Thursday 3/4/10 Commodity Ideas

Opening Note:
Commodity and equity markets should remain quiet today heading into the Unemployment Rate announcement tomorrow. While Unemployment has acted as one of the key market movers over the last year and a half, I believe that it is now taking a back seat on the news front compared to other factors. Last month a bullish number did not have a large impact on the daily activity of the market, although it was one of the catalysts that reversed the temporary bear market into a bullish one over the last month for commodities. I believe though that the lending policies of The Fed and the World going forward are now the major driving factors for commodities and other riskier assets. Increased lending policies have fueled speculation in these markets over the last year and it will be the repealing of these stimulus policies that will affect the market more than what the change was last month in the Unemployment Rate. Therefore, I expect that the number will not have a huge impact on prices tomorrow, and that regardless of the change, money should continue to want to own commodities for the time being as loose lending policies still reign. Right now I believe that the currency sector is the most attractive sector to trade as there are technically projected moves that correlate to fundamental news.


Buys to Watch:

Canadian Dollar- Although the Canadian may not have had the largest gains among the currencies yesterday it is one of the consistent strengths right now, leading the board on the upside today thus far. The cup and handle breakout above 9643 is intact with a projection to 9924. Yesterday I was looking for the market to trade above 9700 with a higher close, which was achieved. The trade is no longer good below 9643, but it would be nice to see a close above the high yesterday of 9733. Resistance lies at old swing highs at 9778 and 9792 on the path to 9924.


Sells to Watch:

Dollar Index- Recent strength among the European currencies has helped form a topping pattern on the U.S. Dollar that slightly resembles a double top. I am drawing a neckline on the lows from Feb. 23rd and Feb. 26th to give a breakout level of 8025 today with a projection to around 7915. Levels between 8021 and 8009 provide a decent entry point with resistance around 8030 - 8035, or near the highs of today's range thus far. I would not hold this trade above the resistance levels for right now. Both RSI and Stochastics are indicating continued downward momentum. European currencies looking like they will maintain a rally in the short term also makes this an attractive trade. Note: Although I do not believe that the Unemployment number tomorrow will affect the market a lot tomorrow, I believe that the market will be quiet leading into it and still could cause movement tomorrow. I hesitate to execute a trade today looking for movement before the riskier unknown number, so it may be better to wait until after the number to execute.

Cocoa- Cocoa has shown individual weakness among commodities throughout the bull market the last month. I have a bearish continuation second leg projection to 2650 currently. A good low volume sell zone exists between 2878 and 2906 with resistance above it from 2910 to 2930. Cocoa has rallied off it's bottom yesterday morning and today and is nearing the sell entry zone. This is the first rally pullback the market has seen in a while and looks ideal one and a half days up. Note: Just like the reasons in the Dollar Index I hesitate to enter positions the day before Unemployment as there is usually less volatility. Stochastics on the market also are in oversold territory currently but maintain a downward trend.

Put on the Radar:

British Pound- I wrote the last two days about a strengthening bottom in the Pound and stated that prices above 151.00 would signal to me that there was a larger rally at hand. Yesterday and today the Pound has rallied above these levels, but has had difficulty holding them. Still, I see the Pound continuing to rally. The next strong low volume resistance level I see is between 153.40 and 154.00 The Pound is not the highest volume currency in Europe, but I am watching this market as more of an indicator for the Euro as it was much weaker than the Euro or Franc in the last couple weeks. Stochastics provided a buy signal two days ago out of oversold territory and RSI also has moved out of oversold territory. As the previous weakness I watch the strength in this market to gauge the other European currencies value.

Notes:

Correction- Yesterday I wrote that I believe funds may have waited until after unemployment last month to allocate money and that this again may be the case this month. A friend sent me some data on ETF allocation that showed that this was not the case on their front and that it may have been some scheduled yearly entry that was not related to unemployment. I kind of misstated my idea yesterday, which was more along the lines that many market participants like you and I (or non-ETF fund managers) are waiting to execute trades until after unemployment after witnessing more volatility based on the number over the last year and a half. Buying the dip really kicked in last month the Monday after the report after it failed during the beginning of the month and I believe that large players other than the standard allocation may have been part of that.