Wednesday 3/3/10 Commodity Ideas

Opening Note:
Leading up to the Unemployment Report on Friday the market should remain quiet with some new allocation money continuing to support commodity and equity prices. With little fundamental news coming out over the last few days, it appears that the market is in a stagnant period without a catalyst to get excited about. Much of the trade over the last month has gone to buying commodities spread against selling European currency weakness. However, the European currencies have stabilized over the last three days and look prepared to form a modest short covering rally. While I can tell you that I see some reversal and continuation patterns in the market, right now I am struggling to find a true entry and exit trade to feel confident about. For today at least, and likely until Friday, I will point out some directional pattern projections, but after really pouring through them can not suggest much execution strategy. One thing that I have noticed is that after a large allocation at the beginning of the year in January, the money that came into the market was hurt on bearish commodity and equity price action. While some money came into the market in the beginning of February, it looks like many funds waited until after the Unemployment Report Feb. 5th to start buying commodities on Monday the 8th. This looks like it could be true again this month, with new money waiting until after the risky Unemployment Report to enter the market on this coming Monday.


Buys to Watch:

Canadian Dollar- This is the projection that I feel the most confident about right now and still has opportunity for good risk/reward entry. The bullish cup and handle "W" pattern has a breakout of 9643 with a projection to 9924. I have repeated this like a broken record, but Canada relies on commodities and resources more than many other countries. The strength in the commodity markets should provide support for the Canadian further. I would like to see a decent close today with some trade above 9700 to stay with the trade as it currently has momentum, as poor action today would signify a loss of this vigor to me. Below support at 9575 I would definitely exit this trade, but price action below the 9643 breakout that supported yesterday would likely make me consider leaving the trade.


Sells to Watch:




Put on the Radar:

Metals- Gold, Silver, and Copper all have bullish continuation patterns in effect right now. I do not see good entry for the Gold or Silver right now, but Gold from the breakout of $1131.5 has a projection to $1174.5 and Silver from the breakout of $16.595 has a projection to $17.56. Copper however is just rallying above it's breakout level of 338.80 and has a projection to 361.00. The Copper is a trade that can still be entered, but I have some reservations about the trade. While daily Stochastics is about to give a buy signal it looks like the optimal entry point was yesterday around 330 in the gap left from the weekend. Copper has a large spike of resistance from it's rally Sunday night up to 348 and even more resistance above it at the old high range to 355, so I would say do at your own risk.

British Pound- I wrote yesterday about the potential for a short covering rally in the European currencies, especially the weak Pound. Momentum signals turning positive and projections met; providing the leading indicators in this idea. The Pound has a large, low volume gap of resistance from 150.50 to 151.00 that should provide temporary resistance to the market. I do not recommend selling the market in this area due to the base that it has setup, but I would keep an eye on this patch of resistance because if it plows through it a medium sized rally could ensue.


Notes:

Buy Commodities vs. Sell European Currencies- Right now many of the relationships here are at or near their recent highs, but I am hesitant to continue adding to this trade for right now. The support of the European currencies tells me that this is an unnecessary piece of the equation and that commodities should just be purchased outright when executed. Like I stated above I think that some money is sitting on the sidelines until Monday to avoid getting screwed by the Unemployment Report. Monday February 8th was the day that people began piling into this trade so I would look at it Monday again to see if it begins happening again.

Grains- Beans, Corn, and Wheat are putting me to sleep right now, as I am sure is the case for most of you. However, Bean Oil is extremely strong and the Oil vs. Meal trade I had my eye on earlier in the year is beginning to gather some steam. If I was to do anything in grains right now I would look for pullbacks on the Oil vs. Meal to buy, as there should be much more room for the trade to rally into the spring. I see a great gap to buy from 1247 to 1257 if the market pulls back to it, but with the trade consistently making "b" days on the market profile it looks like it may continue to rally.

Cocoa- If you were able to get on it in the beginning this was one of the easier trades to hold as there have been no pullbacks. I still have a low volume sell zone from 2876 to 2906, but it is looking less likely that the market will see a rally into this area. The bearish second leg projection remains to 2650