Monday 4/5/10 Commodity Ideas

Opening Note:
With many Commodity markets closed the Unemployment numbers released Friday showed an increase in employment, but came in near market expectations and did not have a significant impact on the markets on continuation into today as I expected. One thing to note is that of the 162,000 increase in payrolls over 1/4 of the increase came from the temporary hiring of 48,000 census workers. With Unemployment now out of the way the market will focus on new quarterly allocation as we begin the second full day of trading for the second quarter. On Thursday, the first day of the new quarter, the market did have new allocation in many individual markets on their opens, which was indicated earlier by similar buying on the European market open. Overnight there was not buying on the European open, but this is likely because of the Easter Monday Holiday that has European exchanges closed. So, the jury is still out on whether new money flow will enter the market this morning. While Energies and Metals have completed nearly 2/3 of their bullish continuation patterns Equities have struggled to battle higher lately. While the Dow and S&P have eked out small gains to new highs the Nasdaq, which has been the Equity Index leader for a year, gave up nearly all of it's gains after a strong open on Thursday. I believe that the weak action of the leader among the sector is another sign that Equities are likely in a topping formation and are susceptible to a break after nearly two straight months of rallying if new allocation does not lead the market higher. There is speculation that the Fed could raise the discount rate again today or in the near future further widening the gap between it and the Fed Funds rate, so be cautious as this is another signal that near zero interest rates may be on the way out the door sooner rather than later.

Buys to Watch:

Crude Oil or Heating Oil- Both the Crude and Heating Oil have bullish cup and handle patterns, but I still believe that the Heating Oil is the stronger buy of the two as it posted larger gains again on Thursday. The Energy sector was strong out of the box on Thursday so any low volume buy zones below the market were not entered for optimum purchase. The Crude cup and handle pattern had a breakout of $83.36 and has a projection to $87.18 while the Heating Oil had a breakout of 215.63 cents with a projection to 225.13. Both markets are now battling with contract high closes and trade values which will provide temporary resistance. I do not have good nearby low volume entry zones in either of theses markets right now, but lower trade for a day or two could provide better long entry. For Crude there is a low volume zone from 83.72 to 84.10 with support from 83.30 to 83.50 and similarly in the Heating Oil there is a low volume zone from 217.45 to 218.70 with support from 215.70 to 217.40 (there is also a small zone in Heat from 221.85 to 221.95 if the market makes new lows today). With each market already completing over 2/3 of it's projection I do not place as strong of a buy on this trade right now and would recommend waiting for better entry than jumping in or using short term charts for long entry right now.

Copper- Copper has a small triangle continuation pattern that has a projection from $3.72 to $3.75. On Thursday Copper decisively made a new high close as open interest continued to sharply increase on the bullish breakout. The low volume buy zone that I described Thursday from 3.5740 to 3.5900 with support below to 3.5590 held nicely and provided good long entry. Today I have a small zone from 3.5860 to 3.5900 with support from 3.5670 to 3.5820, but this is not a very strong zone so I would recommend using a smaller position than you would normally use for entry at these levels. Copper continues to be the strength of the Metals and of Commodities, but as a note of caution, both Stochastics and RSI have travelled into overbought territory recently on the daily chart.

Silver- Silver has not performed as strong as I had expected, but the market finally has some open interest creeping back in so I am leaving this as a buy for today. The Gold to Silver ratio (Gold - Silver/2) continues to weaken on its downside breakout from consolidation showing Silver strength over the Gold. I originally had a projection of $18.65 on the breakout above $17.60 for silver, but am adjusting this to a projection range from $18.30 to 18.65 as it is very possible that this just a new leg up rather than a pattern breakout. There is a low volume buy zone for Silver from 17.75 to 17.825 today that was entered briefly overnight with support from 17.68 to 17.72. The support here is not as strong though because there is another low volume zone near the breakout from 17.60 to 17.64 below it. I believe that Copper is the stronger buy of the two, but if you feel strongly about buying Gold right now I would execute this trade in the Silver as it has better short term upside potential.


Sells to Watch:

Japanese Yen- The resistance levels given on Thursday did hold strong as the top of the range for the Yen and were followed by weakness Friday after the Unemployment report. The topping pattern on the Yen had a breakout of 108.60 with a projection to 104.10, which is over 2/3 completed. Above the market trade today I have a low volume sell zone from 106.04 to 106.32 with resistance above from 106.44 to 106.75. As with many of the other patterns I become less aggressive with my sell size as the market nears it's projection so I would lighten up on selling the Yen at this point. Note: Momentum indicators for the Yen are in extremely oversold territory right now after the large break.

Put on the Radar:

Gold- Gold has a large head and shoulders bottom that is forming on the daily chart. The breakout value today is $1136.1 and has a rally projection increase of $109.50 to $1245.6 today. While the gold does have strong momentum indicators currently it has been the laggard of the Metal sector. A move of this magnitude would have strongly bullish implications for the rest of Commodities and I do not have a strong belief that it will occur. I would use the neckline on the head and shoulders pattern as resistance for right now and use any bullish ideas in the Gold to execute in Silver or Copper for the time being.

Euro/Yen Cross- The YR symbol market on CQG has completed over half of the cup and handle breakout pattern from 125.13 to 129.26. The market is slightly weaker this morning, but still has good continuation prospects as the Yen continues to weaken on it's topping pattern. This Currency move has supported Commodities and Equities so take note as it nears it's projection for any loss of momentum that could indicate a shift in the overall bullishness of the market.

Notes:

Corn- May Corn has a bearish head and shoulders pattern on its daily chart with a breakout at $3.59 and a projection to $3.30 1/2. While the Corn is weak and is likely to continue to be a good sale I am not even sure that it is the weakest market in the Grain sector, which is why I have this trade placed in the Notes section. I still have a low volume zone above the market from $3.48 1/2 to 3.52 that was temporarily entered Thursday with resistance above from 3.52 to 3.54. The price value from $3.50 1/2 to $3.52 is the gap from the Wednesday reports bearish open and is a stronger sale.