Furthermore, Chinese Soybean demand is beginning to pick up and is believed to be larger than originally estimated. Both of these factors are contributing to more tightness in U.S. old crop stocks and causing the spread to rally. Yesterday the spread traded 40 cents which is the breakout level on the technical double bottom and a price level of significant resistance. The true breakout for the pattern is between 40 and 45 cents, but most of the resistance is between 40 and 42 cents. For preemptive entry on a break in the market I have a lower volume zone from 33 3/4 and 34 3/4 for entry, but I do not feel confident that this pullback will happen. Instead I recommend waiting for confirmation above 42 cents to buy the spread, with the all clear coming above 45 cents. The pattern has an initial projection to between 60 and 75 cents. Note: Be cautious of the resistance at 40 cents. It could be a battle to rally the spread above this level, especially only a week prior to the March 31st report.
Dollar Index- This morning the Dollar Index looks almost like an identical inversion of the Euro chart, meaning that it is above all the trade in the consolidation range and is confirming a new leg up. Unlike the Euro the Dollar Index did not make a new high close yesterday though, with the February 24th close of 81.24 still the highest. However, with the decisiveness of the Euro taken into account I believe that buying the Dollar Index on a leg up is now in play. Based off the previous leg, the projection for the new leg up in the Dollar Index is roughly 83.46. On a pullback today I have a decent low volume area from 81.49 to 81.63 to buy from the overnight acceleration. If you have difficulty staying with outright positions I recommend looking at purchasing outright call options, a call spread, or possibly a more risky combo of selling some 80 puts to fund the purchase of 83's. Note: If you are purchasing Dollar Index options I recommend purchasing the higher volume traded June contract as you likely have to give up a sizable edge on the wider market May options (I learned this the hard way). Also, I recommend putting your order into the ICE options pit as any screen traded market is much wider.
Sells to Watch:
Silver- I have finally decided that Silver is the better sell here than the Gold. On large-scale commodity moves Silver tends to have much higher directional volatility than the Gold because it is not traded as a run to safety. Furthermore, the Gold to Silver ratio (Gold - Silver/2) is showing strong reversal signs today, meaning the Gold should continue to gain on the Silver. The Silver has a bearish double top pattern with a breakout of $16.835 and a projection to $16.07, but I believe that with the gains on Gold and the currency moves that this projection could be modest in the bigger picture. As I noted over the last couple days, the Metals are more correlated to the Currencies than the Equities and Energies, making this the best sector to sell off the Currencies. For comparison's sake the Gold has a head and shoulders breakout of $1103.7 today with a projection to $1049.8. For silver entry today I would look for a pullback to the $16.65 to $16.75 area near this morning's open and look to place a stop above the resistance from $16.92 to $16.95 for today. Note: I had a discussion yesterday around noon about how the silver rallied all the way into the low volume area near $17.15, but that the Gold did not reach it's low volume area above $1110 at the same time. You can get burned on the trade from time to time, but if the setup is right I like to look at a Silver or Gold move to sell the other weakness off of.
Euro- The Pound and the Franc are not as weak as the Euro right now, so I believe the Euro is the best sell of the European Currency group right now. Unless there is a miracle the Euro is now beyond saving so I think that it is in play as a sell on this new leg down. Where the first and second leg begin and end on the Euro chart is highly debatable, but I estimate this third leg down projection to roughly 127.50 for right now. On a pullback today there is a decent low volume area between 133.95 and 134.05 to sell. I think that like the Dollar Index you can also look at using options now to capture more of this leg down.
Put on the Radar:
Buy Bonds vs Sell Five Year Note- I have become more disinterested in this trade with the new currency developments. This trade is still dependent on a bullish head and shoulders breakout in the Bonds or a bearish head and shoulders breakout in the 5 Years. The Bonds are not close today, but the 5 year head and shoulders has a breakout of 115.01 today with a projection to 113.21, which has set off today. Right now the Bonds are having a largely bearish move today so I would wait on this trade and possibly play the 5 year as an outright position.
Crude Oil- The Crude Oil double top pattern that was negated two days ago should come back into play later today or tomorrow. The double top pattern has a breakout of 79.41 with a projection to 75.46. On a side note Heating Oil may look like the worse chart among the energy crack, but a strong downside move in the RBOB vs. Heating Oil spread has the RBOB falling apart in a major way. I think that the RBOB could be the best sell here. Note: If you have been holding the RBOB vs. Heating Oil spread I would liquidate. It has a bearish double top and the fundamental story is not happening so far.
Notes:
Grains- The grains have the report on March 31st so large moves before this are less likely, but with the world down today and possibly continuing I think the grains could fall with it. I am running out of time so I will run down a few projections that I have. Wheat to 4.47 on a new leg down. Corn head and shoulders breakout at 3.59 1/4 today with a projection to 3.30 3/4. Bean Oil flag pattern breakout at 3917 today with a projection to 3763. I like the Bean Oil trade the best because it is based on open interest and long liquidation on the breaks. I also think that Meal looks fishy with this strong bottom rally, but I can not find a way to sell it and would hold off.
Stock Indexes- I would hold off on selling entry for Equities for right now. It looks like they could be forming a reversal volatility top, but the Equities have a way of disregarding anything else that is going on lately.
Tuesday, March 23, 2010
Tuesday 3/23/10 Commodity Ideas
Opening Note:
What began as an overall poor looking day for the market through 8:30 a.m. yesterday quickly turned into a strong reversal day, led by a strong equity rally on it's open and a trending reversal break in the Dollar Index throughout the day. There really was no indication of the strong rally potential on the equity open, so bearish patterns in energies and metals were rejected as the commodity markets were caught off guard. One thing of importance to note is that the commodity correlation is not universal between the Energies, Metals, Equities, and Currencies right now. While the currencies and equities appear to be the leaders right now they are not as tightly correlated as one might assume, with the equities pretty much taking or leaving whatever the currencies are doing that day. The correlation to take note of however is that Energies are tied much stronger to the Equities while the Metals are tied more to the Currency moves. Yesterday the Crude rejected it's bearish pattern well before the Gold and Silver rejected theirs. This was because the Equity rally out of the box was very strong and moved near it's highs for the day right away, reversing the Crude quickly, while the currency reversal was more of a creeper throughout the day causing Metals to rally slower. Today Metals, Energies, and Currencies are all weak thus far, but Equities are relatively unchanged. Looking at the leading Nasdaq throughout this 30 day rally, each time that it reversed from a lower day to a higher close, like it did yesterday, the market continued to rally over the next few days. So, I expect some continued Equity strength the rest of this week making them the best buy in the market. However, the European currencies are again threatening to post new low closes on their ranges leading Metals lower and also dragging Energies down with the unched Equities. I believe that this makes the Metals the best sell right now on their bearish patterns that are set off again this morning, but a close eye must be kept on this web of relationships to protect against risk
Buys to Watch:
July - November Soybean Spread- The spread is now clearly above the temporary resistance level of 30 cents and travelling towards the next major resistance level at 40 cents. A rally above 40 and 45 cents would set off the double bottom technical pattern that has a projection from 60 to 75 cents. Fundamentally this chart is based on South American inefficiencies in labor and shipping with the large Soybean crop, which is a necessary story to further develop if it is to continue to work. On a break in the spread I have a low volume buy zone from 29 1/4 to 29 3/4 that should reject lower prices.
Sells to Watch:
Gold or Silver- Right now I am undecided whether Silver or Gold is the better sale. Looking at the Gold to Silver ratio chart (Gold - Silver/2) I believe that there is a high probability of a further reversal with the Silver gaining on the Gold, but yesterday the Gold was weaker than the Silver and the Gold has decisively set off it's head and shoulders pattern today while Silver has not. For the Gold the head and shoulders breakout is $1102.1 with a projection to $1048.8. Resistance is strong in the Gold from $1105 to $1108, but a rally above this level could easily continue to $1120 in the huge low volume market profile zone. The Gold did close below this breakout level yesterday and a second close below it today would confirm the pattern. Silver has a bearish double top pattern with a breakout of $16.835 and a projection to $16.07. There is resistance in the Silver at $17.00, but a rally above this level will likely continue to the low volume area between $17.15 and $17.20. Because the metals are more correlated to the currencies than the equities I believe they have a better opportunity for weakness, but a close eye should be kept on the Dollar Index as an indicator. **At 8 AM this trade is not looking as strong with Crude and equities threatening to rally
Put on the Radar:
Bonds vs. Sell Five Year Notes- Again, the chart to look at is (Bonds*3 - Five Year Notes*7) with this being the execution ratio to use (or Bonds*2 - Five Year*5). The weekly cup and handle breakout was -456.25 with a projection to -449.315. Fundamentally this trade is based on the liquidation of the "buy the short end, sell the long end" of the yield curve trade, which has been the trend since 2007. Yesterday I noted the low volume buy zone from -452.20 and -453.16 with greater support from -453.20 to -454.00. Currently the market is sitting just below the buy zone in the support level. A better execution idea is probably to wait for a breakout on the bearish head and shoulders 5 Year pattern or the bullish head and shoulders bond pattern. The breakout for the 5 Year is 115.005 today with a projection to 113.205, but this is less likely to happen today. The breakout on the Bonds is 118.02 with a projection to 121.21, which is very close by today. If you took the trade advice yesterday on this trade you were likely stopped out this morning, so I am putting it on the radar to wait for the individual market patterns to emerge.
Currencies- The Pound and Euro are both going after new low closes on their range again today. The previous low close in the Pound was 1.4971 and the previous low close in the Euro was 1.3507. Keep an eye on both of these market levels because two consecutive lower closes would indicate strong potential for another leg down for the European currencies. The Australian Dollar is potentially forming a large double top pattern on it's daily chart that could lead to a leg down right now. There is an awkward head and shoulders on this chart right now with a breakout level of .9000 and a projection to .8840. The Aussie produced a Hanging Man bearish candlestick yesterday on the recovery rally and is slightly weaker today despite having the potential to rally overnight.
Notes:
Crude Oil- The bearish double top was briefly set off yesterday morning, but the was negated by the strong opening Equity rally. In a minuscule victory however the market did rally directly into the 81.28 to 81.80 low volume range that I was looking for after the negation of the pattern. I would look at 81.80 as resistance still, but with Equities unchanged thus far and with strong rally potential I do not believe that it is likely to hold today. The double top breakout is still at 79.41 with a projection to 75.46, but this is unlikely to come into play.
Nasdaq- This continues to be the strength of the Stock Indexes and after the strong reversal rally yesterday I do not recommend shorting it or any of the others for the next couple days. Each time the Equities have had a bullish reversal day they have followed with 2 to 3 days of continued gains.
Bean Oil- The flag breakout of 3905 did not come into play yesterday as the Soybeans were strong and much of the market reversal began yesterday prior to the open. The flag level to keep in mind today is 3911, which should not come into play. It is also noteworthy that the breaks in the market are coming on a reduction in open interest, so liquidation is leading them. Soybeans must show weakness for further liquidation of the large Bean Oil positions.
What began as an overall poor looking day for the market through 8:30 a.m. yesterday quickly turned into a strong reversal day, led by a strong equity rally on it's open and a trending reversal break in the Dollar Index throughout the day. There really was no indication of the strong rally potential on the equity open, so bearish patterns in energies and metals were rejected as the commodity markets were caught off guard. One thing of importance to note is that the commodity correlation is not universal between the Energies, Metals, Equities, and Currencies right now. While the currencies and equities appear to be the leaders right now they are not as tightly correlated as one might assume, with the equities pretty much taking or leaving whatever the currencies are doing that day. The correlation to take note of however is that Energies are tied much stronger to the Equities while the Metals are tied more to the Currency moves. Yesterday the Crude rejected it's bearish pattern well before the Gold and Silver rejected theirs. This was because the Equity rally out of the box was very strong and moved near it's highs for the day right away, reversing the Crude quickly, while the currency reversal was more of a creeper throughout the day causing Metals to rally slower. Today Metals, Energies, and Currencies are all weak thus far, but Equities are relatively unchanged. Looking at the leading Nasdaq throughout this 30 day rally, each time that it reversed from a lower day to a higher close, like it did yesterday, the market continued to rally over the next few days. So, I expect some continued Equity strength the rest of this week making them the best buy in the market. However, the European currencies are again threatening to post new low closes on their ranges leading Metals lower and also dragging Energies down with the unched Equities. I believe that this makes the Metals the best sell right now on their bearish patterns that are set off again this morning, but a close eye must be kept on this web of relationships to protect against risk
Buys to Watch:
July - November Soybean Spread- The spread is now clearly above the temporary resistance level of 30 cents and travelling towards the next major resistance level at 40 cents. A rally above 40 and 45 cents would set off the double bottom technical pattern that has a projection from 60 to 75 cents. Fundamentally this chart is based on South American inefficiencies in labor and shipping with the large Soybean crop, which is a necessary story to further develop if it is to continue to work. On a break in the spread I have a low volume buy zone from 29 1/4 to 29 3/4 that should reject lower prices.
Sells to Watch:
Gold or Silver- Right now I am undecided whether Silver or Gold is the better sale. Looking at the Gold to Silver ratio chart (Gold - Silver/2) I believe that there is a high probability of a further reversal with the Silver gaining on the Gold, but yesterday the Gold was weaker than the Silver and the Gold has decisively set off it's head and shoulders pattern today while Silver has not. For the Gold the head and shoulders breakout is $1102.1 with a projection to $1048.8. Resistance is strong in the Gold from $1105 to $1108, but a rally above this level could easily continue to $1120 in the huge low volume market profile zone. The Gold did close below this breakout level yesterday and a second close below it today would confirm the pattern. Silver has a bearish double top pattern with a breakout of $16.835 and a projection to $16.07. There is resistance in the Silver at $17.00, but a rally above this level will likely continue to the low volume area between $17.15 and $17.20. Because the metals are more correlated to the currencies than the equities I believe they have a better opportunity for weakness, but a close eye should be kept on the Dollar Index as an indicator. **At 8 AM this trade is not looking as strong with Crude and equities threatening to rally
Put on the Radar:
Bonds vs. Sell Five Year Notes- Again, the chart to look at is (Bonds*3 - Five Year Notes*7) with this being the execution ratio to use (or Bonds*2 - Five Year*5). The weekly cup and handle breakout was -456.25 with a projection to -449.315. Fundamentally this trade is based on the liquidation of the "buy the short end, sell the long end" of the yield curve trade, which has been the trend since 2007. Yesterday I noted the low volume buy zone from -452.20 and -453.16 with greater support from -453.20 to -454.00. Currently the market is sitting just below the buy zone in the support level. A better execution idea is probably to wait for a breakout on the bearish head and shoulders 5 Year pattern or the bullish head and shoulders bond pattern. The breakout for the 5 Year is 115.005 today with a projection to 113.205, but this is less likely to happen today. The breakout on the Bonds is 118.02 with a projection to 121.21, which is very close by today. If you took the trade advice yesterday on this trade you were likely stopped out this morning, so I am putting it on the radar to wait for the individual market patterns to emerge.
Currencies- The Pound and Euro are both going after new low closes on their range again today. The previous low close in the Pound was 1.4971 and the previous low close in the Euro was 1.3507. Keep an eye on both of these market levels because two consecutive lower closes would indicate strong potential for another leg down for the European currencies. The Australian Dollar is potentially forming a large double top pattern on it's daily chart that could lead to a leg down right now. There is an awkward head and shoulders on this chart right now with a breakout level of .9000 and a projection to .8840. The Aussie produced a Hanging Man bearish candlestick yesterday on the recovery rally and is slightly weaker today despite having the potential to rally overnight.
Notes:
Crude Oil- The bearish double top was briefly set off yesterday morning, but the was negated by the strong opening Equity rally. In a minuscule victory however the market did rally directly into the 81.28 to 81.80 low volume range that I was looking for after the negation of the pattern. I would look at 81.80 as resistance still, but with Equities unchanged thus far and with strong rally potential I do not believe that it is likely to hold today. The double top breakout is still at 79.41 with a projection to 75.46, but this is unlikely to come into play.
Nasdaq- This continues to be the strength of the Stock Indexes and after the strong reversal rally yesterday I do not recommend shorting it or any of the others for the next couple days. Each time the Equities have had a bullish reversal day they have followed with 2 to 3 days of continued gains.
Bean Oil- The flag breakout of 3905 did not come into play yesterday as the Soybeans were strong and much of the market reversal began yesterday prior to the open. The flag level to keep in mind today is 3911, which should not come into play. It is also noteworthy that the breaks in the market are coming on a reduction in open interest, so liquidation is leading them. Soybeans must show weakness for further liquidation of the large Bean Oil positions.
Monday, March 22, 2010
Monday 3/22/10 Commodity Ideas
Opening Note:
The reformed Health Care Bill finally was passed by The House yesterday evening, providing a sigh of relief for President Obama and Democrats. However, what may be a positive sign for our President is not being received as one by the markets thus far, with commodities and equities beginning a third day of weakness this morning. I currently have a number of medium-sized topping pattern formations that I am watching, with at least one market in each commodity sector having one (how about that for solidarity). The only difficulty right now is deciding, which markets are the best to play the downside breakout trade in once it sets off. Looking across the sectors the stock indexes have acted the strongest since the early February recovery and do not have great patterns right now, so I am just keeping them on the radar today. Furthermore, the currencies have only recently come back in line with moves from the rest of the market, reestablishing the "Dollar Up, Commodities Down" relationship over the last week. So, I am waiting for further confirmation on another leg down before executing in the currencies. Lastly, the Grain markets have an explosion of contrary long and short term bearish and bullish news, confusing the market and making it a difficult trade. This means that right now I am focusing on the energies, metals, and the longer term fixed income trade. I will still describe the other trades, but will leave them on the radar or in the notes for today as I believe that the buys and sells are more reliable trades for right now.
**8 AM Note- Weakness on commodity opens in Crude and the Metals thus far. I believe these are strong sells today and have the opportunity for more downside volatility. I would not recommend purchasing commodities today.
Buys to Watch:
Bonds vs. Sell 5 year Note- Use the relationship of Bonds*3 - Fiver Year*7 to chart and also execute the trade (or the similar Bonds*2 - Five Year*5). The weekly chart has a bottom cup and handle reversal with a breakout of -456250 and a projection to -449315. Today this relationship has weakened slightly, but is providing a good low volume entry zone to buy. This morning the market has only slightly breached the top of this zone, which sits from -453160 to -452200 with greater support from -454000 to -453200 for stop placement. The success of this trade is based on the continued unwinding of the popular "buy the short end, sell the long end" trade of the yield curve. The bond market on it's own has a bullish head and shoulders pattern with a breakout of 118.02 and a projection to 121.21, and the 5 Years have a bearish head and shoulders with a breakout today of 115.00 and a projection to 113.20. While each of these are a trade on it's own, I am using the confirmation of one of these patterns as further momentum support for buying the bonds against the 5 years.
Sells to Watch:
Crude Oil- Crude Oil has a solid double top pattern on the May contract today, that was briefly set off and rejected this morning already. The breakout is 79.41 with a projection to 75.46. Stochastics on the daily chart also gave a sell signal on Friday that should be confirmed today on weakness. Selling breakout extensions can be risky as it often takes multiple attempts to reliably continue, so if there is a rally before another attempt keep an eye on the overnight resistance from 80.35 to 80.50. If the market rallies above this level today it will likely rally into a low volume zone from 81.28 to 81.80 that could be a good opportunity to sell for preemptive entry. The Crude is likely tied to the breakout of the metals, so if you see them both breaking their levels at the same time I would take this as a sign of trade strength and support.
Silver- Silver, Gold and Copper all have topping formations right now, but I am focusing on the Silver market for the sale on the breakout. Looking at the Gold vs. Silver chart (Gold - Silver/2), the Silver appears to have a weakening reversal where the Gold should continue to gain in relation to the silver ($1 Gold Move = 2 Cent Silver Move). The breakout on the silver double top is 16.835 and has a projection to 16.07. So far this morning the Silver has rejected a breakout attempt around the same time as the Crude, so it is likely that they will travel together. There is overnight resistance from 16.90 to 16.98, but like Crude, a rally above this level will likely continue into the low volume area from 17.15 to 17.20, which could be a good opportunity to sell. Use the Gold as an indicator for this trade as well. The head and shoulders pattern on the gold has a breakout of $1102.1 today with a projection to $1048. If the silver breaks out while the gold does not it is unlikely to hold and continue.
Put on the Radar:
Currencies- The European Currency break on Friday was one was of the catalysts leading the rest of the market down, and I believe that it is important to keep them on the radar for a breakout below their range over the last month. Further weakness would indicate another strong leg down in these currencies, which is extremely bearish the overall market with the recent strength of the correlation between the two. The Pound was the strongest on the recovery attempt last weak and also the weakest on the rejection, as well as the market correction from January and February. Because of this I am watching the Pound as the leading indicator for a new low close today. The previous low close was 1.4958 from March 2nd. Two consecutive closes lower would project a third leg down of another 9 points. I am also keeping my eye on a double top that could be forming in the Australian Dollar, which would indicate further commodity weakness.
Buy July November Soybean Spread- I am taking off the May-November Bean Spread because the May - July portion is nearing the May roll, which puts bearish pressure on the spread. The July - Nov spread has a potential double bottom pattern forming that is based on inefficiencies in South American shipping and labor. This is a largely rumor-based fundamental story that is continuing to develop, but is necessary for the spread to rally. There is resistance right now at 30 cents, but a rally above this level should continue to 40 cents premium the July. Above 40 and 45 cents the spread has a projection from 60 to 75 cents. I still do not have a good pullback entry zone so it is still execute at your own risk for right now, but I would likely wait for a breakout above 32 cents to enter.
Bean Oil- The Soybean Oil has a flag pattern breakout today at 3905 that has a projection to 3756. The Beans are not my favorite market right now as there is a lot of push and pull, but this could be a decent trade if the Crude Oil sets off it's double top pattern. Look for weakness in the Crude after 8 a.m. to execute this trade. If the Crude does not continue down, then it is unlikely to come into play today.
Notes:
Stock Indexes- The stock indexes are now beginning their second day down, so I am watching them for further weakness before attempting to sell them. The Nasdaq has been the leader so I am looking for particular weakness in it. Friday's candlestick in relation to Thursdays produced an engulfing bearish candlestick pattern for the Nasdaq. Momentum for the Nasdaq has also begun to turn negative as Stochastics produced a sell signal Friday on the daily chart in overbought territory and RSI maintains a strong negative move while still sitting in overbought territory. Lastly, From the February 5th base I have drawn an amended trendline that keeps all closes above the trend, but with some trade below it. Today the trend value is sitting at 1910 for the Nasdaq so I would wait for confirmation below this line to begin selling.
The reformed Health Care Bill finally was passed by The House yesterday evening, providing a sigh of relief for President Obama and Democrats. However, what may be a positive sign for our President is not being received as one by the markets thus far, with commodities and equities beginning a third day of weakness this morning. I currently have a number of medium-sized topping pattern formations that I am watching, with at least one market in each commodity sector having one (how about that for solidarity). The only difficulty right now is deciding, which markets are the best to play the downside breakout trade in once it sets off. Looking across the sectors the stock indexes have acted the strongest since the early February recovery and do not have great patterns right now, so I am just keeping them on the radar today. Furthermore, the currencies have only recently come back in line with moves from the rest of the market, reestablishing the "Dollar Up, Commodities Down" relationship over the last week. So, I am waiting for further confirmation on another leg down before executing in the currencies. Lastly, the Grain markets have an explosion of contrary long and short term bearish and bullish news, confusing the market and making it a difficult trade. This means that right now I am focusing on the energies, metals, and the longer term fixed income trade. I will still describe the other trades, but will leave them on the radar or in the notes for today as I believe that the buys and sells are more reliable trades for right now.
**8 AM Note- Weakness on commodity opens in Crude and the Metals thus far. I believe these are strong sells today and have the opportunity for more downside volatility. I would not recommend purchasing commodities today.
Buys to Watch:
Bonds vs. Sell 5 year Note- Use the relationship of Bonds*3 - Fiver Year*7 to chart and also execute the trade (or the similar Bonds*2 - Five Year*5). The weekly chart has a bottom cup and handle reversal with a breakout of -456250 and a projection to -449315. Today this relationship has weakened slightly, but is providing a good low volume entry zone to buy. This morning the market has only slightly breached the top of this zone, which sits from -453160 to -452200 with greater support from -454000 to -453200 for stop placement. The success of this trade is based on the continued unwinding of the popular "buy the short end, sell the long end" trade of the yield curve. The bond market on it's own has a bullish head and shoulders pattern with a breakout of 118.02 and a projection to 121.21, and the 5 Years have a bearish head and shoulders with a breakout today of 115.00 and a projection to 113.20. While each of these are a trade on it's own, I am using the confirmation of one of these patterns as further momentum support for buying the bonds against the 5 years.
Sells to Watch:
Crude Oil- Crude Oil has a solid double top pattern on the May contract today, that was briefly set off and rejected this morning already. The breakout is 79.41 with a projection to 75.46. Stochastics on the daily chart also gave a sell signal on Friday that should be confirmed today on weakness. Selling breakout extensions can be risky as it often takes multiple attempts to reliably continue, so if there is a rally before another attempt keep an eye on the overnight resistance from 80.35 to 80.50. If the market rallies above this level today it will likely rally into a low volume zone from 81.28 to 81.80 that could be a good opportunity to sell for preemptive entry. The Crude is likely tied to the breakout of the metals, so if you see them both breaking their levels at the same time I would take this as a sign of trade strength and support.
Silver- Silver, Gold and Copper all have topping formations right now, but I am focusing on the Silver market for the sale on the breakout. Looking at the Gold vs. Silver chart (Gold - Silver/2), the Silver appears to have a weakening reversal where the Gold should continue to gain in relation to the silver ($1 Gold Move = 2 Cent Silver Move). The breakout on the silver double top is 16.835 and has a projection to 16.07. So far this morning the Silver has rejected a breakout attempt around the same time as the Crude, so it is likely that they will travel together. There is overnight resistance from 16.90 to 16.98, but like Crude, a rally above this level will likely continue into the low volume area from 17.15 to 17.20, which could be a good opportunity to sell. Use the Gold as an indicator for this trade as well. The head and shoulders pattern on the gold has a breakout of $1102.1 today with a projection to $1048. If the silver breaks out while the gold does not it is unlikely to hold and continue.
Put on the Radar:
Currencies- The European Currency break on Friday was one was of the catalysts leading the rest of the market down, and I believe that it is important to keep them on the radar for a breakout below their range over the last month. Further weakness would indicate another strong leg down in these currencies, which is extremely bearish the overall market with the recent strength of the correlation between the two. The Pound was the strongest on the recovery attempt last weak and also the weakest on the rejection, as well as the market correction from January and February. Because of this I am watching the Pound as the leading indicator for a new low close today. The previous low close was 1.4958 from March 2nd. Two consecutive closes lower would project a third leg down of another 9 points. I am also keeping my eye on a double top that could be forming in the Australian Dollar, which would indicate further commodity weakness.
Buy July November Soybean Spread- I am taking off the May-November Bean Spread because the May - July portion is nearing the May roll, which puts bearish pressure on the spread. The July - Nov spread has a potential double bottom pattern forming that is based on inefficiencies in South American shipping and labor. This is a largely rumor-based fundamental story that is continuing to develop, but is necessary for the spread to rally. There is resistance right now at 30 cents, but a rally above this level should continue to 40 cents premium the July. Above 40 and 45 cents the spread has a projection from 60 to 75 cents. I still do not have a good pullback entry zone so it is still execute at your own risk for right now, but I would likely wait for a breakout above 32 cents to enter.
Bean Oil- The Soybean Oil has a flag pattern breakout today at 3905 that has a projection to 3756. The Beans are not my favorite market right now as there is a lot of push and pull, but this could be a decent trade if the Crude Oil sets off it's double top pattern. Look for weakness in the Crude after 8 a.m. to execute this trade. If the Crude does not continue down, then it is unlikely to come into play today.
Notes:
Stock Indexes- The stock indexes are now beginning their second day down, so I am watching them for further weakness before attempting to sell them. The Nasdaq has been the leader so I am looking for particular weakness in it. Friday's candlestick in relation to Thursdays produced an engulfing bearish candlestick pattern for the Nasdaq. Momentum for the Nasdaq has also begun to turn negative as Stochastics produced a sell signal Friday on the daily chart in overbought territory and RSI maintains a strong negative move while still sitting in overbought territory. Lastly, From the February 5th base I have drawn an amended trendline that keeps all closes above the trend, but with some trade below it. Today the trend value is sitting at 1910 for the Nasdaq so I would wait for confirmation below this line to begin selling.
Friday, March 19, 2010
Friday 3/19/10 Commodity Ideas
Opening Note:
Overnight the majority of commodities have been quiet with a Pound break and a Dollar rally the largest movers thus far. It appears that the "all clear on Greece" rally in the European currencies was just a fake out earlier this week as they have definitively rejected their rally attempt and are heading back into the range they traded for much of February and early March. It will be interesting to watch if they have the long covering momentum now to power through this range next week. A break out of the bottom of this range would likely negatively impact commodity prices as it would start an entire new leg down for the Euro, Pound, and Franc. Commodities have been stagnant over the last couple days after the FOMC meeting on Tuesday, with some sectors, like energies, showing a little weakness on the Dollar recovery. The relationship between the U.S. Dollar and commodities was highly correlated this week, so I suggest monitoring the European currency situation closer. As was the case in mid-January, a strong currency move in the near future could be the leader on the next move in market direction. Equities again found a way to close up on the day yesterday and remain the strongest sector of any and the strongest buy still. With low volatility and many sideways markets lately I do not see many good patterns or execution opportunities on trades. This is probably a good thing as I am unsure of the broader market direction for the rest of this month. I believe that it is likely that the market sits in a sideways "holding" sort of pattern until new fundamental news gives direction.
Buys to Watch:
Bonds vs. 5 Year Notes- To get this chart enter (Bonds*3 - Five Year Note *7), which is the same ratio for execution. The bonds rejected their bullish head and shoulders pattern the last two days in a row, but weakness in the five year has still made this trade a winner the last few days. The weekly chart is now on the verge of setting off a reversal cup and handle or head and shoulders bottom. If you look at a monthly chart you can see that buying the five year against selling the bonds is the overwhelming trend since the beginning of 2007. However, if the weekly reversal gains some steam it looks like this trend could violate this trend and cause a significant liquidation of the trade. When the FOMC announcement took the same tone as the previous months I believed that the buy the 5's and sell the 30's was back on, but this relationship reversal has continued. This reversal despite supportive news really pings my radar that something big might be happening here. I am using the more modest cup and handle projection on the weekly chart for right now that has a breakout of -456250 with a projection to -449315, which is right near the high of the range from the second half of 2009. Whether this is a trade you decide to execute when it sets off or not, I still would keep this yield curve relationship on your radar for a while because the monthly trend violation could have reverberations across the market.
May-November and July November Soybean Spreads- Both spreads have now rallied out of the bearish channel they have traded for the last two weeks and recovered nicely for a higher close, despite some bearish pressure the prior day and a half. The stories of isolated worker strikes and inefficient handling and shipping of the historic Soybean crop in South America are still isolated, but we have seen this situation blow up the last two years. Both charts still have good double bottom technical bases that with another 20 cent rally will likely gain another 20 to 30 cents on top. The May-July portion of the spread will have bearish market pressure entering in early April prior to and during the roll out of the May contract, but it has rallied slightly and does have nice support to rally off of prior to the roll. If you expect a good 40 to 60 cent rally then this trade has good risk/reward still based on support at the base, but if you only expect a 20 to 30 cent rally it would be beneficial to wait for a dip to buy. This trades success is reliant upon the fundamental South American worker and inefficiency story, which is just rumors right now, so proceed with caution and scrutiny.
Sells to Watch: I still have nothing good here for today.
Put on the Radar:
Bonds- The bullish head and shoulders bottom pattern still has a breakout of 118.02 with a projection to 121.21. The market has rejected breakout attempts over the last few days and looks like it needs some time to recover if another attempt is in order. Keep this pattern on your radar because if it sets off it could provide good momentum for the Bonds vs. 5 year notes trade, which I believe is the one to execute now instead of this outright.
2 Year and 5 Year Notes- I'm beginning to consider changing the name of the Newsletter to "Mike Mondi's Fixed Income Perspective", but honestly this sector is the most interesting and opportunity-filled right now. The shorter end of the yield curve has performed much weaker than the longer side lately and is setting up a potential bearish head and shoulders pattern on the daily charts in these markets. Like the Bonds above, I suggest keeping these markets on your radar as an indicator for strength in the better Bonds vs. 5 Year trade if the patterns breakout.
Notes:
Bean Oil vs. Soy Meal- What took a month to build up strength was taken completely apart in the last seven days. Bean Oil demand was predicted to rise throughout the Spring with support from energies and Palm Oil, but any strength ind the Oil has completely dissipated. Technically this break looks very tough to recover from, so I do not recommend looking for opportunities to buy dips on this free fall.
Sugar- Speaking of markets that fell apart, take a look at the Sugar daily chart. The market was very excited about the base of several months and the 30 day rally, but over the last month and a half long position liquidation has broken the market to prices well below the previous base range on a break of over 35%. I am writing about this market today though because I believe that it is in the process of forming a reversal base now. RSI and Stochastics momentum was in extremely oversold territory, but have begun to rally slightly, with Stochastics giving a weaker buy signal yesterday. The market has rallied the last two days and is rejecting slightly today, but I do not believe that it is a good sale anymore and wold recommend taking profits on shorts if you have them.
Overnight the majority of commodities have been quiet with a Pound break and a Dollar rally the largest movers thus far. It appears that the "all clear on Greece" rally in the European currencies was just a fake out earlier this week as they have definitively rejected their rally attempt and are heading back into the range they traded for much of February and early March. It will be interesting to watch if they have the long covering momentum now to power through this range next week. A break out of the bottom of this range would likely negatively impact commodity prices as it would start an entire new leg down for the Euro, Pound, and Franc. Commodities have been stagnant over the last couple days after the FOMC meeting on Tuesday, with some sectors, like energies, showing a little weakness on the Dollar recovery. The relationship between the U.S. Dollar and commodities was highly correlated this week, so I suggest monitoring the European currency situation closer. As was the case in mid-January, a strong currency move in the near future could be the leader on the next move in market direction. Equities again found a way to close up on the day yesterday and remain the strongest sector of any and the strongest buy still. With low volatility and many sideways markets lately I do not see many good patterns or execution opportunities on trades. This is probably a good thing as I am unsure of the broader market direction for the rest of this month. I believe that it is likely that the market sits in a sideways "holding" sort of pattern until new fundamental news gives direction.
Buys to Watch:
Bonds vs. 5 Year Notes- To get this chart enter (Bonds*3 - Five Year Note *7), which is the same ratio for execution. The bonds rejected their bullish head and shoulders pattern the last two days in a row, but weakness in the five year has still made this trade a winner the last few days. The weekly chart is now on the verge of setting off a reversal cup and handle or head and shoulders bottom. If you look at a monthly chart you can see that buying the five year against selling the bonds is the overwhelming trend since the beginning of 2007. However, if the weekly reversal gains some steam it looks like this trend could violate this trend and cause a significant liquidation of the trade. When the FOMC announcement took the same tone as the previous months I believed that the buy the 5's and sell the 30's was back on, but this relationship reversal has continued. This reversal despite supportive news really pings my radar that something big might be happening here. I am using the more modest cup and handle projection on the weekly chart for right now that has a breakout of -456250 with a projection to -449315, which is right near the high of the range from the second half of 2009. Whether this is a trade you decide to execute when it sets off or not, I still would keep this yield curve relationship on your radar for a while because the monthly trend violation could have reverberations across the market.
May-November and July November Soybean Spreads- Both spreads have now rallied out of the bearish channel they have traded for the last two weeks and recovered nicely for a higher close, despite some bearish pressure the prior day and a half. The stories of isolated worker strikes and inefficient handling and shipping of the historic Soybean crop in South America are still isolated, but we have seen this situation blow up the last two years. Both charts still have good double bottom technical bases that with another 20 cent rally will likely gain another 20 to 30 cents on top. The May-July portion of the spread will have bearish market pressure entering in early April prior to and during the roll out of the May contract, but it has rallied slightly and does have nice support to rally off of prior to the roll. If you expect a good 40 to 60 cent rally then this trade has good risk/reward still based on support at the base, but if you only expect a 20 to 30 cent rally it would be beneficial to wait for a dip to buy. This trades success is reliant upon the fundamental South American worker and inefficiency story, which is just rumors right now, so proceed with caution and scrutiny.
Sells to Watch: I still have nothing good here for today.
Put on the Radar:
Bonds- The bullish head and shoulders bottom pattern still has a breakout of 118.02 with a projection to 121.21. The market has rejected breakout attempts over the last few days and looks like it needs some time to recover if another attempt is in order. Keep this pattern on your radar because if it sets off it could provide good momentum for the Bonds vs. 5 year notes trade, which I believe is the one to execute now instead of this outright.
2 Year and 5 Year Notes- I'm beginning to consider changing the name of the Newsletter to "Mike Mondi's Fixed Income Perspective", but honestly this sector is the most interesting and opportunity-filled right now. The shorter end of the yield curve has performed much weaker than the longer side lately and is setting up a potential bearish head and shoulders pattern on the daily charts in these markets. Like the Bonds above, I suggest keeping these markets on your radar as an indicator for strength in the better Bonds vs. 5 Year trade if the patterns breakout.
Notes:
Bean Oil vs. Soy Meal- What took a month to build up strength was taken completely apart in the last seven days. Bean Oil demand was predicted to rise throughout the Spring with support from energies and Palm Oil, but any strength ind the Oil has completely dissipated. Technically this break looks very tough to recover from, so I do not recommend looking for opportunities to buy dips on this free fall.
Sugar- Speaking of markets that fell apart, take a look at the Sugar daily chart. The market was very excited about the base of several months and the 30 day rally, but over the last month and a half long position liquidation has broken the market to prices well below the previous base range on a break of over 35%. I am writing about this market today though because I believe that it is in the process of forming a reversal base now. RSI and Stochastics momentum was in extremely oversold territory, but have begun to rally slightly, with Stochastics giving a weaker buy signal yesterday. The market has rallied the last two days and is rejecting slightly today, but I do not believe that it is a good sale anymore and wold recommend taking profits on shorts if you have them.
Thursday, March 18, 2010
Thursday 3/18/10 Commodity Ideas
Opening Note:
Throughout the morning and into midday yesterday commodities, equities, and foreign currencies all saw strong positive gains, but an afternoon break led by equities has me extremely cautious in my market approach right now. Overnight there was continued weakness in the European currencies on news that the EU will not likely provide support for Greece and let them work out their own debt problems. Commodities are only slightly negative on the day right now, with grains showing the most weakness, but with world markets trading lower I am hesitant to step in and buy them. The Fed announcement Tuesday afternoon supported investment flow into the market for another month and price action for the next 24 hours supported this idea. However, like I have noted for the last week, I am concerned that the rally since February 5th is very over-extended, with yesterday afternoon's give-up showing that it is losing steam. I take note when market reaction is not how I expected, and I believed that the broader market should continue to solidly rally after the announcement. I think that we could be heading into a sideways market for a while, with potentially choppy swings, that could form a top for a new leg down. Because of this I am liquidating some market supportive positions for right now and keeping trades and markets that are not clear on my radar for the time being until the market gives better signals on it's direction.
Buys to Watch:
Bonds & Buy Bonds vs. Sell 5 Year Note- The large bottom head and shoulders pattern has a breakout of 118.02 again today with a projection to 121.21. Yesterday the Bonds weakly attempted a rally above the breakout level that immediately failed. This morning the market is currently sitting just above the breakout, but does not have much rally momentum thus far. Two days ago Stochastics gave a buy signal on the daily chart, which was confirmed yesterday. Because I have little trust in the head and shoulders pattern I am looking at buying the Bonds versus selling the 5 Year Notes as a spread to enter the trade. Using Bonds*3 - 5 Year*7 (or the similar 2:5 ratio), with the same execution ratio, you can enter a trade that continues to be technically strong and take off the short 5 Year position if the bond projection begins to work. The weekly chart on this yield curve spread also has a potential bullish cup and handle pattern set off above the January highs. Normally I would say that a sideways or topping pattern in equities and commodities would support the bonds, but the relationship between these sectors has been inconclusive lately.
Sells to Watch:
Put on the Radar:
Metals- Gold along with the other metals has sat in a sideways range for the last couple weeks with a number of false upside and downside breakouts. If you have been trading them you have likely gotten chopped up on the swings. However, Stochastics on Gold, Silver, and Copper continues to sit on the verge of a buy signal. A strong momentum indicator could set off a volatile move after the recent sideways action. Open Interest in metals has grown throughout March after a significant drop-off in the first two months of the year. The open interest could be the fuel and momentum the catalyst for a rally out of the sideways market, which I am keeping my eye out for.
May - November and July - November Soybean Spreads- The story on these trades is just developing with rumors of labor strikes and exporting inefficiencies in South America, so I would continue to monitor these stories while holding off on executing the spreads. Both of the inter-crop spreads displayed strength yesterday, but fell apart a little prior to the close. Yesterday I said that I was leaning towards the May - November spread more than the July, but despite having a chart that could support a rally, the May - July portion of the trade is running out of time to rally before bearish pressure enters the market in anticipation of and during the early April roll out of the May contract. Both the May-Nov and July-Nov spreads have supportive double bottom bases that technically show rally potential, but the fundamental South American story is needed for them to work. A 20 or 30 cent rally in either spread likely means another 20 or 30 on top technically, so there is good reward potential.
Notes:
Dollar Index- On the Greece news and some commodity weakness the Dollar Index has traded all over the place overnight. The 80.135 breakout was rallied through, again rejecting the down leg projection to 79.07. It appeared that the currencies were finally moving out of the range trade they have sat in the last month, but Greece's solvency has shaken any moves that began. If you are still short the Dollar I recommend liquidating for right now as the market appears to be tail-whipping back and forth with indecisive market pieces. The correlation between the Dollar and the broader market still appears to be returning to strength, but because I believe the broader market's direction is undecided right now then so is the Dollar
British Pound- If you used good execution on this bullish trade you likely still have a profit or a scratch if you are sitting long, but I recommend liquidating the long for right now. The Pound is strongly tied to the Euro and Franc and is effected by the back and forth Greece news. The market was very strong yesterday morning and broke nearly perfectly into the low volume buy zone I was looking for. However, after rallying back to it's daily highs in the early afternoon, it suffered on the late equity break. The stronger support from 152.10 to 152.30 held nicely, but I do not like trading rumor or news based markets much. If the move to 155.08 becomes clear again there should be opportunities to get back in later. Note: Take a peek at the Pound - Euro chart. If you are bullish the Pound still this looks like a better way to play the trade as it has a nice technical base and continues to strengthen.
Soybeans- So what do you get when you take bullish rain, bearish supply, bullish South American rumors, sliding demand, and inconclusive technicals and put them all together? For me it is just confusion. Right now I am afraid to sell rallies, but I am also weary of looking for momentum to buy. The only thing clear to me is that open interest is on the rise again and Stochastics gave a buy signal two days ago. The chart could be in a channel, forming a bullish cup and handle or just rejecting a rally on a leg down. I do not look at the bean market right now as a great trade and I am staying out of it.
Throughout the morning and into midday yesterday commodities, equities, and foreign currencies all saw strong positive gains, but an afternoon break led by equities has me extremely cautious in my market approach right now. Overnight there was continued weakness in the European currencies on news that the EU will not likely provide support for Greece and let them work out their own debt problems. Commodities are only slightly negative on the day right now, with grains showing the most weakness, but with world markets trading lower I am hesitant to step in and buy them. The Fed announcement Tuesday afternoon supported investment flow into the market for another month and price action for the next 24 hours supported this idea. However, like I have noted for the last week, I am concerned that the rally since February 5th is very over-extended, with yesterday afternoon's give-up showing that it is losing steam. I take note when market reaction is not how I expected, and I believed that the broader market should continue to solidly rally after the announcement. I think that we could be heading into a sideways market for a while, with potentially choppy swings, that could form a top for a new leg down. Because of this I am liquidating some market supportive positions for right now and keeping trades and markets that are not clear on my radar for the time being until the market gives better signals on it's direction.
Buys to Watch:
Bonds & Buy Bonds vs. Sell 5 Year Note- The large bottom head and shoulders pattern has a breakout of 118.02 again today with a projection to 121.21. Yesterday the Bonds weakly attempted a rally above the breakout level that immediately failed. This morning the market is currently sitting just above the breakout, but does not have much rally momentum thus far. Two days ago Stochastics gave a buy signal on the daily chart, which was confirmed yesterday. Because I have little trust in the head and shoulders pattern I am looking at buying the Bonds versus selling the 5 Year Notes as a spread to enter the trade. Using Bonds*3 - 5 Year*7 (or the similar 2:5 ratio), with the same execution ratio, you can enter a trade that continues to be technically strong and take off the short 5 Year position if the bond projection begins to work. The weekly chart on this yield curve spread also has a potential bullish cup and handle pattern set off above the January highs. Normally I would say that a sideways or topping pattern in equities and commodities would support the bonds, but the relationship between these sectors has been inconclusive lately.
Sells to Watch:
Put on the Radar:
Metals- Gold along with the other metals has sat in a sideways range for the last couple weeks with a number of false upside and downside breakouts. If you have been trading them you have likely gotten chopped up on the swings. However, Stochastics on Gold, Silver, and Copper continues to sit on the verge of a buy signal. A strong momentum indicator could set off a volatile move after the recent sideways action. Open Interest in metals has grown throughout March after a significant drop-off in the first two months of the year. The open interest could be the fuel and momentum the catalyst for a rally out of the sideways market, which I am keeping my eye out for.
May - November and July - November Soybean Spreads- The story on these trades is just developing with rumors of labor strikes and exporting inefficiencies in South America, so I would continue to monitor these stories while holding off on executing the spreads. Both of the inter-crop spreads displayed strength yesterday, but fell apart a little prior to the close. Yesterday I said that I was leaning towards the May - November spread more than the July, but despite having a chart that could support a rally, the May - July portion of the trade is running out of time to rally before bearish pressure enters the market in anticipation of and during the early April roll out of the May contract. Both the May-Nov and July-Nov spreads have supportive double bottom bases that technically show rally potential, but the fundamental South American story is needed for them to work. A 20 or 30 cent rally in either spread likely means another 20 or 30 on top technically, so there is good reward potential.
Notes:
Dollar Index- On the Greece news and some commodity weakness the Dollar Index has traded all over the place overnight. The 80.135 breakout was rallied through, again rejecting the down leg projection to 79.07. It appeared that the currencies were finally moving out of the range trade they have sat in the last month, but Greece's solvency has shaken any moves that began. If you are still short the Dollar I recommend liquidating for right now as the market appears to be tail-whipping back and forth with indecisive market pieces. The correlation between the Dollar and the broader market still appears to be returning to strength, but because I believe the broader market's direction is undecided right now then so is the Dollar
British Pound- If you used good execution on this bullish trade you likely still have a profit or a scratch if you are sitting long, but I recommend liquidating the long for right now. The Pound is strongly tied to the Euro and Franc and is effected by the back and forth Greece news. The market was very strong yesterday morning and broke nearly perfectly into the low volume buy zone I was looking for. However, after rallying back to it's daily highs in the early afternoon, it suffered on the late equity break. The stronger support from 152.10 to 152.30 held nicely, but I do not like trading rumor or news based markets much. If the move to 155.08 becomes clear again there should be opportunities to get back in later. Note: Take a peek at the Pound - Euro chart. If you are bullish the Pound still this looks like a better way to play the trade as it has a nice technical base and continues to strengthen.
Soybeans- So what do you get when you take bullish rain, bearish supply, bullish South American rumors, sliding demand, and inconclusive technicals and put them all together? For me it is just confusion. Right now I am afraid to sell rallies, but I am also weary of looking for momentum to buy. The only thing clear to me is that open interest is on the rise again and Stochastics gave a buy signal two days ago. The chart could be in a channel, forming a bullish cup and handle or just rejecting a rally on a leg down. I do not look at the bean market right now as a great trade and I am staying out of it.
Wednesday, March 17, 2010
Wednesday 3/17/10 Commodity Ideas
Opening Note:
As expected The Fed announcement yesterday was more of the same with the language "exceptionally low" and "extended period of time" kept the same. Furthermore, there was still only the same one dissenting vote against the use of this language, which was one of the notes that I was paying close attention to (I tend to side with Hoenig right now, but that is another story). Barring another European country's insolvency, The Fed has renewed the market's lease on a slow crawl up for another month at least, with the less important April 2nd Unemployment Number the next significant piece of macro news. Commodities, equities, and foreign currencies should be supported by investment after this announcement despite the S&P having only 6 lower closes (only 1 significantly) in the last 27 trading sessions. Looking at the different commodity sectors, the equities have performed the strongest since the February bottom with energies slightly lagging and metals even further back, yet still strong. However, looking at the sectors right now I believe that the metals are poised for larger gains in the next month than the energies based on a recent influx of open interest, after a large decrease since the beginning of the year, and stronger buy signals emerging in momentum indicators. The equities should also still continue their strong trend rally with the Nasdaq and Russel 2000 still leading the way. Yesterday I noted that the currency markets led the commodity rally on the day and that the correlation between them and the rest of the market may have realigned. So far today this appears to be on target with a weaker Dollar against commodity gains. Keep an eye on this relationship for the next few days because this could add a new leading indicator into the mix that has recently been absent from the party. Finally, I would not recommend fading or selling commodity or equity strength going forward and would focus efforts on finding dips and momentum to buy.
Buys to Watch:
British Pound- In the midday update yesterday I proposed this trade, and with the Fed announcement on target with the market's bet, the trade worked well into yesterday's close and much more overnight. News has flowed in recently that the Greece situation is improving and that Europe may be on the recovery path. This trade is based on this fundamental news, but I like isolating this market rather than the Franc or Euro because the Pound was extremely oversold in comparison to the others. The beautiful cup and handle technical pattern had a breakout at 151.86 with a projection to 155.08, which I believe is modest with an opportunity at 157 with enough short covering momentum. At 4:30 a.m. there was a large rally, likely based on fundamental news or a report, so there is a good low volume zone to buy on a break from 152.65 to 153.25 with stronger support form 152.10 to 152.30. If you bought the breakout yesterday I would not be too eager to advance your stop into this range and would keep it just below the 152.10 support for today. Momentum on the chart is strongly positive for Stochastics and RSI so I expect this trade to reach it's projection. Side Note: It may be tempting to just buy the Euro on the Greece news, but along with the Pound I like the technical strength of the Swiss Franc chart better than the Euro.
Bonds- I am not the most fundamentally proficient trader of fixed incomes, but technically there is a gigantic bottom head and shoulders staring at me in the bonds right now. I have noted the last few days that the longer side of the yield curve is beginning to gain on the short side, so this makes the bonds the best buy of the fixed incomes currently. The breakout on the head and shoulders formation is 118.02 and has a projection to 121.21. A move to the projection would rally the bonds into resistance from highs in early October and November of last year, keeping the market in a narrowing sideways range for the last year. I am always skeptical of the head and shoulders pattern and sometimes like to wait for an initial rejection to enter on the second attempt. However, I think that by focusing on the Buy Bonds vs. Sell the 5 Year Note relationship you can have a hedged bet entry and can remove the 5 year piece if the Bonds start rolling. The chart to focus on is (Bonds*3 - 5 Year*7 or, Bonds*2 - 5 Year*5) with this also being the execution ratio for the trade. While I believed that The Fed taking the same stance would continue the popular "buy the short end, sell the long end" yield curve trade it appears that this is not the case since yesterday afternoon. Although there was a late afternoon pullback on yesterday's gains, overnight the bonds have continued to strengthen against the 5 Year. Technically the chart has a great base and has violated the daily trend. In addition, fundamentally I take special note of relationships that do not react the way I believe they should and I believe that there is potential for much more liquidation, making this a good trade on it's own.
Sells to Watch:
Dollar Index- This is the other side of the buy the Europe trade that also has a nice technical pattern and a couple other aspects that should help it. With a renewed buy commodities and equities approach for another month the resource based economies of Australia and Canada should improve their currency value based on the commodity price advance. Both of these currencies have strong technical trends and are at or near their yearly highs as well. As I stated earlier, I am also looking for a rally in the European currencies, so basically the Dollar Index has everything except the Yen working for a break. The breakout on the topping pattern was 80.135 with a projection to 79.07. Right now I do not see a good low volume entry point, but the risk reward for the trade still is not too bad if executed soon. For entry you may want to focus on the low volume area in the Pound that I listed earlier for execution. Also, like the Pound I would advise against moving down your stop too much for today likely leaving it near the breakout if you are already short.
Put on the Radar:
Buy Soybeans- After the close yesterday I received a report that South American countries are having difficulty handling and exporting the huge soybean crop leading to strikes and delayed cargoes. The infrastructure at many of the ports is not capable or used to handling such large amounts of worldwide exports and this looks like the beginning of a shift from attention on the South American Crop to focus on the U.S. old crop. What is the point of buying cheaper beans when you can not get them? With respect to this news, I would not recommend selling old crop (May & July) rallies for right now. I was becoming worried technically being short the beans a couple days ago and it looks like this was the news that was creeping into the market. Yesterday Stochastics gave a buy signal on the May Soybeans after rallying out of oversold territory yesterday. I believe that beans already had their chance to break, but the market was not willing to. Grain traders love a good Spring bullish story so I would look at going with this rally. This is about the time of year that the crazy Argentinian lady ineffectively deals with worker strikes and export problems as well, so that can not be too far away on the horizon. I would look for momentum short term on this trade, but would hold off on establishing a large long term position until the rumors become more clear. A potentially better play than the outrights on this story is:
Buy May - November or July November Soybean Spreads- I personally like the May - November Soybean spread better because on top of the July-Nov you get the May-July piece that can work well based on the South American crop, and you can always roll it to July-Nov for longer exposure. Right now both the May-Nov and July-Nov spreads have a technical double bottom pattern set-up. I also believe that there are a number of large bear spread positions out there that were convinced that there would not be U.S. tightness with such a large South American crop, allowing for short covering to be part of the rally. The May-Nov spread is in a channel on the daily chart for the last couple weeks and topside resistance sits near 22 1/2 today. However, if the spread rallies above 35 and 40 cents it projects to between 60 and 75 cents premium the May. I do not see great technical entry points right now, but buying a dip and putting your stop below 10 cents still has a good risk/reward right now. I put this in the radar because it is just developing so enter at your own risk right now.
Notes:
RBOB (Gas)- I warned about a potential double top in this market recently, but the rally yesterday and continuation today off the FOMC announcement has the RBOB chasing a new high close. If the market is able to rally and hold open water above it's old highs it could gain significantly on the Heating Oil as the Oil is choked up in a range with more resistance.
As expected The Fed announcement yesterday was more of the same with the language "exceptionally low" and "extended period of time" kept the same. Furthermore, there was still only the same one dissenting vote against the use of this language, which was one of the notes that I was paying close attention to (I tend to side with Hoenig right now, but that is another story). Barring another European country's insolvency, The Fed has renewed the market's lease on a slow crawl up for another month at least, with the less important April 2nd Unemployment Number the next significant piece of macro news. Commodities, equities, and foreign currencies should be supported by investment after this announcement despite the S&P having only 6 lower closes (only 1 significantly) in the last 27 trading sessions. Looking at the different commodity sectors, the equities have performed the strongest since the February bottom with energies slightly lagging and metals even further back, yet still strong. However, looking at the sectors right now I believe that the metals are poised for larger gains in the next month than the energies based on a recent influx of open interest, after a large decrease since the beginning of the year, and stronger buy signals emerging in momentum indicators. The equities should also still continue their strong trend rally with the Nasdaq and Russel 2000 still leading the way. Yesterday I noted that the currency markets led the commodity rally on the day and that the correlation between them and the rest of the market may have realigned. So far today this appears to be on target with a weaker Dollar against commodity gains. Keep an eye on this relationship for the next few days because this could add a new leading indicator into the mix that has recently been absent from the party. Finally, I would not recommend fading or selling commodity or equity strength going forward and would focus efforts on finding dips and momentum to buy.
Buys to Watch:
British Pound- In the midday update yesterday I proposed this trade, and with the Fed announcement on target with the market's bet, the trade worked well into yesterday's close and much more overnight. News has flowed in recently that the Greece situation is improving and that Europe may be on the recovery path. This trade is based on this fundamental news, but I like isolating this market rather than the Franc or Euro because the Pound was extremely oversold in comparison to the others. The beautiful cup and handle technical pattern had a breakout at 151.86 with a projection to 155.08, which I believe is modest with an opportunity at 157 with enough short covering momentum. At 4:30 a.m. there was a large rally, likely based on fundamental news or a report, so there is a good low volume zone to buy on a break from 152.65 to 153.25 with stronger support form 152.10 to 152.30. If you bought the breakout yesterday I would not be too eager to advance your stop into this range and would keep it just below the 152.10 support for today. Momentum on the chart is strongly positive for Stochastics and RSI so I expect this trade to reach it's projection. Side Note: It may be tempting to just buy the Euro on the Greece news, but along with the Pound I like the technical strength of the Swiss Franc chart better than the Euro.
Bonds- I am not the most fundamentally proficient trader of fixed incomes, but technically there is a gigantic bottom head and shoulders staring at me in the bonds right now. I have noted the last few days that the longer side of the yield curve is beginning to gain on the short side, so this makes the bonds the best buy of the fixed incomes currently. The breakout on the head and shoulders formation is 118.02 and has a projection to 121.21. A move to the projection would rally the bonds into resistance from highs in early October and November of last year, keeping the market in a narrowing sideways range for the last year. I am always skeptical of the head and shoulders pattern and sometimes like to wait for an initial rejection to enter on the second attempt. However, I think that by focusing on the Buy Bonds vs. Sell the 5 Year Note relationship you can have a hedged bet entry and can remove the 5 year piece if the Bonds start rolling. The chart to focus on is (Bonds*3 - 5 Year*7 or, Bonds*2 - 5 Year*5) with this also being the execution ratio for the trade. While I believed that The Fed taking the same stance would continue the popular "buy the short end, sell the long end" yield curve trade it appears that this is not the case since yesterday afternoon. Although there was a late afternoon pullback on yesterday's gains, overnight the bonds have continued to strengthen against the 5 Year. Technically the chart has a great base and has violated the daily trend. In addition, fundamentally I take special note of relationships that do not react the way I believe they should and I believe that there is potential for much more liquidation, making this a good trade on it's own.
Sells to Watch:
Dollar Index- This is the other side of the buy the Europe trade that also has a nice technical pattern and a couple other aspects that should help it. With a renewed buy commodities and equities approach for another month the resource based economies of Australia and Canada should improve their currency value based on the commodity price advance. Both of these currencies have strong technical trends and are at or near their yearly highs as well. As I stated earlier, I am also looking for a rally in the European currencies, so basically the Dollar Index has everything except the Yen working for a break. The breakout on the topping pattern was 80.135 with a projection to 79.07. Right now I do not see a good low volume entry point, but the risk reward for the trade still is not too bad if executed soon. For entry you may want to focus on the low volume area in the Pound that I listed earlier for execution. Also, like the Pound I would advise against moving down your stop too much for today likely leaving it near the breakout if you are already short.
Put on the Radar:
Buy Soybeans- After the close yesterday I received a report that South American countries are having difficulty handling and exporting the huge soybean crop leading to strikes and delayed cargoes. The infrastructure at many of the ports is not capable or used to handling such large amounts of worldwide exports and this looks like the beginning of a shift from attention on the South American Crop to focus on the U.S. old crop. What is the point of buying cheaper beans when you can not get them? With respect to this news, I would not recommend selling old crop (May & July) rallies for right now. I was becoming worried technically being short the beans a couple days ago and it looks like this was the news that was creeping into the market. Yesterday Stochastics gave a buy signal on the May Soybeans after rallying out of oversold territory yesterday. I believe that beans already had their chance to break, but the market was not willing to. Grain traders love a good Spring bullish story so I would look at going with this rally. This is about the time of year that the crazy Argentinian lady ineffectively deals with worker strikes and export problems as well, so that can not be too far away on the horizon. I would look for momentum short term on this trade, but would hold off on establishing a large long term position until the rumors become more clear. A potentially better play than the outrights on this story is:
Buy May - November or July November Soybean Spreads- I personally like the May - November Soybean spread better because on top of the July-Nov you get the May-July piece that can work well based on the South American crop, and you can always roll it to July-Nov for longer exposure. Right now both the May-Nov and July-Nov spreads have a technical double bottom pattern set-up. I also believe that there are a number of large bear spread positions out there that were convinced that there would not be U.S. tightness with such a large South American crop, allowing for short covering to be part of the rally. The May-Nov spread is in a channel on the daily chart for the last couple weeks and topside resistance sits near 22 1/2 today. However, if the spread rallies above 35 and 40 cents it projects to between 60 and 75 cents premium the May. I do not see great technical entry points right now, but buying a dip and putting your stop below 10 cents still has a good risk/reward right now. I put this in the radar because it is just developing so enter at your own risk right now.
Notes:
RBOB (Gas)- I warned about a potential double top in this market recently, but the rally yesterday and continuation today off the FOMC announcement has the RBOB chasing a new high close. If the market is able to rally and hold open water above it's old highs it could gain significantly on the Heating Oil as the Oil is choked up in a range with more resistance.
Tuesday, March 16, 2010
Tuesday 3/16/10 Midday Update: Currency Correlation?
After nearly a month with little correlation between the currency sector and the broader market there appears to be a high correlation today. Around 3 a.m. the Dollar Index started a downward trend that has led a rally in the Energy and Metal sectors that started shortly after the currencies. The break in the Dollar is mostly led by a rally in the European Currencies, especially the British Pound. Whether this is a one day aberration or a trend that is beginning is yet to be resolved, but I am closely watching this relationship.
I am still looking at the 80.135 level in the Dollar Index as the breakout on a topping pattern that projects to 7907. Also, I am looking at the 151.86 level in the Pound as the breakout on a rally that projects to 155.08. The Pound was the weakest European currency throughout February, so I view strength in it as a clear market reversal that should support commodities if the correlation holds. The Euro/Yen cross has a nice base on it that has good potential to rally, which is also a good indicator of equity and commodity strength.
While I would hold off on executing trades in these currencies right now I would reevaluate them after the Fed announcement this afternoon. The strong commodity rally today looks oddly foreshadowing of the impending Fed announcement, as it looks like the market is anticipating little to no change in the Fed's policy. I do not recommend fading or selling this rally, but instead to look for pullbacks to buy momentum in commodity and equity markets in the future if the announcement is as expected (except Sugar...seriously, do not buy the sugar right now...and the Nat.Gas for that matter).
I am still looking at the 80.135 level in the Dollar Index as the breakout on a topping pattern that projects to 7907. Also, I am looking at the 151.86 level in the Pound as the breakout on a rally that projects to 155.08. The Pound was the weakest European currency throughout February, so I view strength in it as a clear market reversal that should support commodities if the correlation holds. The Euro/Yen cross has a nice base on it that has good potential to rally, which is also a good indicator of equity and commodity strength.
While I would hold off on executing trades in these currencies right now I would reevaluate them after the Fed announcement this afternoon. The strong commodity rally today looks oddly foreshadowing of the impending Fed announcement, as it looks like the market is anticipating little to no change in the Fed's policy. I do not recommend fading or selling this rally, but instead to look for pullbacks to buy momentum in commodity and equity markets in the future if the announcement is as expected (except Sugar...seriously, do not buy the sugar right now...and the Nat.Gas for that matter).
Tuesday 3/16/10 Commodity Ideas
Opening Note:
Overnight the market was relatively quiet as the trade awaits the FOMC announcement this afternoon, with some strength in the European Currencies and Metals the only things standing out to me. Right now I do not have any great trades from a technical perspective and do not recommend entering trades that will be carried through the announcement today. Therefore, all suggestions will be in the Radar or Notes section today. I expect that The Fed will not raise rates, but their statement is important and likely will effect the direction that the market takes for the rest of the spring. As I stated yesterday, I believe that changes in The Fed's statement will have a more volatile effect on the market than if it decides to keep things constant, so if you are carrying significant longs today I would think about at least temporary lightening them. While I still believe that the recent rally is over-extended in many commodity and equity markets I am not convinced that the market is heading for a break just yet. Weakness in the metals last week led me to believe that they could be the leader to break energy and equity prices, but their strength thus far this week has me reconsidering my hypothesis. Today I tried to focus on a couple markets that have some nice technical bases and, depending on the announcement this afternoon, have the possibility of a strong move beginning. If The Fed keeps a similar stance I think that equities and energies are the best buys and will continue to rally on further investment.
**8 AM Note- Commodities are acting strong on their opens today so buying momentum will likely be easier on later opens like grains.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Bonds vs. Sell 5 Year Notes- To chart this enter either (Bonds*3)-(5 Year*7) or you can also use a similar ratio of Bonds*2 and 5 Year*5, with these proportions being the same ratio for execution. On the daily chart this component of the yield curve has formed a base over the last month and rallied above this base range towards the end of last week. Over the last year the strong trend has been 5 years gaining proportionally on the 30 Year Bonds, but this base could support a strong reversal move if the trade begins to liquidate. The rally last week violated the daily trendline that was intact from October. Looking longer term on a weekly chart, there also appears to be a base with a potential cup and handle pattern forming with a breakout above the highs from January of this year. And lastly, the monthly chart is hanging around support levels from 2002 and 2003. The Ten Year (*5) vs. the Five Year (*7) also has acted stronger lately further supporting this idea of a flattening yield curve. I believe that if The Fed shifts it's policy that liquidation will begin on the Bonds versus the 5 Years, so I would wait until after the announcement and then evaluate this trade.
Buy Nasdaq vs. Sell Crude Oil- Yesterday I was looking for a break into the acceleration from Friday's rally to execute, but a sharp break on the Crude open did not allow this opportunity. The trade continued to strengthen yesterday with Crude having it's second consecutive sizable down day and the Nasdaq recovering nicely on the day with a 2pm rally. Because the only way to really enter the trade yesterday was to enter on the Crude open I think it is improbable that anybody was able to get on the trade, and I am waiting until after the announcement to reevaluate it. The base on the daily Nasdaq/Crude Oil chart is strong technically and looks like it can rally the market on a breakout above the range it has traded for this year. Right now the ratio has rallied more than 2/3 of the way to the top of this range, with most of the move coming in the last two days. Crude Oil has tried to trade along with equities for the last year, but with a lesser degree of success. With Crude sitting near a lot of resistance from the last 5 months highs and the stock indexes in the process of creating new highs I believe that this trade continues to work, especially if The Fed shifts it's policy, as the move out of Crude should be swifter than equities.
Sell Copper- I will comment more later on the disappointing Gold and Silver action, but I have turned my attention more to Copper lately and it's topping action on the daily chart. Open Interest has not exactly poured into the metals lately, but Gold has much more consistent holdings along with Platinum and Palladium. Meanwhile, OI in Copper dropped significantly after the beginning of the year and has only slightly increased in March, with money flowing more into equities and energies. During last year's recovery Copper was consistently a little stronger than the equity indexes and looked like it was headed for more of the same in February. However, while the equity indexes are off making new yearly highs the Copper has a strong failure against it's yearly highs and has a sideways dome forming for this month. Stochastics confirmed a sell signal on March 10th and RSI also has negative momentum. I do not recommend executing a sale in Copper today, but I am keeping an eye on the effectiveness of the low volume sell zone from 336.1 to 337.5 as resistance on a rally and reevaluating this afternoon.
Notes:
Gold and Silver- Gold and Silver are strong again today and have both rallied above resistance levels that I believe were key. I am flat in these markets now as they have the potential for a reversal rally. Both still have bottoming formations in effect that could fuel significant rallies despite rejecting earlier this month. I was looking at these metals as an indicator for a potential leg down in commodities and this rally tells me that one is not coming just yet. I do not believe that this rally should be bought into just yet either, so I am moving them off of my potential trade list for the time being.
Soybean Complex- Soybeans just do not want to have continued break. On a daily chart it is looking more likely that they could continue sideways in a range for the Spring instead of having the fundamental break in prices many are expecting. This morning the market rallied slightly above my resistance zone from 9.32 to 9.37, so I would recommend sitting flat and waiting for another opportunity for right now. There still is the large low volume zone from 9.38 to 9.51 that could provide a sell opportunity, but I would hold off on executing today as the market closes at 1:15pm right before The Fed announcement. The Bean Oil vs. Meal trade also had a significant break based off a Crude break that was tied to the Bean Oil. I still think energy demand is a risky trade so I would not recommend buying the Oil Share for the time being.
RBOB (Gas)- The RBOB, which was the strength of the energy complex since February has a potential double top on the April daily chart. This could be detrimental to the RBOB vs. Heating Oil spread as well.
Overnight the market was relatively quiet as the trade awaits the FOMC announcement this afternoon, with some strength in the European Currencies and Metals the only things standing out to me. Right now I do not have any great trades from a technical perspective and do not recommend entering trades that will be carried through the announcement today. Therefore, all suggestions will be in the Radar or Notes section today. I expect that The Fed will not raise rates, but their statement is important and likely will effect the direction that the market takes for the rest of the spring. As I stated yesterday, I believe that changes in The Fed's statement will have a more volatile effect on the market than if it decides to keep things constant, so if you are carrying significant longs today I would think about at least temporary lightening them. While I still believe that the recent rally is over-extended in many commodity and equity markets I am not convinced that the market is heading for a break just yet. Weakness in the metals last week led me to believe that they could be the leader to break energy and equity prices, but their strength thus far this week has me reconsidering my hypothesis. Today I tried to focus on a couple markets that have some nice technical bases and, depending on the announcement this afternoon, have the possibility of a strong move beginning. If The Fed keeps a similar stance I think that equities and energies are the best buys and will continue to rally on further investment.
**8 AM Note- Commodities are acting strong on their opens today so buying momentum will likely be easier on later opens like grains.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Bonds vs. Sell 5 Year Notes- To chart this enter either (Bonds*3)-(5 Year*7) or you can also use a similar ratio of Bonds*2 and 5 Year*5, with these proportions being the same ratio for execution. On the daily chart this component of the yield curve has formed a base over the last month and rallied above this base range towards the end of last week. Over the last year the strong trend has been 5 years gaining proportionally on the 30 Year Bonds, but this base could support a strong reversal move if the trade begins to liquidate. The rally last week violated the daily trendline that was intact from October. Looking longer term on a weekly chart, there also appears to be a base with a potential cup and handle pattern forming with a breakout above the highs from January of this year. And lastly, the monthly chart is hanging around support levels from 2002 and 2003. The Ten Year (*5) vs. the Five Year (*7) also has acted stronger lately further supporting this idea of a flattening yield curve. I believe that if The Fed shifts it's policy that liquidation will begin on the Bonds versus the 5 Years, so I would wait until after the announcement and then evaluate this trade.
Buy Nasdaq vs. Sell Crude Oil- Yesterday I was looking for a break into the acceleration from Friday's rally to execute, but a sharp break on the Crude open did not allow this opportunity. The trade continued to strengthen yesterday with Crude having it's second consecutive sizable down day and the Nasdaq recovering nicely on the day with a 2pm rally. Because the only way to really enter the trade yesterday was to enter on the Crude open I think it is improbable that anybody was able to get on the trade, and I am waiting until after the announcement to reevaluate it. The base on the daily Nasdaq/Crude Oil chart is strong technically and looks like it can rally the market on a breakout above the range it has traded for this year. Right now the ratio has rallied more than 2/3 of the way to the top of this range, with most of the move coming in the last two days. Crude Oil has tried to trade along with equities for the last year, but with a lesser degree of success. With Crude sitting near a lot of resistance from the last 5 months highs and the stock indexes in the process of creating new highs I believe that this trade continues to work, especially if The Fed shifts it's policy, as the move out of Crude should be swifter than equities.
Sell Copper- I will comment more later on the disappointing Gold and Silver action, but I have turned my attention more to Copper lately and it's topping action on the daily chart. Open Interest has not exactly poured into the metals lately, but Gold has much more consistent holdings along with Platinum and Palladium. Meanwhile, OI in Copper dropped significantly after the beginning of the year and has only slightly increased in March, with money flowing more into equities and energies. During last year's recovery Copper was consistently a little stronger than the equity indexes and looked like it was headed for more of the same in February. However, while the equity indexes are off making new yearly highs the Copper has a strong failure against it's yearly highs and has a sideways dome forming for this month. Stochastics confirmed a sell signal on March 10th and RSI also has negative momentum. I do not recommend executing a sale in Copper today, but I am keeping an eye on the effectiveness of the low volume sell zone from 336.1 to 337.5 as resistance on a rally and reevaluating this afternoon.
Notes:
Gold and Silver- Gold and Silver are strong again today and have both rallied above resistance levels that I believe were key. I am flat in these markets now as they have the potential for a reversal rally. Both still have bottoming formations in effect that could fuel significant rallies despite rejecting earlier this month. I was looking at these metals as an indicator for a potential leg down in commodities and this rally tells me that one is not coming just yet. I do not believe that this rally should be bought into just yet either, so I am moving them off of my potential trade list for the time being.
Soybean Complex- Soybeans just do not want to have continued break. On a daily chart it is looking more likely that they could continue sideways in a range for the Spring instead of having the fundamental break in prices many are expecting. This morning the market rallied slightly above my resistance zone from 9.32 to 9.37, so I would recommend sitting flat and waiting for another opportunity for right now. There still is the large low volume zone from 9.38 to 9.51 that could provide a sell opportunity, but I would hold off on executing today as the market closes at 1:15pm right before The Fed announcement. The Bean Oil vs. Meal trade also had a significant break based off a Crude break that was tied to the Bean Oil. I still think energy demand is a risky trade so I would not recommend buying the Oil Share for the time being.
RBOB (Gas)- The RBOB, which was the strength of the energy complex since February has a potential double top on the April daily chart. This could be detrimental to the RBOB vs. Heating Oil spread as well.
Monday, March 15, 2010
Monday 3/14/10 Commodity Ideas
Opening Note:
Overnight the market was relatively quiet, with the most notable move being a British Pound rejection on its bullish cup and handle projection. Starting this week the trade is focused on the FOMC meeting tomorrow so I expect the market to remain quiet with the possibility of some continued long covering in commodity markets, with a little less probability in equities. Looking at the nearby Fed Funds contracts of March and April there is a low probability that The Fed raises rates within the next couple months, but prices have declined more recently for the first time in a couple months. This shows that some longs are uncomfortable holding positions into the announcement and that the expectation that rates are raised by September may be moving up in time. The "language" that The Fed uses tomorrow is what the marketplace has an eye on to hear if the "extended period of time" phrase is continued to be used on holding rates steady near zero, and to see if there are a growing number of dissenters from the previous announcement on the use of this language. I believe that there is a lot more risk right now in holding long positions in commodities and equities than holding short positions through this report. If The Fed keeps the same language and stance there should be support for these markets with continued entry, but a shift in the statement likely would cause a wave of liquidation in the economy as lending stimulus begins to unwind. I am conscious that the most recent rally is extended time-wise and that a break in prices is becoming overdue. So, I am cautiously short term bearish with a bigger emphasis on commodity metals and less so on equities.
Buys to Watch:
Nasdaq vs. Crude Oil- I wrote about this trade multiple times last week in the radar section, but a strong rally in the relationship Friday set off the cup and handle bottom pattern on the Nasdaq/Crude chart. The differential chart has looked strong for a while now (Nasdaq - Crude) or (Nasdaq/10 - Crude to change the side values), but this can be deceptive because the Nasdaq is an index and does not relate well to other markets. This trade fundamentally works best on a commodity break I believe, and Crude is beginning to look vulnerable after only a slight rally on recent sideways action and a convincing reversal on Friday. I believe that commodities are overdue for a leg down right now, but that equity markets will not suffer as bad. For entry I am watching the Nasdaq/Crude chart and looking for a pullback into the acceleration from Friday between 23470 and 23610 to execute in the outright markets. The cup and handle pattern really only projects to 24000 conventionally on the chart, but I believe that technically the base in the relationship could rally the relationship out of the sideways range it has traded for the last several months. To execute I would use a 4 or 3 Nasdaq to 1 Crude relationship. I believe that a Crude break is more likely than a very strong Nasdaq right now so I would lean towards a 3:1 relationship. Note: S&P and Dow are bouncing off their highs from this year so Nasdaq could find weakness off of them, and it can be dangerous holding positions into the FOMC announcement even if little change is expected.
* Feel free to email me if you have questions or suggestions on this trade idea because it is tricky execution wise with a number of moving parts.
Sells to Watch:
Put on the Radar:
Sell Gold and Silver- I was hoping that the markets would be weaker by this point today and I do not have great entry points currently so I am moving this out of the sells for right now and into the radar. Metals have acted the weakest lately among the commodity sectors and I still believe that if there is a commodity break to come, where the metals will lead the way and perform the weakest. While Copper is one of the weakest markets on my board today the Gold and Silver have held up relatively well while I thought there was an opportunity to really break them. I do not have great entry points right now and would recommend lightening up your short position for the time being if you are holding one as they are not acting the way I expected. Resistance in Gold is from $1112 to $1114 and at $17.22 in silver for stop placement orientation. The bear wedge projection to around $1030 in Gold is still intact and the next level of support is just below $1090 in the Gold, with silver being traded off of these levels as well. There should be more opportunities to come in these markets shortly.
Sell Soybeans- While there was a small rally on the open Friday, Soybeans only glanced off the low volume zone that I was looking to add short positions in above 9.38. Today there is a small low volume sell zone between 929 and 931, that could act as resistance for the high today. If you were able to hold a short position in the market I would look at resistance from 9.32 to 9.37 for stop placement. The head and shoulders projection on the May Soybeans is still to just above $9.00. Fundamentals are still very bearish the market so I am looking for continued weakness in the market below the first $9.00 support level.
Notes:
Cotton- The market had a huge short covering rally Friday followed by strong action again today. If you are still sitting short I would liquidate and take profits if you still have them. On a weekly chart the market still looks possibly strong and I would wait for a more clear setup to have a position in the market right now.
Bean Oil and Bean Oil vs. Soy Meal- Led by a break in the Energies, Bean Oil had a significant bearish reversal day Friday. Open interest has been pouring into Bean Oil and the Energies as of late as they are both fundamentally tied when Crude is above $70. There is a possibility for long liquidation and further weakness in the short term so I do not recommend trying to buy it for right now. Furthermore, I would avoid buying the Oil share versus the Soy Meal as I believe that the Energy part of the trade is risky. The Oil Share did trade into a good dip buying range from 1382 to 1400, but I am uncertain of energy direction so I am staying flat the relationship right now as well.
British Pound and Dollar Index- The British Pound this morning had a strong reversal rejection on its bullish cup and handle pattern. The U.S. Dollar Index also rejected it bearish topping pattern that projected to a break of at least a handle. Right now the currencies are trading a volatile range without much fundamental news to act as a catalyst for moves. When these markets moved past their breakouts on Friday they were already extended on the day and did not have the momentum to continue, allowing for the false breakout and rejection. I do not believe that they will have the momentum to fulfill their patterns before the FOMC meeting Tuesday, so I would be mindful of the patterns, but hold off on executing.
Overnight the market was relatively quiet, with the most notable move being a British Pound rejection on its bullish cup and handle projection. Starting this week the trade is focused on the FOMC meeting tomorrow so I expect the market to remain quiet with the possibility of some continued long covering in commodity markets, with a little less probability in equities. Looking at the nearby Fed Funds contracts of March and April there is a low probability that The Fed raises rates within the next couple months, but prices have declined more recently for the first time in a couple months. This shows that some longs are uncomfortable holding positions into the announcement and that the expectation that rates are raised by September may be moving up in time. The "language" that The Fed uses tomorrow is what the marketplace has an eye on to hear if the "extended period of time" phrase is continued to be used on holding rates steady near zero, and to see if there are a growing number of dissenters from the previous announcement on the use of this language. I believe that there is a lot more risk right now in holding long positions in commodities and equities than holding short positions through this report. If The Fed keeps the same language and stance there should be support for these markets with continued entry, but a shift in the statement likely would cause a wave of liquidation in the economy as lending stimulus begins to unwind. I am conscious that the most recent rally is extended time-wise and that a break in prices is becoming overdue. So, I am cautiously short term bearish with a bigger emphasis on commodity metals and less so on equities.
Buys to Watch:
Nasdaq vs. Crude Oil- I wrote about this trade multiple times last week in the radar section, but a strong rally in the relationship Friday set off the cup and handle bottom pattern on the Nasdaq/Crude chart. The differential chart has looked strong for a while now (Nasdaq - Crude) or (Nasdaq/10 - Crude to change the side values), but this can be deceptive because the Nasdaq is an index and does not relate well to other markets. This trade fundamentally works best on a commodity break I believe, and Crude is beginning to look vulnerable after only a slight rally on recent sideways action and a convincing reversal on Friday. I believe that commodities are overdue for a leg down right now, but that equity markets will not suffer as bad. For entry I am watching the Nasdaq/Crude chart and looking for a pullback into the acceleration from Friday between 23470 and 23610 to execute in the outright markets. The cup and handle pattern really only projects to 24000 conventionally on the chart, but I believe that technically the base in the relationship could rally the relationship out of the sideways range it has traded for the last several months. To execute I would use a 4 or 3 Nasdaq to 1 Crude relationship. I believe that a Crude break is more likely than a very strong Nasdaq right now so I would lean towards a 3:1 relationship. Note: S&P and Dow are bouncing off their highs from this year so Nasdaq could find weakness off of them, and it can be dangerous holding positions into the FOMC announcement even if little change is expected.
* Feel free to email me if you have questions or suggestions on this trade idea because it is tricky execution wise with a number of moving parts.
Sells to Watch:
Put on the Radar:
Sell Gold and Silver- I was hoping that the markets would be weaker by this point today and I do not have great entry points currently so I am moving this out of the sells for right now and into the radar. Metals have acted the weakest lately among the commodity sectors and I still believe that if there is a commodity break to come, where the metals will lead the way and perform the weakest. While Copper is one of the weakest markets on my board today the Gold and Silver have held up relatively well while I thought there was an opportunity to really break them. I do not have great entry points right now and would recommend lightening up your short position for the time being if you are holding one as they are not acting the way I expected. Resistance in Gold is from $1112 to $1114 and at $17.22 in silver for stop placement orientation. The bear wedge projection to around $1030 in Gold is still intact and the next level of support is just below $1090 in the Gold, with silver being traded off of these levels as well. There should be more opportunities to come in these markets shortly.
Sell Soybeans- While there was a small rally on the open Friday, Soybeans only glanced off the low volume zone that I was looking to add short positions in above 9.38. Today there is a small low volume sell zone between 929 and 931, that could act as resistance for the high today. If you were able to hold a short position in the market I would look at resistance from 9.32 to 9.37 for stop placement. The head and shoulders projection on the May Soybeans is still to just above $9.00. Fundamentals are still very bearish the market so I am looking for continued weakness in the market below the first $9.00 support level.
Notes:
Cotton- The market had a huge short covering rally Friday followed by strong action again today. If you are still sitting short I would liquidate and take profits if you still have them. On a weekly chart the market still looks possibly strong and I would wait for a more clear setup to have a position in the market right now.
Bean Oil and Bean Oil vs. Soy Meal- Led by a break in the Energies, Bean Oil had a significant bearish reversal day Friday. Open interest has been pouring into Bean Oil and the Energies as of late as they are both fundamentally tied when Crude is above $70. There is a possibility for long liquidation and further weakness in the short term so I do not recommend trying to buy it for right now. Furthermore, I would avoid buying the Oil share versus the Soy Meal as I believe that the Energy part of the trade is risky. The Oil Share did trade into a good dip buying range from 1382 to 1400, but I am uncertain of energy direction so I am staying flat the relationship right now as well.
British Pound and Dollar Index- The British Pound this morning had a strong reversal rejection on its bullish cup and handle pattern. The U.S. Dollar Index also rejected it bearish topping pattern that projected to a break of at least a handle. Right now the currencies are trading a volatile range without much fundamental news to act as a catalyst for moves. When these markets moved past their breakouts on Friday they were already extended on the day and did not have the momentum to continue, allowing for the false breakout and rejection. I do not believe that they will have the momentum to fulfill their patterns before the FOMC meeting Tuesday, so I would be mindful of the patterns, but hold off on executing.
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