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.