Tuesday 3/2/10 Commodity Ideas

Opening Note:
I am coming back today after an extended break from Wednesday evening that was extra long after a late arrival returning Sunday. Very interesting moves over that time frame though with European currencies (The Pound) being slammed while commodities and equities overall have remained strong. It is pretty obvious by now that the 10% market correction buying is leading the market despite some troubling fundamental news releases and relationship action. It does not appear that the market has a problem with the large devaluing of Europe for the time being, with money still opting for the riskier investment. Much of the trade since February and into March has occurred on slight gains in open interest (in some cases declining) and on lower volume, but buying dips in strong markets has been the best way to make money and will continue to be until there is a fundamental shift in the market. Until The Fed begins raising rates and takes action in cutting lending, or more countries begin to fail, buying should remain the path of least resistance for commodities and equities as little else appears to affect them right now.

Buys to Watch:

Canadian Dollar- Although it pains me after the hockey loss Sunday, The Canadian has a rally breakout this morning on a cup and handle (W) pattern that looks to have a lot of momentum. I will discuss it further below, but it appears that the Pound and Euro look on the verge of a bullish reversal, which should support the Canadian. The Australian Dollar also looks strong, which supports the Canadian as they tend to move together as commodity/resource based economies, which have been strong. Breakout level of 9643 with a projection to 9924 on the March contract. I do not have a good pullback buy zone on it so I think you have to buy it off the breakout level with support until around 9575. With a close at the current levels daily Stochastics also would give off a buy signal today.

Sells to Watch:

Cocoa- I had this one on my sells Wednesday of last week with a sell zone from 2972 - 3000, but the market never rallied into it, literally stopping at 2971 before falling. Cocoa has continued to show individual weakness in the commodity sector and has a second leg projection to 2650. A good pullback sell zone is from 2896 - 2908 based on the low volume trade at this level. Note: RSI is heading back into oversold territory on the daily chart like it did in early February.

Put on the Radar:

Natural Gas- This daily chart is beginning to look very odd. While Crude and energies have shown strength throughout February, Nat. Gas was one of the poorest commodities during that time frame. Nat. Gas has it's own fundamental story and can do what it wants, but the truly odd thing is the relatively sizable increase in open interest while the price has dropped to near the contract lows from December. This tells me that there are a lot of short positions being added in this market, with many of them probably spread short against Crude or other longs. RSI is sitting right on oversold territory and Stochastics is in extremely oversold territory and close to a buy signal. Price has not dropped significantly lately, so I believe that there is good potential for a strong short covering rally soon. It might be worth a shot buying some on the Stochastics buy signal as the market tends to swing fast.

Cotton- It is now Day 16 of the enormous Cotton rally move, so it is getting close to the end of the 20 Day Move to look for. The market had it's first fairly large spiky top yesterday and is down significantly today for the first time since the move began. I do not have a grasp on the fundamental story and I do not see good entry to buy the pullback at this level. It does look however that the market is close to a top. Stochastics is close to confirming a sell signal on the daily chart in extremely overbought territory and RSI is confirming that it is highly overbought. Keep an eye out for a top formation here.

British Pound- If you do not have enough potential reversals to keep an eye on above, then here is one more. The lowest I can project the second leg down on the British Pound move to is 148.90. On the huge break yesterday the Pound ended up breaking 148.00, but closed at 149.90 leaving a rejection spike. The Pound was weak again today going into the European open, trading below the second leg projection, but also rejecting this level to only be slightly down today. The market looks like it is really trying to push Europe lower, but is failing to hold it. The Euro also looks to have similar action although it has not travelled as far lower lately. Stochastics is close to giving a buy signal for the Pound in oversold territory and RSI is also saying it is oversold. I am keeping an eye on a bottoming formation here and would suggest liquidating European shorts for the time being.

Notes:

Canadian Dollar vs. British Pound- After talking up this trade for the last couple weeks it is very close to hitting it's projection and I believe it is time to take profits if you have it. The projection from -6249 is to -5188 and it is currently sitting within 100 ticks of the final projection. As I stated above, I believe that the Pound is getting tired of falling, but the Canadian looks strong. I would think about just taking off the Pound side and holding the long Canadian as I think that there is another 250 ticks of upside there.

7 AM Morning Note- There has been commodity and equity buying in many markets since the European opening. It does not appear there was much allocation or fund buying yesterday, but there could be some today as European buying has lately signalled the same in U.S. for the day.