Opening Note:
Yesterday morning the low volume zone from 1140.25 to 1144 in the S&P 500 acted as a top for the second day in a row on the stock market open as Equities reversed lower after a nearly full day rally. While I was moved to believe that the market had a stronger possibility of continuing higher yesterday, this was clearly not the case as supportive markets tumbled after the U.S. open and into this morning after this resistance level held. The fact that this corrective rally on the bear market was less than a full day in length time wise shows weakness for any bullish case. Furthermore, the Commodities I listed as evidence for a short term base like Crude and the Euro again tumbled yesterday with the Euro falling below the major support from the it's lows in '08.
Now on day 12 of the recent bear market I expect that we have at least another week and some change on this volatile drop in prices, with the "Flash Forward" spike lows looking like a target for Equities on the move lower. The weekly chart bullish trend for the stock market is also now testing it's limits as the RSI indicator is testing the lows on the range of this bullish trend that could signal a shift to a weekly bear market soon. I continue to recommend selling rallies in supportive Commodities at least for the next week.
Buys to Watch:
Sells to Watch:
Australian Dollar- Like most of the markets that showed strength on the recovery over the last year it was only a matter of time before the Aussie Dollar gave in to the bearish pressure. Money chased the Currency higher on the inflation and recovery trade, but the weekly chart has finally caved in with a break below the swing lows from February on the weekly chart. In what is very close to a double top pattern on the weekly chart the Aussie broke below the breakout level of .8547 this morning resulting in a projection to .7764. Because this move is on the weekly chart, confirmation of the pattern will not result for a number of days. However, with the macro picture continuing to weaken I believe that you can step into some shorts for the market on rally pullbacks. Right now I have .8500 as a good level to execute an initial short on a pullback towards the breakout level with .8526 - .8536 having some minor resistance to place a stop above. Otherwise, explore the June Puts that have 16 days until expiration for less risky entry.
Crude Oil and Copper Flag Patterns- I am grouping these two markets together today because they have been two of the worst performing Commodities as of late, but I do not have great nearby entry levels on a short position. I was looking for a rally yesterday in Crude into the mid $76 area for the opportunity to sell, but this area was never reached. However, with a flag continuation pattern lower for Crude that projects to $70 for the July contract (that I speculate has the strong possibility on a continuation to $60 within the next 2 months) I still am looking for short entry on Crude. There is a lower volume traded area from $72.94 to $73.36 with some higher volume trade at $73.75 that should act as resistance if Crude is able to form a rally.
For Copper I am still using the flag pattern on the July contract that projects to $2.67. I am focused on the $3.0850 to $3.1010 level with resistance near $3.1250 for entry. Although the market came close to this level on the rally yesterday, it was not entered and no new entry levels were created as of yet. Entry on this trade can be made on a 15 or 60 minute chart reversal though as well. Be aware that Copper has found support just above the $2.90 level on multiple occasions now, so a break through this level could be more difficult.
S&P 500 (or other Stock Indices)- The S&P appears to be the middle man and best indicator of the Stock Indices for right now, so I suggest trading it over the others. With yesterday's break a buildup of trade was left above the 1130 level, which I now am using as the new strong resistance level and a good area to short the market against. Keep in mind the "Flash Forward" level of 1056 as a potential projection for the bearish move. For the Dow I also have a similar level to the S&P at 10,560 that should act as strong resistance with a trade buildup above it. For the Dow this "Flash" level is 9,840. Lastly, the Nasdaq continues to trade all over the board as the strength one day and the weakness the next, so I am waiting for more continuity before using this market as an Equity short. The Nasdaq was the best performer on the corrective rally over the last year and I often like to isolate previous strengths (ie. Copper, Aussie Dollar) as the better shorts on macro moves lower, but the Nasdaq needs to show consistency.
Put on the Radar:
Palladium- Palladium is one of the thinner markets that I follow, so take this into account if you decide to enter the market and adjust your size accordingly. First it is necessary to look at a weekly chart of Palladium and see how large the rally in the market has been since December of '08. Palladium has outperformed nearly every market that experienced a significant break on the recovery and it has done so on all time levels of open interest that can be attributed to the entry of an ETF into the market. Now looking at the daily chart you can see the bearish cup and handle pattern with a breakout level of $485 today that has a projection to $420. I think it is a good idea to wait another day before entry and to use caution as the market trades thin. Another option I was exploring is using Platinum (another strong, but thin market on the recovery) as a hedge against the Palladium as the differential chart between the two has a similar move with Palladium leading the way lower.
July Soybeans- July Soybeans officially have a projection to $8.58, but with Corn fundamentals pulling the market higher and little action in the Grain complex lately it is turning into a molasses trade. July Beans only have significant support levels at $9.30 and $9.20 nearby, so the trade may accelerate below. However, with much of the macro market rolling with directional volatility I believe that Beans should be put on the back burner of markets to trade for the time being.
Notes:
Natural Gas- As I cautioned yesterday, the Natural Gas market can be volatile for the price that it is at and acts spiky with a number of failed reversals. This happened again yesterday as the bullish breakout from the market's sideways range was rejected with a close below $4.424 on another fake out. Always wait at least a day for confirmation on the Natural Gas for the time being as the fundamental picture for the Commodity is still very bearish.
Euro Currency Monthly Breakout- The Euro has temporarily set off a monthly bearish cup and handle pattern with a move below the support and swing lows from November of '08. Below 1.2326 the market projects to .9508, which takes the Euro back to levels near it's inception against the U.S. Dollar. There is plenty of speculation that the Euro will outright fail, but I am not over-excited to jump on this bandwagon just yet. With this being a monthly pattern you need to wait until at least the end of May for the initial breakout and until the end of June for confirmation and there is a lot that could happen in between.
Wednesday, May 19, 2010
Tuesday, May 18, 2010
Tuesday 5/18/10 Commodity Ideas
Opening Note:
Despite trading over 22 points lower on the day before mid-day yesterday the S&P 500 was able to mount a rally to close less than a point lower on the day. Overnight the Index is slightly higher and has built a base on a 60 minute chart that looks like it now has fuel for a rally continuation. A bullish head and shoulders pattern was set off just before the European open at 12:30 am on the 60 minute chart with a breakout of 1135.75 that projects to 1162.75. With the S&P now struggling with the low volume area from 1140.25 to 1144 that provided a high yesterday, it now looks that with just a little more rally the market should be able to move forward with the projection. A number of other supportive Commodities like the Euro, Crude Oil, and Copper that have acted the weakest over the last couple weeks also have formed a similar base from yesterday and into this morning. This leads me to believe that the macro market could see gains over the next 24 to 36 hours as some of the weakest markets need a rally before a continuation lower can resume unless this nearby resistance can hold the market.
With this most recent shift on the daily chart to a bearish mode only heading into it's 11th day for the S&P 500 after the downside breakout on May 4th, I still believe that there is more downside to come on this daily chart move. However, after testing the lower boundary on the bullish mode for the weekly RSI yesterday and failing with the bullish mode remaining intact, now is not the time to push short positions. While I still like selling rallies in these supportive markets I recommend closing out short positions for the time being, if you have not already, and waiting for better resistance levels to re-initiate.
Buys to Watch:
Natural Gas- First off, I want to recommend waiting at least one day before initiating a long position in Nat. Gas for confirmation on the breakout. The market can be extremely volatile based on the price and has a tendency to be spiky lately on strong reversals. However, Natural Gas finally has a bullish breakout above it's sideways range high of $4.424 that has a projection range from $4.881 to $4.993. Both the RSI and Stochastics also now have a breakout above the bear market high trend for the momentum indicators giving a signal on a reversal to a bullish mode. With the market sitting just above the breakout level today on a low volume trade without much support, I recommend waiting for confirmation on this move and looking for pullback entry tomorrow, which I will provide if applicable.
Sells to Watch:
Put on the Radar:
S&P 500- The critical level of 1175 in the S&P 500 acted as resistance Thursday of last week as it reversed the market, so I am again looking to the S&P as the first indicator for market direction right now. As I said in the Opening Note the 60 minute chart bullish head and shoulders pattern had a breakout level of 1135.75 at 12:30 am early this morning and has a projection to 1162.75. While the market still needs to overcome resistance from 1140.25 to 1144 I believe that it is now likely that the market continues higher for the next day. However, do not become too overly bullish on a continuation above the projection just yet. From 1160 to 1165 the S&P 500 has a lower volume trade that bumps up against some high volume trade that should act as resistance from 1165 to 1175. If the market is able to complete the pattern, the projection then becomes a good area to initiate a short position against this resistance and for the market to resume it's daily chart bearish mode. While it is possible to jump on board the rally above 1144 if it occurs, I am only looking to short the market in compliance with the bearish trend on the daily chart and do not want to get stuck in a long position when I am looking for continuation lower if the projection is not reached. I recommend sitting on the sidelines for the time being and waiting for a set up at this projection level or elsewhere to get short again.
Crude Oil (roll your front month from June to July)- With the previous front month of June much weaker than July it is a little different now to look at the front month of Crude as adjustments need to be made to expectations and projections. While the June contract had a projection to $65, the July contract now has a projection to roughly $70 based on it's individual daily chart on the flag continuation pattern. Like the Stock Indices, Crude Oil has found a similar base since yesterday afternoon and has rallied nearly $2.50 since finding a low. With both RSI and Stochastics on the daily chart sitting in extremely oversold territory based on yesterday's close I believe that it is now time to let Crude have a breather on a rally. If you were short yesterday you have hopefully already covered, but I recommend doing so for the time being if you have not already.
I am currently waiting for a rally into the large low volume zone between $76.10 and $76.84 with some higher volume initial resistance from $77.02 to $77.36 before looking to initiate a short position again. This level for the July contract correlates price-wise to the level I listed in the June contract yesterday that was only briefly entered before prices reversed $3 lower yesterday. If the market is able to find even more strength on this current rally then there is also another smaller area from $78.10 to $78.16 with some much stronger volume traded resistance around the $78.50 level. Like the S&P 500 I am only looking to initiate short positions in the Crude Oil market for the time being in compliance with the bearish daily trend and recommend this stance rather than trying to catch a piece of a rally.
Copper- Like all of the markets above, I am still bearish Copper in line with the bearish daily trend and projection to $2.67. But, with the strong reversal rally since yesterday's close I recommend taking profits on short positions and waiting for a larger rally to re-initiate. Similar to Crude Oil, I still have my eye on the level from $3.0850 to $3.1010 that was briefly entered yesterday and acted as a high. With some higher volume initial resistance at $3.1250 this is a good level to execute a short position, but if a stronger rally ensues there are also some smaller low volume entry points from 3.1380 to 3.1520 and 3.1860 to 3.1940.
Notes:
Buy Gold vs. Sell Silver (Gold - Silver/2)- Although the timing on this trade appears to have been correct with the Precious Metals finding a top and breaking over the last few days it is the strong action of the Silver that made this trade only a small winner on the larger expectation. After recommending buying dips below $260 in the middle of last week the spread was able to rally above the $280 level yesterday afternoon, but with a larger Gold break this morning than Silver is sitting back in the $270's. This is also after an odd Metal opening yesterday in which Silver rallied strongly on a failing macro market sending the spread dangerously close to the $263 level and below the $265 level where I recommended stop placement. If you are still long the spread I recommend taking profits and exiting the trade. While I believe that this is still a position that will work over the next couple weeks, it has not performed as well as I have expected with larger negative volatility as well. I think that your margin and time can be better spent on other trades for now.
I do still recommend a bearish stance on the Precious Metals of Gold and Silver as I believe they are still overbought on the run to safety trade. Since I really started barking about my bearishness on Gold Wednesday of last week the market has reversed and has begun trading lower on both positive and negative macro days as a reversal of it's previously always higher trend. Until this new trend convincingly changes I believe the Gold market is over-saturated and should be traded from a short stance as too many longs jumped in near the top and will likely be cleaned out as momentum indicators have given sell signals. I also still feel that the Silver market is highly overvalued based off of the Gold trade and should come under more pressure as Silver is not the "store of value" that Gold is and should correct lower to realign with the deflationary and weaker macro picture.
July Soybeans- July Soybeans confirmed a bearish breakout below the longer bullish trend that provides a projection to $8.58. However, the market was unable to accelerate much yesterday and found support multiple times at the $9.40 level. I believe that there is still a decent opportunity to initiate a short position near $9.52 against the stronger volume resistance from $9.54 - $9.55, but would only recommend a short at this level for the time being. With some more sideways support for Beans to travel below I think that the market may find a brief rally before another attempt lower on the pattern.
Despite trading over 22 points lower on the day before mid-day yesterday the S&P 500 was able to mount a rally to close less than a point lower on the day. Overnight the Index is slightly higher and has built a base on a 60 minute chart that looks like it now has fuel for a rally continuation. A bullish head and shoulders pattern was set off just before the European open at 12:30 am on the 60 minute chart with a breakout of 1135.75 that projects to 1162.75. With the S&P now struggling with the low volume area from 1140.25 to 1144 that provided a high yesterday, it now looks that with just a little more rally the market should be able to move forward with the projection. A number of other supportive Commodities like the Euro, Crude Oil, and Copper that have acted the weakest over the last couple weeks also have formed a similar base from yesterday and into this morning. This leads me to believe that the macro market could see gains over the next 24 to 36 hours as some of the weakest markets need a rally before a continuation lower can resume unless this nearby resistance can hold the market.
With this most recent shift on the daily chart to a bearish mode only heading into it's 11th day for the S&P 500 after the downside breakout on May 4th, I still believe that there is more downside to come on this daily chart move. However, after testing the lower boundary on the bullish mode for the weekly RSI yesterday and failing with the bullish mode remaining intact, now is not the time to push short positions. While I still like selling rallies in these supportive markets I recommend closing out short positions for the time being, if you have not already, and waiting for better resistance levels to re-initiate.
Buys to Watch:
Natural Gas- First off, I want to recommend waiting at least one day before initiating a long position in Nat. Gas for confirmation on the breakout. The market can be extremely volatile based on the price and has a tendency to be spiky lately on strong reversals. However, Natural Gas finally has a bullish breakout above it's sideways range high of $4.424 that has a projection range from $4.881 to $4.993. Both the RSI and Stochastics also now have a breakout above the bear market high trend for the momentum indicators giving a signal on a reversal to a bullish mode. With the market sitting just above the breakout level today on a low volume trade without much support, I recommend waiting for confirmation on this move and looking for pullback entry tomorrow, which I will provide if applicable.
Sells to Watch:
Put on the Radar:
S&P 500- The critical level of 1175 in the S&P 500 acted as resistance Thursday of last week as it reversed the market, so I am again looking to the S&P as the first indicator for market direction right now. As I said in the Opening Note the 60 minute chart bullish head and shoulders pattern had a breakout level of 1135.75 at 12:30 am early this morning and has a projection to 1162.75. While the market still needs to overcome resistance from 1140.25 to 1144 I believe that it is now likely that the market continues higher for the next day. However, do not become too overly bullish on a continuation above the projection just yet. From 1160 to 1165 the S&P 500 has a lower volume trade that bumps up against some high volume trade that should act as resistance from 1165 to 1175. If the market is able to complete the pattern, the projection then becomes a good area to initiate a short position against this resistance and for the market to resume it's daily chart bearish mode. While it is possible to jump on board the rally above 1144 if it occurs, I am only looking to short the market in compliance with the bearish trend on the daily chart and do not want to get stuck in a long position when I am looking for continuation lower if the projection is not reached. I recommend sitting on the sidelines for the time being and waiting for a set up at this projection level or elsewhere to get short again.
Crude Oil (roll your front month from June to July)- With the previous front month of June much weaker than July it is a little different now to look at the front month of Crude as adjustments need to be made to expectations and projections. While the June contract had a projection to $65, the July contract now has a projection to roughly $70 based on it's individual daily chart on the flag continuation pattern. Like the Stock Indices, Crude Oil has found a similar base since yesterday afternoon and has rallied nearly $2.50 since finding a low. With both RSI and Stochastics on the daily chart sitting in extremely oversold territory based on yesterday's close I believe that it is now time to let Crude have a breather on a rally. If you were short yesterday you have hopefully already covered, but I recommend doing so for the time being if you have not already.
I am currently waiting for a rally into the large low volume zone between $76.10 and $76.84 with some higher volume initial resistance from $77.02 to $77.36 before looking to initiate a short position again. This level for the July contract correlates price-wise to the level I listed in the June contract yesterday that was only briefly entered before prices reversed $3 lower yesterday. If the market is able to find even more strength on this current rally then there is also another smaller area from $78.10 to $78.16 with some much stronger volume traded resistance around the $78.50 level. Like the S&P 500 I am only looking to initiate short positions in the Crude Oil market for the time being in compliance with the bearish daily trend and recommend this stance rather than trying to catch a piece of a rally.
Copper- Like all of the markets above, I am still bearish Copper in line with the bearish daily trend and projection to $2.67. But, with the strong reversal rally since yesterday's close I recommend taking profits on short positions and waiting for a larger rally to re-initiate. Similar to Crude Oil, I still have my eye on the level from $3.0850 to $3.1010 that was briefly entered yesterday and acted as a high. With some higher volume initial resistance at $3.1250 this is a good level to execute a short position, but if a stronger rally ensues there are also some smaller low volume entry points from 3.1380 to 3.1520 and 3.1860 to 3.1940.
Notes:
Buy Gold vs. Sell Silver (Gold - Silver/2)- Although the timing on this trade appears to have been correct with the Precious Metals finding a top and breaking over the last few days it is the strong action of the Silver that made this trade only a small winner on the larger expectation. After recommending buying dips below $260 in the middle of last week the spread was able to rally above the $280 level yesterday afternoon, but with a larger Gold break this morning than Silver is sitting back in the $270's. This is also after an odd Metal opening yesterday in which Silver rallied strongly on a failing macro market sending the spread dangerously close to the $263 level and below the $265 level where I recommended stop placement. If you are still long the spread I recommend taking profits and exiting the trade. While I believe that this is still a position that will work over the next couple weeks, it has not performed as well as I have expected with larger negative volatility as well. I think that your margin and time can be better spent on other trades for now.
I do still recommend a bearish stance on the Precious Metals of Gold and Silver as I believe they are still overbought on the run to safety trade. Since I really started barking about my bearishness on Gold Wednesday of last week the market has reversed and has begun trading lower on both positive and negative macro days as a reversal of it's previously always higher trend. Until this new trend convincingly changes I believe the Gold market is over-saturated and should be traded from a short stance as too many longs jumped in near the top and will likely be cleaned out as momentum indicators have given sell signals. I also still feel that the Silver market is highly overvalued based off of the Gold trade and should come under more pressure as Silver is not the "store of value" that Gold is and should correct lower to realign with the deflationary and weaker macro picture.
July Soybeans- July Soybeans confirmed a bearish breakout below the longer bullish trend that provides a projection to $8.58. However, the market was unable to accelerate much yesterday and found support multiple times at the $9.40 level. I believe that there is still a decent opportunity to initiate a short position near $9.52 against the stronger volume resistance from $9.54 - $9.55, but would only recommend a short at this level for the time being. With some more sideways support for Beans to travel below I think that the market may find a brief rally before another attempt lower on the pattern.
Monday, May 17, 2010
Monday 5/17/10 Commodity Ideas
Opening Note:
A sizable day down for the macro market Friday was followed into this morning with some volatile swings on overnight trade Sunday. The market is only slightly weaker this morning after a strong uptrend that his driven prices higher since the European open despite the Dow trading 130 lower, Crude down $1.80, and the Pound trading a nearly 300 tick range already. It is looking more likely that the fast correction from May 6th is turning out to be more of a "Flash Forward" phenomena, where we were able to see the future about 3 weeks forward. When the market got almost literally de-pantsed we found out where the first real sizable bid of strength is in Equities and a trail was blazed in a number of other correlated markets. I am viewing these non-completed spikes in the market as possible indicator on the move lower now.
With a number of low volume areas coming into play at levels just above the current market in the Stock Indices, Crude Oil, and some other supportive markets I believe that the highs for the macro market are nearly in for the day. I continue to recommend selling rallies in supportive Commodities across the market.
Buys to Watch:
Buy Gold vs. Sell Silver (Gold- Silver/2 to chart)- The Gold - Silver spread has continued to rally over the last two days as the Precious Metals have unwound some of their excessive buying. Despite Equities moving lower the last couple days the Gold market has managed to trade lower itself as much of the "run to safety" trade has become over done with the Metals needing a price break before a continuation higher is believable. Silver has fallen harder than the Gold as I have predicted, but I still think that Silver has much more room to travel lower while Gold holds it's strength in comparison. This trade was first put on the Radar Wednesday of last week with the suggestion of buying dips below $260 and specifically near $255 and $251 where the spread bottomed. Over the last two days the spread has rallied to the low to mid $270's and still has the room to continue to the $300 to $320 level. A dip in the spread to the lower volume area from $266.4 to 269 is a good area for long entry now. If you are sitting with a long position already I believe that you can mover your stop up to the $263 level or up to $265 if you prefer.
***Since I wrote this paragraph prior to the Metal opening the two markets have diverged with Gold lower, but Silver climbing higher. The market is trading near the $263 area I listed as a good stop, so I would not give the trade much more room to the downside if you are holding a long. I still feel strongly that Silver is over-priced, but it is possibly not the right time for the trade yet.
Sells to Watch:
Crude Oil- Crude has already had a substantial move to the downside over the last two weeks, but with the bearish flag pattern now providing a projection to $65 I believe that you can still sell rallies. With a bunch of support between $68.50 and $71.50 on the weekly chart it may be a more difficult move than the initial break to the current level. I have a low volume zone from $72.10 to $72.70 that was already entered briefly this morning that provides a good area for short entry on a price reversal. Above this area there is stronger resistance sitting between $72.86 and $73.08 for stop placement. Although the June - July Oil spread has now snapped back to above the $4 level I still do not believe that this is a particularly bullish sign as it is still a poor level for demand. With fundamentals rarely even traded in the Crude market lately I believe that they can be moved to the back burner and that continuing to sell the market with the trend is way to trade it.
Copper- With the breakout on the large flag pattern on Friday, Copper now has a projection to $2.67. Copper continues to be one of the weakest performers on the corrective pullback as it was one of the first markets to show weakness near the top. I have a low volume area from $3.08 to 3.1010 with stronger resistance at 3.1250 that provides a good opportunity for short entry. Be cautious with this initial entry if you decide to execute because above this 3.1250 level there are also some smaller low volume entry points on a larger rally from 3.1380 to 3.1520 and 3.1860 to 3.1940. There is support in the Copper near the swing low from May 5th down to the $3 level, but little else for support below this level until $2.85.
July Soybeans- Soybeans are now on the 15th day of their recent price break, but the daily RSI indicator has now officially confirmed a reversal in the market trend to a bearish mode. To see the downside breakout on the base trend for the Beans draw trendlines from the lows on Feb 4th to Mar. 31st and also from Oct. 6th to Feb 4th to receive base values of $9.55 1/2 and $9.44 1/2 respectively. The more recent trend with the $9.55 1/2 value today already has a lower close from Friday and is looking for confirmation today. With a confirmed move below both levels July Beans have a projection to $8.58 when the move from Jan. 4th to Feb. 4th is extrapolated to the current price break. There is a low volume zone for short entry between $9.48 1/2 and 9.52 1/4 if there is a rally on the open. The topside bearish trendline for the recent break has a value of $9.61 1/2 today, but will likely not come into play with prices already lower.
Put on the Radar:
Stock Indices Resistance- I have low volume zones in the stock indices just above their highs for the day thus far which would be good areas to sell on a rally. They are: S&P 500 1140.25 - 1144.00, Nasdaq 1914.50 - 19.26.00, and Dow 10,646 - 10,672. With some of these levels already traded into it is possible that there is not another rally today, but I believe that these areas should hold prices and create a top if prices do make there was higher again.
Notes:
Pound - Euro Double Top?- The Pound/Euro cross rate appears to have formed a potential double top, but with extremely volatile trade lately I recommend keeping it in mind while holding off on trading it. Although the Euro has taken the center stage as the weakest Currency the Pound has recently kept up with the Euro and actually moved slightly lower over the last few days. The Euro may have an awful story, but for the time being it appears that the EU will try to protect it, while there is speculation that the new British Prime Minister has no problem allowing Sterling to deflate to make exports more competitive globally. This could become a stronger trade soon.
A sizable day down for the macro market Friday was followed into this morning with some volatile swings on overnight trade Sunday. The market is only slightly weaker this morning after a strong uptrend that his driven prices higher since the European open despite the Dow trading 130 lower, Crude down $1.80, and the Pound trading a nearly 300 tick range already. It is looking more likely that the fast correction from May 6th is turning out to be more of a "Flash Forward" phenomena, where we were able to see the future about 3 weeks forward. When the market got almost literally de-pantsed we found out where the first real sizable bid of strength is in Equities and a trail was blazed in a number of other correlated markets. I am viewing these non-completed spikes in the market as possible indicator on the move lower now.
With a number of low volume areas coming into play at levels just above the current market in the Stock Indices, Crude Oil, and some other supportive markets I believe that the highs for the macro market are nearly in for the day. I continue to recommend selling rallies in supportive Commodities across the market.
Buys to Watch:
Buy Gold vs. Sell Silver (Gold- Silver/2 to chart)- The Gold - Silver spread has continued to rally over the last two days as the Precious Metals have unwound some of their excessive buying. Despite Equities moving lower the last couple days the Gold market has managed to trade lower itself as much of the "run to safety" trade has become over done with the Metals needing a price break before a continuation higher is believable. Silver has fallen harder than the Gold as I have predicted, but I still think that Silver has much more room to travel lower while Gold holds it's strength in comparison. This trade was first put on the Radar Wednesday of last week with the suggestion of buying dips below $260 and specifically near $255 and $251 where the spread bottomed. Over the last two days the spread has rallied to the low to mid $270's and still has the room to continue to the $300 to $320 level. A dip in the spread to the lower volume area from $266.4 to 269 is a good area for long entry now. If you are sitting with a long position already I believe that you can mover your stop up to the $263 level or up to $265 if you prefer.
***Since I wrote this paragraph prior to the Metal opening the two markets have diverged with Gold lower, but Silver climbing higher. The market is trading near the $263 area I listed as a good stop, so I would not give the trade much more room to the downside if you are holding a long. I still feel strongly that Silver is over-priced, but it is possibly not the right time for the trade yet.
Sells to Watch:
Crude Oil- Crude has already had a substantial move to the downside over the last two weeks, but with the bearish flag pattern now providing a projection to $65 I believe that you can still sell rallies. With a bunch of support between $68.50 and $71.50 on the weekly chart it may be a more difficult move than the initial break to the current level. I have a low volume zone from $72.10 to $72.70 that was already entered briefly this morning that provides a good area for short entry on a price reversal. Above this area there is stronger resistance sitting between $72.86 and $73.08 for stop placement. Although the June - July Oil spread has now snapped back to above the $4 level I still do not believe that this is a particularly bullish sign as it is still a poor level for demand. With fundamentals rarely even traded in the Crude market lately I believe that they can be moved to the back burner and that continuing to sell the market with the trend is way to trade it.
Copper- With the breakout on the large flag pattern on Friday, Copper now has a projection to $2.67. Copper continues to be one of the weakest performers on the corrective pullback as it was one of the first markets to show weakness near the top. I have a low volume area from $3.08 to 3.1010 with stronger resistance at 3.1250 that provides a good opportunity for short entry. Be cautious with this initial entry if you decide to execute because above this 3.1250 level there are also some smaller low volume entry points on a larger rally from 3.1380 to 3.1520 and 3.1860 to 3.1940. There is support in the Copper near the swing low from May 5th down to the $3 level, but little else for support below this level until $2.85.
July Soybeans- Soybeans are now on the 15th day of their recent price break, but the daily RSI indicator has now officially confirmed a reversal in the market trend to a bearish mode. To see the downside breakout on the base trend for the Beans draw trendlines from the lows on Feb 4th to Mar. 31st and also from Oct. 6th to Feb 4th to receive base values of $9.55 1/2 and $9.44 1/2 respectively. The more recent trend with the $9.55 1/2 value today already has a lower close from Friday and is looking for confirmation today. With a confirmed move below both levels July Beans have a projection to $8.58 when the move from Jan. 4th to Feb. 4th is extrapolated to the current price break. There is a low volume zone for short entry between $9.48 1/2 and 9.52 1/4 if there is a rally on the open. The topside bearish trendline for the recent break has a value of $9.61 1/2 today, but will likely not come into play with prices already lower.
Put on the Radar:
Stock Indices Resistance- I have low volume zones in the stock indices just above their highs for the day thus far which would be good areas to sell on a rally. They are: S&P 500 1140.25 - 1144.00, Nasdaq 1914.50 - 19.26.00, and Dow 10,646 - 10,672. With some of these levels already traded into it is possible that there is not another rally today, but I believe that these areas should hold prices and create a top if prices do make there was higher again.
Notes:
Pound - Euro Double Top?- The Pound/Euro cross rate appears to have formed a potential double top, but with extremely volatile trade lately I recommend keeping it in mind while holding off on trading it. Although the Euro has taken the center stage as the weakest Currency the Pound has recently kept up with the Euro and actually moved slightly lower over the last few days. The Euro may have an awful story, but for the time being it appears that the EU will try to protect it, while there is speculation that the new British Prime Minister has no problem allowing Sterling to deflate to make exports more competitive globally. This could become a stronger trade soon.
Friday, May 14, 2010
Friday 5/14/10 Commodity Ideas
Opening Note:
While the stock market made a great recovery over the first three days of the week it finally ran into trouble yesterday as the 1175 level in the S&P 500 derailed the rally train. Although I had my eye on the high volume profile area just below this level as resistance it was this lower volume level just above the profile that halted the market. If you recall, 1175 was the original level in the S&P that set off the bearish head and shoulders pattern leading to the quickest 10% correction ever, so it is not surprising that there was little bullish fight left in the market when it reached this level yesterday. All of the daily chart RSI indicators for the Stock Indices remain in a bearish mode after yesterday's break, as a test of the upper bear market boundary failed on the indicator. Although the market has already come close today, the next level of support in the S&P 500 ranges from 1141 - 1144 with a break below this level likely resulting in a move to 1130.
While Equities look to be continuing in a bearish mode there are a number of Commodity markets that have already pointed towards this macro continuation lower and are better sales on there own than the Equities. It is no secret that Crude Oil has been the weakest market since the beginning of the month, but I also now have Copper with a downside breakout below its consolidation range and Soybeans testing their slightly upsloping trend/support base. The Dollar Index is also continuing higher with the European Currencies yet to establish a support base and the Dollar also again gaining on the strong Canadian and Aussie Dollars since early yesterday. The weekly chart on the Equity Indices (and macro picture) is now in the process of testing the reversal level from a bullish to bearish mode, and with the short term outlook now negative I believe that the reversal will be completed. I recommend selling rallies on supportive markets for the next few days as correlation has returned to the market and it is negative.
Buys to Watch:
Gold vs. Silver (Gold - Silver/2)- This trade is based on the fundamental idea that as a store of value and as a reserve currency Gold is historically always the better choice among the precious metals. Thinking about it literally, there never was a "Silver Rush" in California and at the current value you would need to hold 63.5 ounces of Silver to equal one ounce of Gold, which is a much more difficult way to lug around your money or to store in a vault. The market is ignoring this fundamental difference between the two metals right now and treating Silver like it has the same function as Gold. While the two are obviously correlated in price to a degree, Silver travels more with the economy and other Commodities as the price falls more than Gold on weakness. With the volatile swing to new highs in Silver that begun last Friday I believe that the market is incorrectly valuing this Silver with the Gold market. With Gold reaching all of it's rally projections and momentum slowing on the rally I believe that the precious metals are heading for a reversal in prices currently or in the near future.
Whether you draw a trendline base on the daily chart from the lows from September 16th of last year or April 5th of this one you will roughly get a support value today of $248 for the spread. While I had this trade on the radar the last two days I noted that dips to the $255 and $251 levels are good areas to buy based on the support base from $235 to $251. Yesterday a dip to the $255 level was followed up by a continuation to 250 and with the trend base now sitting at 248 I believe that these are great buying opportunities if the market dips to these levels again. On the rally I believe that a corrective move back to the $300 to $320 level will follow shortly with a break in the Silver market leading the way on the move in the spread. Note: For execution purposes on the differential the spread is 1:1 Gold/Silver as the contract sizes of each product are lined up at 100:5000 to even out the size and price discrepancy. However, a friend pointed out to me that the actual ratio (Gold/Silver) is this 63.5 ounces. If you are trading larger quantities you can use this to your advantage possibly by executing 4 Gold : 5 Silver, which should add value on a break in the precious metals with more short Silver exposure, but can also hurt you if the spread move comes on a Gold rally.
Sells to Watch:
Copper- If you have been reading regularly for a while you can remember that during my initial concern about the macro market I noted both Crude Oil and Copper as the weakness markets that were indicating a potential fall. After a strong initial break in the Copper led by long selling the market has found a consolidation rally off of the $3.00 low, but with a fairly steep uptrend has now broken out of the bottom. Whether you call the pattern a flag or a continuation triangle the projected bearish move is again very sizable and this time points below the swing low from the February break between $2.81 and $2.85. To form the lower boundary on the pattern draw a trendline from the lows on May 5th to the lows on May 7th to receive a breakout value today of $3.2030 that as a flag or triangle projects to $2.67 on a continuation of the leg down that began on April 26th. As an upper boundary you can also draw a top from the highs on May 10th to May 13th to receive a value of $3.2560 today. While I recommend waiting another day for confirmation without the risk or carrying a position over the weekend, if you prefer to sell rallies and want in now, there is a lower volume zone from 3.1860 to 3.2020 that is a good short entry level with a stop above this upper boundary. Copper has been the weakest Metal of the sector by far and has had very little corrective rally on it's move lower compared to other markets. Although there is not the same fuel on the break, with many shorter term longs already exiting the market, and the projection is rather large and less likely to be completed, I still believe this is a good pattern and market to sell.
Crude Oil- Crude Oil is like the less attractive sister of Copper right now, meaning she's all yours if you want to buy into that. When given the same pattern treatment as the Copper market from it's May 7th base you will see that the market is already broken out to the downside two days ago and continues lower on a projection to roughly $65. The feature that makes the Crude so unattractive right now is the massive build up of losing long positions and open interest that has yet to liquidate, but is just now beginning the process I believe. Crude swings have been volatile despite the drop as the move from 10:45 am to 12:15 pm yesterday afternoon displays on the $2.00 rally. However, while one might attribute the losses in Crude yesterday to losses in the stock market when looking at the overall day it was in fact Crude Oil that led this dip lower in the market on it's own. The real damage in Crude came on the break between 1:00 pm to the 1:30 pm close, but Equities did not begin their second break of the day until 1:30 when you examine a 15 minute chart.
The fundamental story with the contango and supply/demand is less important right now for the Crude market as over-invested money on the recovery story that continued to buy dips is now in deep water and driving the market lower as it runs for the hills. There is base support for the Crude market near the $70 psychological level, but ranging up to $71.50. Taking the market below this level could be a temporary battle, but with the amount of long selling that could unwind I see the move to $65 as attainable with the possibility of an extension to $60 still. I do not have good entry levels currently for the short, but I recommend using a 15 minute chart with momentum indicators for entry and waiting for the market to form a rally spike above the level you are looking to sell as Crude often gets excited and over-shoots the runway.
Put on the Radar:
**I am out of time for today, but I figured it was more important to focus on the potential buys and sells than the radar. On the radar I now have a potential downside breakout in July Soybeans below the trend and a double top that is potentially forming in the Pound vs. Euro cross rate that has a fundamental wrinkle to it.
Notes:
While the stock market made a great recovery over the first three days of the week it finally ran into trouble yesterday as the 1175 level in the S&P 500 derailed the rally train. Although I had my eye on the high volume profile area just below this level as resistance it was this lower volume level just above the profile that halted the market. If you recall, 1175 was the original level in the S&P that set off the bearish head and shoulders pattern leading to the quickest 10% correction ever, so it is not surprising that there was little bullish fight left in the market when it reached this level yesterday. All of the daily chart RSI indicators for the Stock Indices remain in a bearish mode after yesterday's break, as a test of the upper bear market boundary failed on the indicator. Although the market has already come close today, the next level of support in the S&P 500 ranges from 1141 - 1144 with a break below this level likely resulting in a move to 1130.
While Equities look to be continuing in a bearish mode there are a number of Commodity markets that have already pointed towards this macro continuation lower and are better sales on there own than the Equities. It is no secret that Crude Oil has been the weakest market since the beginning of the month, but I also now have Copper with a downside breakout below its consolidation range and Soybeans testing their slightly upsloping trend/support base. The Dollar Index is also continuing higher with the European Currencies yet to establish a support base and the Dollar also again gaining on the strong Canadian and Aussie Dollars since early yesterday. The weekly chart on the Equity Indices (and macro picture) is now in the process of testing the reversal level from a bullish to bearish mode, and with the short term outlook now negative I believe that the reversal will be completed. I recommend selling rallies on supportive markets for the next few days as correlation has returned to the market and it is negative.
Buys to Watch:
Gold vs. Silver (Gold - Silver/2)- This trade is based on the fundamental idea that as a store of value and as a reserve currency Gold is historically always the better choice among the precious metals. Thinking about it literally, there never was a "Silver Rush" in California and at the current value you would need to hold 63.5 ounces of Silver to equal one ounce of Gold, which is a much more difficult way to lug around your money or to store in a vault. The market is ignoring this fundamental difference between the two metals right now and treating Silver like it has the same function as Gold. While the two are obviously correlated in price to a degree, Silver travels more with the economy and other Commodities as the price falls more than Gold on weakness. With the volatile swing to new highs in Silver that begun last Friday I believe that the market is incorrectly valuing this Silver with the Gold market. With Gold reaching all of it's rally projections and momentum slowing on the rally I believe that the precious metals are heading for a reversal in prices currently or in the near future.
Whether you draw a trendline base on the daily chart from the lows from September 16th of last year or April 5th of this one you will roughly get a support value today of $248 for the spread. While I had this trade on the radar the last two days I noted that dips to the $255 and $251 levels are good areas to buy based on the support base from $235 to $251. Yesterday a dip to the $255 level was followed up by a continuation to 250 and with the trend base now sitting at 248 I believe that these are great buying opportunities if the market dips to these levels again. On the rally I believe that a corrective move back to the $300 to $320 level will follow shortly with a break in the Silver market leading the way on the move in the spread. Note: For execution purposes on the differential the spread is 1:1 Gold/Silver as the contract sizes of each product are lined up at 100:5000 to even out the size and price discrepancy. However, a friend pointed out to me that the actual ratio (Gold/Silver) is this 63.5 ounces. If you are trading larger quantities you can use this to your advantage possibly by executing 4 Gold : 5 Silver, which should add value on a break in the precious metals with more short Silver exposure, but can also hurt you if the spread move comes on a Gold rally.
Sells to Watch:
Copper- If you have been reading regularly for a while you can remember that during my initial concern about the macro market I noted both Crude Oil and Copper as the weakness markets that were indicating a potential fall. After a strong initial break in the Copper led by long selling the market has found a consolidation rally off of the $3.00 low, but with a fairly steep uptrend has now broken out of the bottom. Whether you call the pattern a flag or a continuation triangle the projected bearish move is again very sizable and this time points below the swing low from the February break between $2.81 and $2.85. To form the lower boundary on the pattern draw a trendline from the lows on May 5th to the lows on May 7th to receive a breakout value today of $3.2030 that as a flag or triangle projects to $2.67 on a continuation of the leg down that began on April 26th. As an upper boundary you can also draw a top from the highs on May 10th to May 13th to receive a value of $3.2560 today. While I recommend waiting another day for confirmation without the risk or carrying a position over the weekend, if you prefer to sell rallies and want in now, there is a lower volume zone from 3.1860 to 3.2020 that is a good short entry level with a stop above this upper boundary. Copper has been the weakest Metal of the sector by far and has had very little corrective rally on it's move lower compared to other markets. Although there is not the same fuel on the break, with many shorter term longs already exiting the market, and the projection is rather large and less likely to be completed, I still believe this is a good pattern and market to sell.
Crude Oil- Crude Oil is like the less attractive sister of Copper right now, meaning she's all yours if you want to buy into that. When given the same pattern treatment as the Copper market from it's May 7th base you will see that the market is already broken out to the downside two days ago and continues lower on a projection to roughly $65. The feature that makes the Crude so unattractive right now is the massive build up of losing long positions and open interest that has yet to liquidate, but is just now beginning the process I believe. Crude swings have been volatile despite the drop as the move from 10:45 am to 12:15 pm yesterday afternoon displays on the $2.00 rally. However, while one might attribute the losses in Crude yesterday to losses in the stock market when looking at the overall day it was in fact Crude Oil that led this dip lower in the market on it's own. The real damage in Crude came on the break between 1:00 pm to the 1:30 pm close, but Equities did not begin their second break of the day until 1:30 when you examine a 15 minute chart.
The fundamental story with the contango and supply/demand is less important right now for the Crude market as over-invested money on the recovery story that continued to buy dips is now in deep water and driving the market lower as it runs for the hills. There is base support for the Crude market near the $70 psychological level, but ranging up to $71.50. Taking the market below this level could be a temporary battle, but with the amount of long selling that could unwind I see the move to $65 as attainable with the possibility of an extension to $60 still. I do not have good entry levels currently for the short, but I recommend using a 15 minute chart with momentum indicators for entry and waiting for the market to form a rally spike above the level you are looking to sell as Crude often gets excited and over-shoots the runway.
Put on the Radar:
**I am out of time for today, but I figured it was more important to focus on the potential buys and sells than the radar. On the radar I now have a potential downside breakout in July Soybeans below the trend and a double top that is potentially forming in the Pound vs. Euro cross rate that has a fundamental wrinkle to it.
Notes:
Thursday, May 13, 2010
Thursday 5/13/10 Commodity Ideas
Opening Note:
Large volume resistance levels in the Stock Indices acted as a magnet yesterday and again overnight as Equities were pulled higher without much of a break yesterday and into this morning. All of these resistance levels that I listed yesterday have at least been temporarily eclipsed, but in the case of the Dow and S&P 500 are still trading near the top of the resistance range. Equities have pulled higher on a solid recovery this week, but the Euro has continued to weaken after a spiky rally on Monday. The weakness of the Euro is a signal to me that the rest of the World is not taking this European bailout package and it's protective policies on the Euro very seriously. I have heard some analysts say that they believe that this package has isolated the contagion to Europe now and that the U.S. is safe, but with the U.S. contributing 17% of IMF funds and actually footing the bill for a larger portion based on usable currency (ie. some people do not except Venezuelan Pesos) you can be sure that the U.S. is already on the hook for tens of billions of dollars if not more. Let alone the U.S. balance sheet on it's own and the possible repercussions if this Trillion Dollar package is not enough to cover all of the dominoes in Europe.
With Equity direction still uncertain as daily RSI maintains a bearish mode, but with prices moving through resistance with ease I am uncertain of short term macro direction over the next week. Commodities other than precious metals and the Euro continue to point towards a slide in the market, but the relentlessness of Equities on the corrective rally makes it difficult to attempt a short position on supportive markets. I still feel strongly that we are in the process of reversing the bull market of the last year into a bearish one, but this does not mean that you should sell everything today. With a number of contradictory moves across the market I recommend continuing to size back on trading until overall direction becomes clearer.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Gold - Silver Ratio (Gold - Silver/2)- The spread has a bullish base trend dating back from September of '09 that provides a value for today of either 240 or 247 depending on which points you choose to draw the base from. The spread also has a nice base of traded price between the 235 and 251 values also to provide support. On a short term scale the spread has also produced a double base over the last two days around the 255 level. I have already covered the fundamental reasons behind the trade over the last few days, but it is mostly based around the volatile, and I believe out of line, price action in the Silver market lately. The massive correction in the spread back to the base of this range provides the opportunity to buy on a dip against the 255 or 251 level and only risk to around 240 at the most for the opportunity at a move to 300 - 320. It is likely that this trade may form a longer base around this level, so waiting a little longer on entry may actually be prudent to see if the precious metal markets do indeed form a top around this level with a break in the Silver market likely being the fuel on the spread trade.
The Gold - Euro - Equity Paradox- It may seem like I'm ragging on analysts a bit lately, but with an office move at the beginning of the month I am now glued in front of the business news channel all day without a choice. Over the last two days I have heard a number of analysts tout the continuation of Gold to a much higher level while also calling for Equities to continue to strengthen on the larger recovery picture. If you hear an "expert" doing this I recommend plugging your ears temporarily as, unless they are referring to just a day trade, these are completely contradictory statements. Gold is rallying on a "run to safety" trade mostly out of the Euro as it continues to weaken, but also out of Equities. For Gold to continue higher to the $1400 or $1500 level, as I have heard some calls for this, Gold will have to convincingly supplant the Euro as the second reserve currency for the world. The downfall of the Euro is incredibly bearish for the global Equity markets and this definitely includes the U.S. as we do not live in an isolationist country. I understand adding Gold as a hedge for an investor to a portfolio loaded in Equities, but to go out and say buy more Gold and buy more Equities right now is the type of thinking that provides opportunities for astute traders and is not a solid approach for the trader or investor going forward.
Crude Oil Weakness- Crude Oil broke below the $74.50 level this morning prior to it's open, which is the level that the market has had a quick rally bounce off of each of the last four days. As I have continually noted, this move lower in Crude has not been on a liquidation of long positions and on many lower days the open interest has continued to increase. With an incredible amount of roughly 150,000 open longs now out at least $8 on their purchases above $82 I can not imagine that there will not be some long selling going forward. This morning the nearby June - July spread is trading around the -$4.75 level, which is the lowest price value the market has ever seen excluding the debacle from the beginning of '09. While the contango is based on price, which is much higher than the historic charts in the 80's and 90's this is an example of a market where the fundamentals continue to collapse at an inflated price. The swings in Crude have been tricky and I do not have a good level to enter on a short currently. Crude continues to lose on a percentage basis to Equities though, so selling Crude versus buying Equities is a possible option on the trade as the ratio chart between the two broke out last week and has skyrocketed since.
Notes:
Precious Metals- With Energy prices collapsing, the Grain sector having a very unproductive seasonal rally, and Softs mostly range bound or weaker, much of the discretionary investment money has piled into the precious metal trade. Finding a decent rate of return in Commodities has been difficult this year and with Gold and Silver rallying the open interest has largely piled into these markets in a frenzy to try to catch profits, especially over the last week. While there is the run to safety trade mentality I believe that a bit of this recent rise in prices can be attributed to speculation money that is catching the tail end of the three month Gold and Silver move. With these markets seemingly rallying whether the macro market is supportive or weaker I continue to recommend caution on entering an outright long in either market as momentum appears to be waning.
Large volume resistance levels in the Stock Indices acted as a magnet yesterday and again overnight as Equities were pulled higher without much of a break yesterday and into this morning. All of these resistance levels that I listed yesterday have at least been temporarily eclipsed, but in the case of the Dow and S&P 500 are still trading near the top of the resistance range. Equities have pulled higher on a solid recovery this week, but the Euro has continued to weaken after a spiky rally on Monday. The weakness of the Euro is a signal to me that the rest of the World is not taking this European bailout package and it's protective policies on the Euro very seriously. I have heard some analysts say that they believe that this package has isolated the contagion to Europe now and that the U.S. is safe, but with the U.S. contributing 17% of IMF funds and actually footing the bill for a larger portion based on usable currency (ie. some people do not except Venezuelan Pesos) you can be sure that the U.S. is already on the hook for tens of billions of dollars if not more. Let alone the U.S. balance sheet on it's own and the possible repercussions if this Trillion Dollar package is not enough to cover all of the dominoes in Europe.
With Equity direction still uncertain as daily RSI maintains a bearish mode, but with prices moving through resistance with ease I am uncertain of short term macro direction over the next week. Commodities other than precious metals and the Euro continue to point towards a slide in the market, but the relentlessness of Equities on the corrective rally makes it difficult to attempt a short position on supportive markets. I still feel strongly that we are in the process of reversing the bull market of the last year into a bearish one, but this does not mean that you should sell everything today. With a number of contradictory moves across the market I recommend continuing to size back on trading until overall direction becomes clearer.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Gold - Silver Ratio (Gold - Silver/2)- The spread has a bullish base trend dating back from September of '09 that provides a value for today of either 240 or 247 depending on which points you choose to draw the base from. The spread also has a nice base of traded price between the 235 and 251 values also to provide support. On a short term scale the spread has also produced a double base over the last two days around the 255 level. I have already covered the fundamental reasons behind the trade over the last few days, but it is mostly based around the volatile, and I believe out of line, price action in the Silver market lately. The massive correction in the spread back to the base of this range provides the opportunity to buy on a dip against the 255 or 251 level and only risk to around 240 at the most for the opportunity at a move to 300 - 320. It is likely that this trade may form a longer base around this level, so waiting a little longer on entry may actually be prudent to see if the precious metal markets do indeed form a top around this level with a break in the Silver market likely being the fuel on the spread trade.
The Gold - Euro - Equity Paradox- It may seem like I'm ragging on analysts a bit lately, but with an office move at the beginning of the month I am now glued in front of the business news channel all day without a choice. Over the last two days I have heard a number of analysts tout the continuation of Gold to a much higher level while also calling for Equities to continue to strengthen on the larger recovery picture. If you hear an "expert" doing this I recommend plugging your ears temporarily as, unless they are referring to just a day trade, these are completely contradictory statements. Gold is rallying on a "run to safety" trade mostly out of the Euro as it continues to weaken, but also out of Equities. For Gold to continue higher to the $1400 or $1500 level, as I have heard some calls for this, Gold will have to convincingly supplant the Euro as the second reserve currency for the world. The downfall of the Euro is incredibly bearish for the global Equity markets and this definitely includes the U.S. as we do not live in an isolationist country. I understand adding Gold as a hedge for an investor to a portfolio loaded in Equities, but to go out and say buy more Gold and buy more Equities right now is the type of thinking that provides opportunities for astute traders and is not a solid approach for the trader or investor going forward.
Crude Oil Weakness- Crude Oil broke below the $74.50 level this morning prior to it's open, which is the level that the market has had a quick rally bounce off of each of the last four days. As I have continually noted, this move lower in Crude has not been on a liquidation of long positions and on many lower days the open interest has continued to increase. With an incredible amount of roughly 150,000 open longs now out at least $8 on their purchases above $82 I can not imagine that there will not be some long selling going forward. This morning the nearby June - July spread is trading around the -$4.75 level, which is the lowest price value the market has ever seen excluding the debacle from the beginning of '09. While the contango is based on price, which is much higher than the historic charts in the 80's and 90's this is an example of a market where the fundamentals continue to collapse at an inflated price. The swings in Crude have been tricky and I do not have a good level to enter on a short currently. Crude continues to lose on a percentage basis to Equities though, so selling Crude versus buying Equities is a possible option on the trade as the ratio chart between the two broke out last week and has skyrocketed since.
Notes:
Precious Metals- With Energy prices collapsing, the Grain sector having a very unproductive seasonal rally, and Softs mostly range bound or weaker, much of the discretionary investment money has piled into the precious metal trade. Finding a decent rate of return in Commodities has been difficult this year and with Gold and Silver rallying the open interest has largely piled into these markets in a frenzy to try to catch profits, especially over the last week. While there is the run to safety trade mentality I believe that a bit of this recent rise in prices can be attributed to speculation money that is catching the tail end of the three month Gold and Silver move. With these markets seemingly rallying whether the macro market is supportive or weaker I continue to recommend caution on entering an outright long in either market as momentum appears to be waning.
Wednesday, May 12, 2010
Wednesday 5/12/10 Commodity Ideas
Opening Note:
After beginning yesterday lower, Equities were able to mount a rally throughout the morning, but eventually faded in the afternoon to close just above their opening values. The Stock Indices failed after their first encounter with some strong resistance and high volume trade from last Wednesday and Thursday prior to the crash in the late afternoon last Thursday. Yesterday showed a significant drop in the daily range for Equities and was the lowest magnitude move from the previous day to the close that we have seen in May as well. The extreme spike in volatility this month may finally be calming as the European bailout package has temporarily quelled the fear in the market. While Gold has gone parabolic on its rally the last couple days as a run to safety I believe that this may mean a top in the Gold market today, at least temporarily, as the Euro has stabilized and volatility decreased.
I am having a difficult time finding a compelling fundamental argument from a macro-picture professional (not an equity trader on TV) right now that paints a pretty picture on the future as more debt is thrown at existing bad debt as a solution to the global problem. While it is possible that a short term rally could find a way to make new highs in the market again this Summer, I feel it is unlikely as I believe we have already shifted out of the bull rally of the last 14 months. I have correlated major resistance levels in the Equity Indices that were touched yesterday, but should continue to serve as a short term top on the market. As long as these resistance levels hold in the short term I am a seller of Equities and supportive Commodity markets. I am still cautious of volatility and still will be keeping trade suggestions on the radar until I find a more reliable trade.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Stock Indices Resistance- The correlated high volume resistance zones that I have for the Indices are as follows: Dow; 10,834 - 10,892 S&P 500; 1164.50 - 1172 Nasdaq; 1958 - 1968.50. Index prices rallied into the lower half of these zones yesterday, but did not really threaten the tops of the zones. I would not be surprised if there is another attempt over the next two days at these levels though. Overnight Equities have rallied since the European open, but at more of a crawling pace than we are used to lately. I do not believe that they will have the steam to continue higher to threaten these levels today, but I would wait for values to climb into the resistance before entering a short position.
Gold- Gold is now in the parabolic stage of it's rally as investors are jumping over the cliff to chase it higher. I have finally heard tons of chatter about the Gold market on media networks with strong buy recommendations now going out as Gold reaches the 17th day on it's 3rd leg rally move. My original projection range for this third leg rally was from $1208 to $1244, with the top of this range now being met this morning with a complimentary spike above the psychological $1245 level already. With the decrease in volatility and stabilization of the Euro and other weak markets I believe that the fundamental story for a run to safety is drying up and so should the gold rally. Add to this that most moves revolve around the 20 day average and the fact that Gold has reached all of it's technical projections and I recommend liquidating outright Gold positions, but still support owning Gold versus riskier assets or other Commodity shorts. As a final note, the RSI on the daily chart for Gold appears to be creating a double top reversal at the overbought 75 level that signals a potential reversal to a bear move.
Buy Gold/ Sell Silver (Gold - Silver/2)- I believe that this is the best trade out there right now as the Silver market has violently followed the Gold on it's rally since Friday. When looking at the daily chart you can easily notice the outstanding amount of volatility over the last two weeks, which is mostly due to the swings in the Silver market. As the macro market began to fall in the beginning of last week Silver suffered a large break of nearly $1.80 on Tuesday and Wednesday, but miraculously recovered on Friday beginning a $2.50 rally from it's base to today. As I have harped the last couple days, Silver is not usually used as a store of value and suffers a decline in price, like it did early last week, when the macro market weakens along with Metals like Copper. I can understand the run to Silver as those looking for safety see Gold at all time highs and are squeamish to buy new highs, but this is an incorrect assumption about the market that I believe should have a strong correction. The Gold/Silver Ratio has a strong base built up between the 235 and 251 level that was tested yesterday by a 255 close, but has strengthened a bit today off of this support. I am looking to purchase a dip below the 260 level as I believe a correction to 300 if not 320 is not far away as Silver should experience a larger break if Gold forms a top.
Notes:
Crude Oil- Note that the June - July Crude spread is now sitting at -$4.00 and that the July - Aug spread has widened to a low of -$2.25 this morning. The next monthly contango is already widening to an abnormally bearish level for supply and demand showing that the fundamental story for Crude continues to be weak. Crude has a tendency, especially over the last year, to completely ignore this fundamental story though and trade along with the macro story. Crude being the weakest performer across the market over the last week and a half would make me awfully timid if I was holding a large long position in the market. My early open interest numbers were incorrect yesterday as they were later revised to a slight liquidation later, but there are still well over 150,000 contracts holding at least a $6 loser at the time being. If Crude finds a close below the $75 level I still hold out hope that there could be a wave of long liquidation in the market providing a good short opportunity.
Corn- On a rally breakout from it's consolidation range I have a projection range on the July Corn market from $3.85 1/2 to $3.88 with the swing high from March 18th providing resistance at 3.87 1/2. With a strong performance overnight and this morning it may be hard to take advantage of the move on long entry, but this is a good range to take profits if you are long.
Soybeans- July Soybeans have "single prints" on the market profile until the $9.71 3/4 level and a double print profile above that to $9.75. With some stronger initial resistance above this from $9.76 to 9.78 I believe that this stronger resistance is a good level to sell against on the corrective rally with the Soybean complex still in a larger bearish mode.
After beginning yesterday lower, Equities were able to mount a rally throughout the morning, but eventually faded in the afternoon to close just above their opening values. The Stock Indices failed after their first encounter with some strong resistance and high volume trade from last Wednesday and Thursday prior to the crash in the late afternoon last Thursday. Yesterday showed a significant drop in the daily range for Equities and was the lowest magnitude move from the previous day to the close that we have seen in May as well. The extreme spike in volatility this month may finally be calming as the European bailout package has temporarily quelled the fear in the market. While Gold has gone parabolic on its rally the last couple days as a run to safety I believe that this may mean a top in the Gold market today, at least temporarily, as the Euro has stabilized and volatility decreased.
I am having a difficult time finding a compelling fundamental argument from a macro-picture professional (not an equity trader on TV) right now that paints a pretty picture on the future as more debt is thrown at existing bad debt as a solution to the global problem. While it is possible that a short term rally could find a way to make new highs in the market again this Summer, I feel it is unlikely as I believe we have already shifted out of the bull rally of the last 14 months. I have correlated major resistance levels in the Equity Indices that were touched yesterday, but should continue to serve as a short term top on the market. As long as these resistance levels hold in the short term I am a seller of Equities and supportive Commodity markets. I am still cautious of volatility and still will be keeping trade suggestions on the radar until I find a more reliable trade.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Stock Indices Resistance- The correlated high volume resistance zones that I have for the Indices are as follows: Dow; 10,834 - 10,892 S&P 500; 1164.50 - 1172 Nasdaq; 1958 - 1968.50. Index prices rallied into the lower half of these zones yesterday, but did not really threaten the tops of the zones. I would not be surprised if there is another attempt over the next two days at these levels though. Overnight Equities have rallied since the European open, but at more of a crawling pace than we are used to lately. I do not believe that they will have the steam to continue higher to threaten these levels today, but I would wait for values to climb into the resistance before entering a short position.
Gold- Gold is now in the parabolic stage of it's rally as investors are jumping over the cliff to chase it higher. I have finally heard tons of chatter about the Gold market on media networks with strong buy recommendations now going out as Gold reaches the 17th day on it's 3rd leg rally move. My original projection range for this third leg rally was from $1208 to $1244, with the top of this range now being met this morning with a complimentary spike above the psychological $1245 level already. With the decrease in volatility and stabilization of the Euro and other weak markets I believe that the fundamental story for a run to safety is drying up and so should the gold rally. Add to this that most moves revolve around the 20 day average and the fact that Gold has reached all of it's technical projections and I recommend liquidating outright Gold positions, but still support owning Gold versus riskier assets or other Commodity shorts. As a final note, the RSI on the daily chart for Gold appears to be creating a double top reversal at the overbought 75 level that signals a potential reversal to a bear move.
Buy Gold/ Sell Silver (Gold - Silver/2)- I believe that this is the best trade out there right now as the Silver market has violently followed the Gold on it's rally since Friday. When looking at the daily chart you can easily notice the outstanding amount of volatility over the last two weeks, which is mostly due to the swings in the Silver market. As the macro market began to fall in the beginning of last week Silver suffered a large break of nearly $1.80 on Tuesday and Wednesday, but miraculously recovered on Friday beginning a $2.50 rally from it's base to today. As I have harped the last couple days, Silver is not usually used as a store of value and suffers a decline in price, like it did early last week, when the macro market weakens along with Metals like Copper. I can understand the run to Silver as those looking for safety see Gold at all time highs and are squeamish to buy new highs, but this is an incorrect assumption about the market that I believe should have a strong correction. The Gold/Silver Ratio has a strong base built up between the 235 and 251 level that was tested yesterday by a 255 close, but has strengthened a bit today off of this support. I am looking to purchase a dip below the 260 level as I believe a correction to 300 if not 320 is not far away as Silver should experience a larger break if Gold forms a top.
Notes:
Crude Oil- Note that the June - July Crude spread is now sitting at -$4.00 and that the July - Aug spread has widened to a low of -$2.25 this morning. The next monthly contango is already widening to an abnormally bearish level for supply and demand showing that the fundamental story for Crude continues to be weak. Crude has a tendency, especially over the last year, to completely ignore this fundamental story though and trade along with the macro story. Crude being the weakest performer across the market over the last week and a half would make me awfully timid if I was holding a large long position in the market. My early open interest numbers were incorrect yesterday as they were later revised to a slight liquidation later, but there are still well over 150,000 contracts holding at least a $6 loser at the time being. If Crude finds a close below the $75 level I still hold out hope that there could be a wave of long liquidation in the market providing a good short opportunity.
Corn- On a rally breakout from it's consolidation range I have a projection range on the July Corn market from $3.85 1/2 to $3.88 with the swing high from March 18th providing resistance at 3.87 1/2. With a strong performance overnight and this morning it may be hard to take advantage of the move on long entry, but this is a good range to take profits if you are long.
Soybeans- July Soybeans have "single prints" on the market profile until the $9.71 3/4 level and a double print profile above that to $9.75. With some stronger initial resistance above this from $9.76 to 9.78 I believe that this stronger resistance is a good level to sell against on the corrective rally with the Soybean complex still in a larger bearish mode.
Tuesday, May 11, 2010
Tuesday 5/11/10 Commodity Ideas
Opening Note:
Supportive markets are weaker this morning after enormous gains in Equities yesterday after the European bailout package was announced. While the Dow is trading around 100 lower (which I almost just referred to as slightly...hey volatility) the concerning market to me is the Euro. Despite trading above 1.30 early yesterday the market reversed hard by last afternoon and again overnight and is now back to trading below 1.27. If this bailout package was really being taken seriously I would expect this downward pressure on the Euro to have subsided much more than it has as protection of the Euro is part of the plan. With fundamental news and fear still ruling the market right now, both of which are very close to "wild cards" for me, I am still laying low for a while as technical indicators and support and resistance have not acted as reliable lately. Holding the long-running belief that we are trading prices that are still artificially inflated by over-stimulated investment rather than fundamental recovery, I am still apt to play the short end of the trade for right now. But, with the recent volatility and unpredictability of the news I am waiting until I can really get my hands around a trade. I have long believed that being bearish the macro story is the hardest trade in the world because you have all stimulus and fundamental intervention against you. Therefore, until direction becomes more clear and volatility slows all trade ideas will be on the radar or in the notes for the time being.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Stock Indices Support- I have correlated low volume zones in all of the Equity Index markets that could provide support for a bottom on the trade today. For the Dow it is 10,588 - 10,624, S&P 500 1139.25 - 1144.00, and Nasdaq 1911.50 - 1918.75. After reaching each of these zone all of the indices have had an initial rally bounce, meaning the daily range bottom could already be in. This zone also includes a portion of the volume trade prior to the crash on Thursday making it again slightly stronger support.
Crude Oil Open Interest?- Crude Oil has me extremely perplexed right now because it does not seem to matter what is happening with prices as open interest continues to rise on up days and down days regardless. After a rally bounce on the European bailout yesterday the market has weakened throughout U.S. trading hours yesterday and again overnight. There is some initial support on a first attempt lower from $75.32 to $75.44 that has provided the lows thus far, but will not be as supportive on another encounter. With the nearby June - July Crude spread still sitting on it's lows near $3.70 without much of a rally bounce the short term fundamental supply and demand story also remains poor. Crude Oil also remains one of the weakest performers (if not the weakest) over the last week as it has experienced little price recovery from it's lows. Open interest in the market is now only 20,000 contracts off of it's all time highs from the summer of '07, but since March 30th over 230,000 open positions are all net losers on their Crude long position with over 160,000 of them long from $82 or higher. It is apparent by now that almost all of this money is passive and long term, so it does not look like it will add to the price decline with a sell off for the time being as I previously expected.
Gold Caution- I have a projection range on the Gold rally from $1208 to $1244 for the third leg move and the daily head and shoulders pattern. With the old Gold high sitting near $1230 I believe that it is now likely on a "destiny" trade that Gold goes on to at least make these new highs. However, with Equities, Energies, and supportive Currencies lower this Gold rally is mostly being fueled on a run to safety from Equities and the Euro. With a deflationary market environment Gold prices should begin to come under pressure soon, as Gold should hold strength versus other assets, but should not necessarily show an outright individual price increase. Open interest in Gold has skyrocketed to all time highs now to over 597,000 contracts from 466,000 contracts on March 30th on an over 28% total increase. With this third leg of the Gold rally now having increased volatility and interest I believe that it is near creating a top before deflation begins to take a grip on prices. I still believe that owning long Gold versus short another Commodity position is a good idea that should continue to work, but be cautious with outright longs now as I believe their time is close to falling.
Silver Prices Out of Line- Yesterday I proposed a sale in Silver as a fade against resistance in the low volume zone near the old highs from last week. Prices held nicely in the zone until this morning when they exploded out of the top on the open. Silver is chasing Gold higher right now, but in my experience this is contrary to the Silver market's and Metal relationships normal price action under similar macro circumstances. When Equities and Commodities come under pressure so does Silver usually. Gold is used as a run to safety from risky assets and as a store of value, but in the past this was not Silver's fundamental use. Being a thinner market, Silver usually has a sharper fall than Gold on macro breaks as it did on Tuesday and Wednesday of last week, but this V bottom rally of nearly $2 is unprecedented and I believe is based on an incorrect assumption that if Gold is good then so is Silver. In the previous paragraph I voiced my concerns about holding a long gold position for much longer, and I am waiting for a signal on a Gold top to sell Silver because I believe it has a much higher value than it should at the time being. I would not recommend jumping in right now though as the market is clearly cleaning out any shorts.
Notes:
Supportive markets are weaker this morning after enormous gains in Equities yesterday after the European bailout package was announced. While the Dow is trading around 100 lower (which I almost just referred to as slightly...hey volatility) the concerning market to me is the Euro. Despite trading above 1.30 early yesterday the market reversed hard by last afternoon and again overnight and is now back to trading below 1.27. If this bailout package was really being taken seriously I would expect this downward pressure on the Euro to have subsided much more than it has as protection of the Euro is part of the plan. With fundamental news and fear still ruling the market right now, both of which are very close to "wild cards" for me, I am still laying low for a while as technical indicators and support and resistance have not acted as reliable lately. Holding the long-running belief that we are trading prices that are still artificially inflated by over-stimulated investment rather than fundamental recovery, I am still apt to play the short end of the trade for right now. But, with the recent volatility and unpredictability of the news I am waiting until I can really get my hands around a trade. I have long believed that being bearish the macro story is the hardest trade in the world because you have all stimulus and fundamental intervention against you. Therefore, until direction becomes more clear and volatility slows all trade ideas will be on the radar or in the notes for the time being.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Stock Indices Support- I have correlated low volume zones in all of the Equity Index markets that could provide support for a bottom on the trade today. For the Dow it is 10,588 - 10,624, S&P 500 1139.25 - 1144.00, and Nasdaq 1911.50 - 1918.75. After reaching each of these zone all of the indices have had an initial rally bounce, meaning the daily range bottom could already be in. This zone also includes a portion of the volume trade prior to the crash on Thursday making it again slightly stronger support.
Crude Oil Open Interest?- Crude Oil has me extremely perplexed right now because it does not seem to matter what is happening with prices as open interest continues to rise on up days and down days regardless. After a rally bounce on the European bailout yesterday the market has weakened throughout U.S. trading hours yesterday and again overnight. There is some initial support on a first attempt lower from $75.32 to $75.44 that has provided the lows thus far, but will not be as supportive on another encounter. With the nearby June - July Crude spread still sitting on it's lows near $3.70 without much of a rally bounce the short term fundamental supply and demand story also remains poor. Crude Oil also remains one of the weakest performers (if not the weakest) over the last week as it has experienced little price recovery from it's lows. Open interest in the market is now only 20,000 contracts off of it's all time highs from the summer of '07, but since March 30th over 230,000 open positions are all net losers on their Crude long position with over 160,000 of them long from $82 or higher. It is apparent by now that almost all of this money is passive and long term, so it does not look like it will add to the price decline with a sell off for the time being as I previously expected.
Gold Caution- I have a projection range on the Gold rally from $1208 to $1244 for the third leg move and the daily head and shoulders pattern. With the old Gold high sitting near $1230 I believe that it is now likely on a "destiny" trade that Gold goes on to at least make these new highs. However, with Equities, Energies, and supportive Currencies lower this Gold rally is mostly being fueled on a run to safety from Equities and the Euro. With a deflationary market environment Gold prices should begin to come under pressure soon, as Gold should hold strength versus other assets, but should not necessarily show an outright individual price increase. Open interest in Gold has skyrocketed to all time highs now to over 597,000 contracts from 466,000 contracts on March 30th on an over 28% total increase. With this third leg of the Gold rally now having increased volatility and interest I believe that it is near creating a top before deflation begins to take a grip on prices. I still believe that owning long Gold versus short another Commodity position is a good idea that should continue to work, but be cautious with outright longs now as I believe their time is close to falling.
Silver Prices Out of Line- Yesterday I proposed a sale in Silver as a fade against resistance in the low volume zone near the old highs from last week. Prices held nicely in the zone until this morning when they exploded out of the top on the open. Silver is chasing Gold higher right now, but in my experience this is contrary to the Silver market's and Metal relationships normal price action under similar macro circumstances. When Equities and Commodities come under pressure so does Silver usually. Gold is used as a run to safety from risky assets and as a store of value, but in the past this was not Silver's fundamental use. Being a thinner market, Silver usually has a sharper fall than Gold on macro breaks as it did on Tuesday and Wednesday of last week, but this V bottom rally of nearly $2 is unprecedented and I believe is based on an incorrect assumption that if Gold is good then so is Silver. In the previous paragraph I voiced my concerns about holding a long gold position for much longer, and I am waiting for a signal on a Gold top to sell Silver because I believe it has a much higher value than it should at the time being. I would not recommend jumping in right now though as the market is clearly cleaning out any shorts.
Notes:
Monday, May 10, 2010
Monday 5/10/10 Commodity Ideas
Opening Note:
Over the weekend the Eurozone passed a number of aid packages totaling near $1 Trillion to assist with the debt and financial struggle of some of it's embattled countries. The group also created a protective buying program for the Euro among all of this aid to stave off the recent deflation and worst case scenario that the Euro collapses. Going for a big surprise with such large numbers, the Eurozone appears to be effective in their efforts this morning as the Stock Indices and supportive Commodities are all higher this morning on the bailout news. With the ridiculous volatility in the stock market and Commodities lately and the Dow up around 400 points already today, it is a very difficult and risky trading environment for right now. It is difficult to predict how effective this Eurozone bailout will be at the time being, but there are still plenty of detractors already that are still betting that the Euro eventually fails anyway. With many markets already gaining back much of the losses from Thursday and Friday it appears that there is cautious optimism in the market thus far for the bailout. For the time being I will only recommend trades on the radar until volatility settles down. I myself am unclear on the direction that the macro market will take over the next week or month now, so I will only watch today to get a better feel on the reaction and possible continuation higher or failure. With Equities and Commodities already encountering some strong resistance with a larger move already fulfilled I think that it is likely that the highs have already been made in most of the markets.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Bonds vs. Sell Five Year Notes (Bonds*3 - Fives*7)- This trade works on the gut reaction to the run to safety as exhibited on Thursday, but also is based on the increase of rates and the subsequent unwinding of the buy the short and sell the long yield curve play. For Friday I listed a pullback zone for entry between -451.12 and -450 that was traded throughout the day as -450 acted as resistance around noon. Right now the market is heading slightly lower on the day again and is testing some of the support on the larger head and shoulders pattern on the daily chart that had a breakout of -452.19 and a projection to -443.21. Today the neckline has value of -452.20, but there is some stronger support on the chart at the higher volume traded price of -452.27. The failure rejection in this market makes me believe that it is no longer a good buy for the time being, but that it is still something to keep on the radar. I recommend liquidating if you are long and re-examining the idea later as much of the directional story has reversed this morning.
Crude Oil- I have had Crude on the sale list for a few days, but with the $3 reversal in price this morning I am moving it to the radar. The Crude market is odd to me right now because despite the nearby spreads falling to very weak levels and a price break of over $12 from the highs last week there was not liquidation of positions in the market as they actually slightly increased. The Crude market appears to be heavily dominated by very passive money that does not flinch on a large range or price decline and I believe this is something to take note of in the future when analyzing the market. With the macro picture taking the uncertain turn I am no longer convinced that the market will test $70 within the month. The low volume zone from $77.96 to 78.22 acted as resistance overnight, with increasing resistance at $78.52, so I believe that it is likely that a top for the day has already been placed.
Silver- Before the announcement of the bailout package over the weekend, on Friday Silver exploded to the upside and closed nearly $1 higher on the day. Looking at the bailout and market reaction today this overall move in Silver is understandable, but on Friday with a weaker macro market the Silver rally was counter any correlation it has other than with Gold. In what appears to be a deflationary environment with weakening prices last week I thought that it was inaccurate to have Silver travelling with the Gold market as it should have a stronger pull to the macro picture. Silver rallied directly into a low volume zone with resistance just above it on this move and is sitting there again this morning. Between $18.45 and $18.64 is the low volume zone and there is resistance at both $18.70 and $18.80 to place your stop around on a sale. I feel most confident in this trade/reversal setup than any other this morning. as I do not believe that Silver should still be priced this high currently.
Notes:
Copper- Copper continued to sit in the 60 minute chart triangle formation for all of Friday, but this morning has rallied out of the top of the pattern with the stronger macro market. On Friday I suggested a sell zone from $3.17 to $3.20 that worked nicely on the highs for entry, but is obviously a loser today as I was expecting continuation lower out of the bottom. I no longer recommend selling Copper as open interest in the market has also been cleared out to a level where there are no very few contracts still holding a sizable losing position. I encourage a flat position in Copper for the time being.
Stock Indices- With the huge reversal in price over the weekend I no longer am looking to sell Equities for the time being. After encountering some stronger resistance near their highs today it is possible that they have already made their highs for the day as it is likely to be a battle to take any of the markets much higher today. For the strength of the Dow there is a higher volume traded area from 10,830 - 10,890 as well that should stall a rally and could be a good sale as a fade against prices as they approach this area. The Nasdaq continues to be the best sale while the Dow the best buy on Equity moves.
Over the weekend the Eurozone passed a number of aid packages totaling near $1 Trillion to assist with the debt and financial struggle of some of it's embattled countries. The group also created a protective buying program for the Euro among all of this aid to stave off the recent deflation and worst case scenario that the Euro collapses. Going for a big surprise with such large numbers, the Eurozone appears to be effective in their efforts this morning as the Stock Indices and supportive Commodities are all higher this morning on the bailout news. With the ridiculous volatility in the stock market and Commodities lately and the Dow up around 400 points already today, it is a very difficult and risky trading environment for right now. It is difficult to predict how effective this Eurozone bailout will be at the time being, but there are still plenty of detractors already that are still betting that the Euro eventually fails anyway. With many markets already gaining back much of the losses from Thursday and Friday it appears that there is cautious optimism in the market thus far for the bailout. For the time being I will only recommend trades on the radar until volatility settles down. I myself am unclear on the direction that the macro market will take over the next week or month now, so I will only watch today to get a better feel on the reaction and possible continuation higher or failure. With Equities and Commodities already encountering some strong resistance with a larger move already fulfilled I think that it is likely that the highs have already been made in most of the markets.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Bonds vs. Sell Five Year Notes (Bonds*3 - Fives*7)- This trade works on the gut reaction to the run to safety as exhibited on Thursday, but also is based on the increase of rates and the subsequent unwinding of the buy the short and sell the long yield curve play. For Friday I listed a pullback zone for entry between -451.12 and -450 that was traded throughout the day as -450 acted as resistance around noon. Right now the market is heading slightly lower on the day again and is testing some of the support on the larger head and shoulders pattern on the daily chart that had a breakout of -452.19 and a projection to -443.21. Today the neckline has value of -452.20, but there is some stronger support on the chart at the higher volume traded price of -452.27. The failure rejection in this market makes me believe that it is no longer a good buy for the time being, but that it is still something to keep on the radar. I recommend liquidating if you are long and re-examining the idea later as much of the directional story has reversed this morning.
Crude Oil- I have had Crude on the sale list for a few days, but with the $3 reversal in price this morning I am moving it to the radar. The Crude market is odd to me right now because despite the nearby spreads falling to very weak levels and a price break of over $12 from the highs last week there was not liquidation of positions in the market as they actually slightly increased. The Crude market appears to be heavily dominated by very passive money that does not flinch on a large range or price decline and I believe this is something to take note of in the future when analyzing the market. With the macro picture taking the uncertain turn I am no longer convinced that the market will test $70 within the month. The low volume zone from $77.96 to 78.22 acted as resistance overnight, with increasing resistance at $78.52, so I believe that it is likely that a top for the day has already been placed.
Silver- Before the announcement of the bailout package over the weekend, on Friday Silver exploded to the upside and closed nearly $1 higher on the day. Looking at the bailout and market reaction today this overall move in Silver is understandable, but on Friday with a weaker macro market the Silver rally was counter any correlation it has other than with Gold. In what appears to be a deflationary environment with weakening prices last week I thought that it was inaccurate to have Silver travelling with the Gold market as it should have a stronger pull to the macro picture. Silver rallied directly into a low volume zone with resistance just above it on this move and is sitting there again this morning. Between $18.45 and $18.64 is the low volume zone and there is resistance at both $18.70 and $18.80 to place your stop around on a sale. I feel most confident in this trade/reversal setup than any other this morning. as I do not believe that Silver should still be priced this high currently.
Notes:
Copper- Copper continued to sit in the 60 minute chart triangle formation for all of Friday, but this morning has rallied out of the top of the pattern with the stronger macro market. On Friday I suggested a sell zone from $3.17 to $3.20 that worked nicely on the highs for entry, but is obviously a loser today as I was expecting continuation lower out of the bottom. I no longer recommend selling Copper as open interest in the market has also been cleared out to a level where there are no very few contracts still holding a sizable losing position. I encourage a flat position in Copper for the time being.
Stock Indices- With the huge reversal in price over the weekend I no longer am looking to sell Equities for the time being. After encountering some stronger resistance near their highs today it is possible that they have already made their highs for the day as it is likely to be a battle to take any of the markets much higher today. For the strength of the Dow there is a higher volume traded area from 10,830 - 10,890 as well that should stall a rally and could be a good sale as a fade against prices as they approach this area. The Nasdaq continues to be the best sale while the Dow the best buy on Equity moves.
Friday, May 7, 2010
Friday 5/7/10 Commodity Ideas
Opening Note:
Despite seeing a $2.00 fat finger liquidation in Wheat and the fast markets of '08 I can definitively say that yesterday was the craziest market I have ever seen as not just stocks, but markets across the board reacted to a so far unexplained computer stop-loss program gone haywire. For my purposes I am disregarding the last 500 points lower in the Dow as there was no liquidity once the buy side was blown out and many trades are being cancelled below this level. Still, a 500 point drop at one point in the day shows how all of the fear we saw in the market just over a year ago can come back into the market with just a few volatile down days and some protests on tv.
Some in the media and fundamental camp attribute the fall yesterday to worries over Greece and Europe (which is a big portion of the fear induced) or on the computers, but in my opinion the market was set up over the last 13 months for a fall such as this and all it needed was enough dominoes. By extending the nearly free money policy for way too long The Fed has encouraged investors to go out and buy everything under the sun in an attempt to stimulate and rally the economy, stock market, and assets. By way of this long running stimulus though the government has created what has looked and felt like a bubble rally across the market that has just made the initial pop.
I think one of the big issues that we need to examine here is what exactly is The Fed's job? If it is strictly to make the stock market go higher then I would say they have done a phenomenal job. However, as I have expressed my alliance with the one dissenter (Hoenig) in the FOMC, I believe that smoothness of recovery is just as important as the recovery itself for longer term health and The Fed should have been strongly suggesting if not already slowly raising interest rates. As in most cases (ie. 2008-09) when a market is over-valued on it's underlying assets you normally see a much larger correction than necessary, which resets much of the recovery process and creates enormous amounts of volatility and panic. The passing of the Greek Austerity Bill was not a surprise to the market, nor was the unfolding European contagion story. What we saw yesterday was an over-stimulated market that was fed a "V shaped recovery" story for the last year and what happens when the right catalyst breaks down this wall.
With the Unemployment Report out now I can conclude that I continue to be bearish on the overall market as I believe that yesterday's break, although sharp, was just a part of a larger correction. Non-Farm Payrolls were slightly better than expectations, but Unemployment is still at 9.9%. In my opinion who even really cares about the Unemployment right now because there are much bigger fish out there. I recommend continuing to sell rallies in supportive Commodities going forward.
Buys to Watch:
Bonds vs. Five Year Notes (Bonds*3 - Fives*7 to chart)- On the Tuesday mid-morning update I put this trade on the radar on the large bullish head and shoulders reversal pattern that had broken out. Based on the highs from December 31st and March 19th the neckline for the pattern has a value of -452.22 today with a projection on the pattern to -443.21. I have a low volume zone that the market has pulled back into this morning for long entry from
-450.00 to -451.12 on a break into the acceleration from yesterday's debacle. The Fixed Income market has obviously become very volatile and this is a longer term trade projection, so I recommend executing a smaller position than your normal size if you choose to.
Sells to Watch:
Nasdaq (and other Stock Indexes)- The market is likely to be volatile again today as fear and "value buying" battle each other across the market. But, despite the sizable break throughout the week I am still in the market to sell rallies, although selectively and in my spots. The Nasdaq again was the worst performer yesterday with the Dow the strongest, so I am still watching the Dow as a strength indicator for execution in the Nasdaq. For the stock indexes I have correlated low volume zones: Dow- 10,576 - 10,688 with some old initial resistance at 10,630 with lower vol again above this from 10,664 to 10,698. S&P 500- 1136.25 - 1144 with a double-print continuation to 1147 as well as some good resistance from 1144 to 1147 from March, but that is less reliable. Nasdaq- 1912 - 1931.75 with the area from 1921.25 - 1929.50 being more jumbled and with more trade. It is difficult for me to get a good feel this morning as to whether we will see a rally or a break out of the box on the open this morning, but I am still waiting for the Dow to encounter the 10,630 level before initiating a short in the Nasdaq market, which may struggle to find it's own. Note- All of my projections on the head and shoulders reversal pattern on the stock indexes have been completed, but I am still a seller until we get below the lows from March and head towards a test of the February lows. I believe that the stocks are in the initial stages of a 20 day move lower.
Crude Oil- The opportunity to sell Crude Oil looks like it may have already happened today, but I am still a seller until a test of $70 and do not think that it is unreasonable to believe that we find $60 again in the next couple months. Crude Oil has a low volume zone from $77.50 to $78.22 that reversed price action earlier creating the $78.19 high. You can use a 15 minute chart now to look for short entry on a rally, but with rallies still occurring even on the darkest plunges I believe there will be another opportunity next week.
Copper- With Copper only having a little move to the downside yesterday on the tumultuous fall I am downgrading it on my list of markets to sell, but still believe that it has the most bearish potential of any metal. There still are around 15,000 longs holding net losing positions of at leas 15 cents and the fundamental picture for emerging markets and world wide construction has definitely been downgraded as well. Copper has traded in a range between $3.20 and $3.00 that continues to narrow, so I believe that the market is building momentum on another leg down. A rally in the $3.17 to $3.20 range would provide good opportunity for short entry as I believe that Copper is still heading for at least a test of the February lows from $2.81 to $2.85.
Put on the Radar:
Gold / Silver Ratio (Gold - Silver/2 to chart)- The Gold/Silver ratio sneakily has had one of the best moves of any market this week as Gold has net rallied and Silver has net broke. On the Tuesday mid-morning update I suggested the trade of buying the ratio around the 270 level on a projection to 290, which was likely at least 300 before you even had the opportunity to take profits. However, the market has continued to extend and traded all the way up to the high 320's yesterday afternoon and is sitting near this level again this morning. The market is now approaching the weekly head and shoulders breakout of 332 1/2 next week that has a projection to roughly 455. To form the head and shoulders use the weekly highs from July 6th '09 and Feb. 8th '10. This trade may come into play next week on this rocket fueled trade as Stochastics will likely also provide a buy signal near oversold territory on Monday.
Notes:
Gold- I have a projection range on Gold for it's 3rd leg rally and head and shoulders pattern from $1208 to $1244, which was entered briefly yesterday and overnight. The market has a tendency to get over-excited about Gold rallies as they usually result in a decent sized break following. It is pretty clear by Commodity and Equity price action that the economy is rather deflationary at the time, which usually has a negative impact on Gold prices. Gold is the "run to safety" gut reaction for the market and usually holds it's price well on breaks, but this does not mean that it is the best outright position to hold. I strongly recommend using Gold as a long hedge against short positions in the market if you feel that it is appropriate, but I expect that Gold has likely at or near it's high on the rally and would recommend selling outright long positions now.
Japanese Yen- Over the last month and a half I have written a number of times about the bearish reversal qualities of the Japanese Yen and the government intervention around the 114 to 115 level to keep exports competitive. Well, yesterday the market went into overdrive mode and rallied nearly 6 handles all the way up to the 114 level on the Fixed Income and run to safety explosion. Even in the early evening yesterday you had the opportunity to sell the Yen at the unprecedented level of 111 as most of the market was focused on the Equity debacle. Sitting around 108 now I do not recommend selling the Yen for the time being, but I am still keeping my eye on selling the December 114 or 115 calls to collect premium on time decay as the market is weaker than the correlated fixed incomes and should begin to trade lower in the near future on the negated monthly trendline.
Despite seeing a $2.00 fat finger liquidation in Wheat and the fast markets of '08 I can definitively say that yesterday was the craziest market I have ever seen as not just stocks, but markets across the board reacted to a so far unexplained computer stop-loss program gone haywire. For my purposes I am disregarding the last 500 points lower in the Dow as there was no liquidity once the buy side was blown out and many trades are being cancelled below this level. Still, a 500 point drop at one point in the day shows how all of the fear we saw in the market just over a year ago can come back into the market with just a few volatile down days and some protests on tv.
Some in the media and fundamental camp attribute the fall yesterday to worries over Greece and Europe (which is a big portion of the fear induced) or on the computers, but in my opinion the market was set up over the last 13 months for a fall such as this and all it needed was enough dominoes. By extending the nearly free money policy for way too long The Fed has encouraged investors to go out and buy everything under the sun in an attempt to stimulate and rally the economy, stock market, and assets. By way of this long running stimulus though the government has created what has looked and felt like a bubble rally across the market that has just made the initial pop.
I think one of the big issues that we need to examine here is what exactly is The Fed's job? If it is strictly to make the stock market go higher then I would say they have done a phenomenal job. However, as I have expressed my alliance with the one dissenter (Hoenig) in the FOMC, I believe that smoothness of recovery is just as important as the recovery itself for longer term health and The Fed should have been strongly suggesting if not already slowly raising interest rates. As in most cases (ie. 2008-09) when a market is over-valued on it's underlying assets you normally see a much larger correction than necessary, which resets much of the recovery process and creates enormous amounts of volatility and panic. The passing of the Greek Austerity Bill was not a surprise to the market, nor was the unfolding European contagion story. What we saw yesterday was an over-stimulated market that was fed a "V shaped recovery" story for the last year and what happens when the right catalyst breaks down this wall.
With the Unemployment Report out now I can conclude that I continue to be bearish on the overall market as I believe that yesterday's break, although sharp, was just a part of a larger correction. Non-Farm Payrolls were slightly better than expectations, but Unemployment is still at 9.9%. In my opinion who even really cares about the Unemployment right now because there are much bigger fish out there. I recommend continuing to sell rallies in supportive Commodities going forward.
Buys to Watch:
Bonds vs. Five Year Notes (Bonds*3 - Fives*7 to chart)- On the Tuesday mid-morning update I put this trade on the radar on the large bullish head and shoulders reversal pattern that had broken out. Based on the highs from December 31st and March 19th the neckline for the pattern has a value of -452.22 today with a projection on the pattern to -443.21. I have a low volume zone that the market has pulled back into this morning for long entry from
-450.00 to -451.12 on a break into the acceleration from yesterday's debacle. The Fixed Income market has obviously become very volatile and this is a longer term trade projection, so I recommend executing a smaller position than your normal size if you choose to.
Sells to Watch:
Nasdaq (and other Stock Indexes)- The market is likely to be volatile again today as fear and "value buying" battle each other across the market. But, despite the sizable break throughout the week I am still in the market to sell rallies, although selectively and in my spots. The Nasdaq again was the worst performer yesterday with the Dow the strongest, so I am still watching the Dow as a strength indicator for execution in the Nasdaq. For the stock indexes I have correlated low volume zones: Dow- 10,576 - 10,688 with some old initial resistance at 10,630 with lower vol again above this from 10,664 to 10,698. S&P 500- 1136.25 - 1144 with a double-print continuation to 1147 as well as some good resistance from 1144 to 1147 from March, but that is less reliable. Nasdaq- 1912 - 1931.75 with the area from 1921.25 - 1929.50 being more jumbled and with more trade. It is difficult for me to get a good feel this morning as to whether we will see a rally or a break out of the box on the open this morning, but I am still waiting for the Dow to encounter the 10,630 level before initiating a short in the Nasdaq market, which may struggle to find it's own. Note- All of my projections on the head and shoulders reversal pattern on the stock indexes have been completed, but I am still a seller until we get below the lows from March and head towards a test of the February lows. I believe that the stocks are in the initial stages of a 20 day move lower.
Crude Oil- The opportunity to sell Crude Oil looks like it may have already happened today, but I am still a seller until a test of $70 and do not think that it is unreasonable to believe that we find $60 again in the next couple months. Crude Oil has a low volume zone from $77.50 to $78.22 that reversed price action earlier creating the $78.19 high. You can use a 15 minute chart now to look for short entry on a rally, but with rallies still occurring even on the darkest plunges I believe there will be another opportunity next week.
Copper- With Copper only having a little move to the downside yesterday on the tumultuous fall I am downgrading it on my list of markets to sell, but still believe that it has the most bearish potential of any metal. There still are around 15,000 longs holding net losing positions of at leas 15 cents and the fundamental picture for emerging markets and world wide construction has definitely been downgraded as well. Copper has traded in a range between $3.20 and $3.00 that continues to narrow, so I believe that the market is building momentum on another leg down. A rally in the $3.17 to $3.20 range would provide good opportunity for short entry as I believe that Copper is still heading for at least a test of the February lows from $2.81 to $2.85.
Put on the Radar:
Gold / Silver Ratio (Gold - Silver/2 to chart)- The Gold/Silver ratio sneakily has had one of the best moves of any market this week as Gold has net rallied and Silver has net broke. On the Tuesday mid-morning update I suggested the trade of buying the ratio around the 270 level on a projection to 290, which was likely at least 300 before you even had the opportunity to take profits. However, the market has continued to extend and traded all the way up to the high 320's yesterday afternoon and is sitting near this level again this morning. The market is now approaching the weekly head and shoulders breakout of 332 1/2 next week that has a projection to roughly 455. To form the head and shoulders use the weekly highs from July 6th '09 and Feb. 8th '10. This trade may come into play next week on this rocket fueled trade as Stochastics will likely also provide a buy signal near oversold territory on Monday.
Notes:
Gold- I have a projection range on Gold for it's 3rd leg rally and head and shoulders pattern from $1208 to $1244, which was entered briefly yesterday and overnight. The market has a tendency to get over-excited about Gold rallies as they usually result in a decent sized break following. It is pretty clear by Commodity and Equity price action that the economy is rather deflationary at the time, which usually has a negative impact on Gold prices. Gold is the "run to safety" gut reaction for the market and usually holds it's price well on breaks, but this does not mean that it is the best outright position to hold. I strongly recommend using Gold as a long hedge against short positions in the market if you feel that it is appropriate, but I expect that Gold has likely at or near it's high on the rally and would recommend selling outright long positions now.
Japanese Yen- Over the last month and a half I have written a number of times about the bearish reversal qualities of the Japanese Yen and the government intervention around the 114 to 115 level to keep exports competitive. Well, yesterday the market went into overdrive mode and rallied nearly 6 handles all the way up to the 114 level on the Fixed Income and run to safety explosion. Even in the early evening yesterday you had the opportunity to sell the Yen at the unprecedented level of 111 as most of the market was focused on the Equity debacle. Sitting around 108 now I do not recommend selling the Yen for the time being, but I am still keeping my eye on selling the December 114 or 115 calls to collect premium on time decay as the market is weaker than the correlated fixed incomes and should begin to trade lower in the near future on the negated monthly trendline.
Thursday, May 6, 2010
Thursday 5/6/10 Commodity Ideas
Opening Note:
With the U.S. waking up yesterday morning to the alarming videos from the Greek riots the market broke sharply prior to the U.S. open, but quickly took a turn for the better erasing losses in many supportive markets by mid-day. Although the macro market did deflate later in the day it is now clear that taking the market lower is going to be a battle as many markets saw an increase in long positions yet again on a price break. The move down in Equities over the last two days, although small in comparison to the wipe out in some Commodities, was one of the largest two day declines since the recovery began, so it is understandable that the market did need a rally breather before a move lower could continue. The majority of this new long allocation is suspicious to me and is coming at a time in markets like Copper and Crude Oil when there are already huge long positions that are net losing on their investment. While buying these dips has worked a number of times throughout the recovery I believe that coming after a nearly 60 day rally in Equities that this time is different. Fundamental bulls can point to recent economic data and earnings that are improved over last year's numbers and show signs of growth, but I feel that much of this growth we are beginning to see was already overshot by the long running stimulus plans and bubble-esque rally continuation within the market. Just as fundamental bears complained on the year long rally that "we aren't seeing signs of improvement" I believe that the tables have now turned where we will begin to see more growth, but prices will not continue to rise along with the news. Friday brings another Unemployment Report, so I expect a slow down in some of the recent volatility we have seen, but unless the Report shows an astronomical decrease in Unemployment (which it will not) I believe that the number will be uneventful and the market will continue lower throughout the month.
Buys to Watch:
Sells to Watch:
Nasdaq (and other Stock Indexes)- With the Dow as the strength and the Nasdaq as the weakness of the sector over the last few days I am more interested in continuing to sell the Nasdaq than the other Indexes. As the strength of the recovery the Nasdaq has a lot more room to move to the downside among the indexes. The recent strength and weakness reversal in the sector should be alarming to the Bulls as a market in a Bullish mode should continue to hold the strength and weakness relationship on a price break as well. Because the market has had a large increase in volatility the Nasdaq on it's own has not provided great entry parameters to sell as it does not have the strength to rally into reversal zones. However, the Dow as the strength has found it's own zones and I am now using it as another indicator on entry on the short Nasdaq. A low volume zone in the Dow from 10906 to 10924 left from early acceleration yesterday acted as resistance on the mid-day high with the Nasdaq coming within points of it's 1970 resistance level that I used for a longer term trade buy stop. While I do not have a good reversal zone to sell on a rally today as the markets have already extended lower I recommend using a 15 minute chart with momentum indicators for short initiation. The Nasdaq still has a head and shoulders pattern intact with the breakout below 1991.5 and a projection to 1921.5, which is just initial, as I believe the market will continue lower. Note: It is difficult for me to accurately predict all of the swings and the maginitude of these swings at a single point in time like 8 a.m., so when the market looks like it is giving you easy money on a big move I recommend taking it for now and looking to get back in later as there are plenty of rallies still. I try to focus on catching longer term moves while maintaining a position, but once the Nasdaq dips to 1934 like yesterday and shows reversal signs the risk/reward for keeping your stop at 1970 to catch the other 13 points on the projection is not there.
Copper- Another initial report this morning of an increase in open interest in Copper leaves me shaking my head, but still feverishly bearish on the market. Shortly after I sent the newsletter out yesterday morning the Copper market broke to the $3.00 level and to over 17 cents lower on the day. On the intraday recovery in the market though, Copper was able to rally all the way back to nearly unchanged as new buying and short covering emerged on the dip. Like the Equities, I did not predict a huge break followed by a complete recovery on the day, so on the quick liquidation days I still recommend using a tighter stop once the market gives you a significant move and waiting for re-entry at a better spot. My long term buy stop placement near $3.1760 was hit overnight, but the lower volume zone between $3.20 and $3.22 for re-initiation that I provided yesterday was the resistance for the market's highs overnight. With a large number of open long positions that are net losers of at least 15 to 40 cents thus far I believe that more liquidation is in store for the Copper market with a least a test of the weekly swing low from $2.81 to 2.85.
Crude Oil- It is easy to forget that Crude Oil was trading above $87 on Monday and has dropped nearly 10% this week from the highs, but I still believe that the gas should be on for shorting this market. The huge price drop has caught a number of longs off guard, but the most extraordinary thing about the market right now is that this break has not been on long liquidation. The initial report on open interest this morning again shows an increase in the Crude Oil market with an estimated 47,000 new longs entering yesterday. This number is likely to be revised lower later in the day, but this still leaves around 200,000 open long positions initiated since March 30th that are holding losses. The market is treating this recent break similar to the other ones on the recovery by buying aggressively, but after such a long run and with fundamental fear entering the market I do not see how these new longs get bailed out by higher prices this time. Below $78 the weekly front month of Crude is below all of the traded price from both March and April and does not have good support to hang its hat on anymore. If there is a significant portion of discretionary money in this 200,000 contracts then I expect a rolling wave of long selling that should carry Crude at least to the $70 area by the end of the month if prices hold below $78.
Put on the Radar:
Notes:
Currencies- The Euro has now reached my initial 3rd leg projection range from 1.2750 to 1.28, but has already extended below this morning. On a weekly chart for the Euro drawing a trendline from the lows in November of '05 to the lows near November of '08 produces a trendline range from 1.2667 to 1.2722 that could provide some support, but I still recommend trading the Euro from the short side as there is no sign of reversal from the recent action. I still have a projection of 85.25 on the Dollar Index, which is becoming increasingly closer, but I am waiting for a break into the lower volume area from 84.32 to 84.28 for long initiation. Overnight the Canadian Dollar reached my initial bearish cup and handle projection of .9626 likely providing little time to exit for profits, but the market is likely to head back to this level today as the Macro picture continues to weaken. Lastly, I still have a bearish cup and handle projection on the Australian Dollar to .8884.
With the U.S. waking up yesterday morning to the alarming videos from the Greek riots the market broke sharply prior to the U.S. open, but quickly took a turn for the better erasing losses in many supportive markets by mid-day. Although the macro market did deflate later in the day it is now clear that taking the market lower is going to be a battle as many markets saw an increase in long positions yet again on a price break. The move down in Equities over the last two days, although small in comparison to the wipe out in some Commodities, was one of the largest two day declines since the recovery began, so it is understandable that the market did need a rally breather before a move lower could continue. The majority of this new long allocation is suspicious to me and is coming at a time in markets like Copper and Crude Oil when there are already huge long positions that are net losing on their investment. While buying these dips has worked a number of times throughout the recovery I believe that coming after a nearly 60 day rally in Equities that this time is different. Fundamental bulls can point to recent economic data and earnings that are improved over last year's numbers and show signs of growth, but I feel that much of this growth we are beginning to see was already overshot by the long running stimulus plans and bubble-esque rally continuation within the market. Just as fundamental bears complained on the year long rally that "we aren't seeing signs of improvement" I believe that the tables have now turned where we will begin to see more growth, but prices will not continue to rise along with the news. Friday brings another Unemployment Report, so I expect a slow down in some of the recent volatility we have seen, but unless the Report shows an astronomical decrease in Unemployment (which it will not) I believe that the number will be uneventful and the market will continue lower throughout the month.
Buys to Watch:
Sells to Watch:
Nasdaq (and other Stock Indexes)- With the Dow as the strength and the Nasdaq as the weakness of the sector over the last few days I am more interested in continuing to sell the Nasdaq than the other Indexes. As the strength of the recovery the Nasdaq has a lot more room to move to the downside among the indexes. The recent strength and weakness reversal in the sector should be alarming to the Bulls as a market in a Bullish mode should continue to hold the strength and weakness relationship on a price break as well. Because the market has had a large increase in volatility the Nasdaq on it's own has not provided great entry parameters to sell as it does not have the strength to rally into reversal zones. However, the Dow as the strength has found it's own zones and I am now using it as another indicator on entry on the short Nasdaq. A low volume zone in the Dow from 10906 to 10924 left from early acceleration yesterday acted as resistance on the mid-day high with the Nasdaq coming within points of it's 1970 resistance level that I used for a longer term trade buy stop. While I do not have a good reversal zone to sell on a rally today as the markets have already extended lower I recommend using a 15 minute chart with momentum indicators for short initiation. The Nasdaq still has a head and shoulders pattern intact with the breakout below 1991.5 and a projection to 1921.5, which is just initial, as I believe the market will continue lower. Note: It is difficult for me to accurately predict all of the swings and the maginitude of these swings at a single point in time like 8 a.m., so when the market looks like it is giving you easy money on a big move I recommend taking it for now and looking to get back in later as there are plenty of rallies still. I try to focus on catching longer term moves while maintaining a position, but once the Nasdaq dips to 1934 like yesterday and shows reversal signs the risk/reward for keeping your stop at 1970 to catch the other 13 points on the projection is not there.
Copper- Another initial report this morning of an increase in open interest in Copper leaves me shaking my head, but still feverishly bearish on the market. Shortly after I sent the newsletter out yesterday morning the Copper market broke to the $3.00 level and to over 17 cents lower on the day. On the intraday recovery in the market though, Copper was able to rally all the way back to nearly unchanged as new buying and short covering emerged on the dip. Like the Equities, I did not predict a huge break followed by a complete recovery on the day, so on the quick liquidation days I still recommend using a tighter stop once the market gives you a significant move and waiting for re-entry at a better spot. My long term buy stop placement near $3.1760 was hit overnight, but the lower volume zone between $3.20 and $3.22 for re-initiation that I provided yesterday was the resistance for the market's highs overnight. With a large number of open long positions that are net losers of at least 15 to 40 cents thus far I believe that more liquidation is in store for the Copper market with a least a test of the weekly swing low from $2.81 to 2.85.
Crude Oil- It is easy to forget that Crude Oil was trading above $87 on Monday and has dropped nearly 10% this week from the highs, but I still believe that the gas should be on for shorting this market. The huge price drop has caught a number of longs off guard, but the most extraordinary thing about the market right now is that this break has not been on long liquidation. The initial report on open interest this morning again shows an increase in the Crude Oil market with an estimated 47,000 new longs entering yesterday. This number is likely to be revised lower later in the day, but this still leaves around 200,000 open long positions initiated since March 30th that are holding losses. The market is treating this recent break similar to the other ones on the recovery by buying aggressively, but after such a long run and with fundamental fear entering the market I do not see how these new longs get bailed out by higher prices this time. Below $78 the weekly front month of Crude is below all of the traded price from both March and April and does not have good support to hang its hat on anymore. If there is a significant portion of discretionary money in this 200,000 contracts then I expect a rolling wave of long selling that should carry Crude at least to the $70 area by the end of the month if prices hold below $78.
Put on the Radar:
Notes:
Currencies- The Euro has now reached my initial 3rd leg projection range from 1.2750 to 1.28, but has already extended below this morning. On a weekly chart for the Euro drawing a trendline from the lows in November of '05 to the lows near November of '08 produces a trendline range from 1.2667 to 1.2722 that could provide some support, but I still recommend trading the Euro from the short side as there is no sign of reversal from the recent action. I still have a projection of 85.25 on the Dollar Index, which is becoming increasingly closer, but I am waiting for a break into the lower volume area from 84.32 to 84.28 for long initiation. Overnight the Canadian Dollar reached my initial bearish cup and handle projection of .9626 likely providing little time to exit for profits, but the market is likely to head back to this level today as the Macro picture continues to weaken. Lastly, I still have a bearish cup and handle projection on the Australian Dollar to .8884.
Wednesday, May 5, 2010
Tuesday 5/5/10 Commodity Ideas
Opening Note:
The volatile swings in the range bound market over the last two weeks finally concluded yesterday with a decisive reversal breakout signifying a top on the market at least for the short term. Nearly every supportive Commodity was lower on the day including even Gold with Crude Oil, Silver, Nasdaq and Euro leading the way down among the sectors. Although there was a slight rally yesterday afternoon to close a little off of the lows, the bounce was minimal and almost my entire board of supportive Commodities is red this morning. One of the biggest questions that will decide the size of this break is how much of this money is strictly long term and passive? While I can already see liquidation beginning in the extremely caught Copper market I was also nearly as concerned about the Crude Oil market a week ago. Like Copper there were massive amounts of long positions added since March and with prices just slightly lower all of these longs become net losers, which could fuel another liquidation break. While these Commodity markets are the most alarming thus far, if you put the Crude Oil or Copper chart up against any of the Stock Indexes you will see that as the strength these Equity markets were driven much higher and faster than the Commodities. Whether or not this is money that scares or has the opportunity to liquidate will drive how far Equities fall, but yesterday's break was minuscule compared to the amount that it would need to fall to catch up with some of the most correlated Commodities at or near their March lows. Because I have a number of bearish projections that are in the midst of their pattern or just beginning I believe that this is a break that is beginning a 20 day move to the downside. I recommend selling rallies in supportive Commodities for the time being.
Buys to Watch:
Gold/Silver Ratio- (Gold - Silver/2) While I do not recommend long entry on this position currently I am placing it here for position management on the mid-morning trade idea and because it is a great spread for playing continued downside performance on the market. The trade suggestion yesterday went out when the market was trading near the 270 level on the cup and handle breakout above 265 that had a projection to 290. Last night the market traded to the 290 level around 7:30 p.m., but unless you were sitting at your computer you likely did not have the ability to exit. The market proceeded to break to around the 278 level overnight, but has rallied back to around 285 this morning. I believe that it is likely that the market travels back to 290 today before it reaches 278, so you can use this as a stop loss or just take profits currently. I also believe that having a small position in this spread is not a bad idea if you are trading longer term as I believe it has much more bullish momentum over the next few weeks. Note: For those of you unfamiliar with the Gold/Silver Ratio I look at the 265 level, for example, as $265 in the Gold market because this is how the spread ticks dollar-wise. So, this move from 270 to 290 using 1 long Gold and 1 short Silver is equal to a $20 Gold move, or $2000 per 1 lot.
** After I wrote this paragraph the spread has rallied to 300 after the Metal open...good thing I send the letter around 8...I recommend taking profits on the market short term now, but to look for long entry on pullbacks.
Sells to Watch:
Stock Indexes (Nasdaq)- The Nasdaq has been the worst performer of the Equity sector over the last few days as the bearish head and shoulder patterns across all of the indexes have set in motion. The Nasdaq had a breakout value of 1991.5 and maintains a projection to 1921.25. The Nasdaq does have some resistance near the 1970 level, which held the highs for the market overnight. However, there really is not much good resistance again until the 1991 level. With the market already lower on the day I believe that you can move your buy stop to the 1970 level as I believe that there should be bearish continuation over the day. The S&P 500 pattern had a breakout value of 1775 and has a projection to 1135.75. The low volume zone from 1174 to 1176.75 acted as resistance for a high on the market range today and I believe can now be used as a buy stop on the larger move. With fast markets and few obvious support and resistance points being provided on the continuation I believe using a 15 minute chart for entry is the best method for the time being as with the markets already lower I do not have great points of entry. All of these projections are initial projections as well and I believe that the prospects for continuation below these levels is fairly high.
Copper- I do not usually implore people to hold a trade if they have a winner, as exit is a personal decision, but that is how strongly I feel about the short Copper right now and how caught I believe the long market participants are. The initial open interest report last evening only showed another couple thousand contracts liquidated, but this number will likely increase when the definitive reports are released. Going off this initial number there are still over 21,000 outstanding longs (out of 145,000 total) that are holding a position that they entered at a price at least above $3.2775. Early this morning there was a wave of liquidation across the market making Copper one of the worst Commodities on my board this morning. I still believe that Copper is heading for a test of it's lows from February in the $2.81 to $2.85 range and with the move this morning you can lower your longer term buy stop to just above the $3.1760 level. A market rally above this level would likely continue into another good low volume reversal sell zone between $3.20 and $3.22 for a short position re-initiation. This market is just beginning this liquidation wave, as it took much longer to initiate than I expected, so I recommend staying short the market despite the huge sell off over the last two weeks.
Put on the Radar:
Sell Crude Oil- The nearby June-July spread is awful signifying poor short term demand in a market that I believe has been significantly propped up by investment above the fundamental supply and demand prices. Like the Copper I expressed concern a week ago about the large amount of open interest pouring into the market that was adding to a net-losing position on the fundamental recovery and risk trade hopes. The initial open interest report for Crude Oil again showed an increase in open interest yesterday (which I believe will be adjusted lower) making the total nearly 200,000 longs that have entered the market since March 30th that are all holding losing positions. This looks like a market like the Copper that is setting up severe punishment for those following the buy the dip and buy the sell signal trade and I expect a wave of discretionary money long liquidation. Below $78 prices are well below the range from March and I believe that a test of $70 is very likely, so I recommend continuing to sell rallies despite the large break.
Notes:
Gold- Gold is no longer a good outright position as a long after my stop level of $1177 was hit yesterday as well as a number of others below this level. Gold is the best market to use as a long hedge or spread to buy against weakness like Silver to better hold the position. I do not recommend purchasing outright Gold for right now.
Bonds- Yesterday I suggested a sell the Equities and sell the Fixed Incomes relationship trade, that I still believe could be profitable, but the Bond market now has a bullish cup and handle breakout on it's weekly chart. The cup and handle pattern had a breakout range from 119.18 to 119.28 and has a projection range to 124.20 to 125.08. Although the rally in the Bonds has not impressed me much in relation to the stock market break I still recommend trading outright Bonds from the long side.
Currencies- Just when I really give up on the Currencies and their volatile range do they really start kicking into gear on a lower continuation. Both the Canadian and Australian Dollar have broken out of their consolidation range and respectively have projections to .9626 and .8884. Both of these Currencies are highly correlated to Commodity prices and have been the strengths on the economic recovery over the last year. I take this reversal in direction as an indication that this macro break is not just a European story anymore, but rather a global issue. I still have a third leg down projection on the Euro from it's initial move from 1.2750 to 1.28, but this projection is beginning to look rather small compared to the move that I believe is still in it's initial stages. I recommend continuing to sell rallies in the Euro through this third leg projection as it will likely extend further. Finally, I have a projection of 85.25 in the Dollar Index based on the daily head and shoulders pattern that was set off yesterday. The Dollar Index is finally rallying based off the decline of Currencies other than just the weak Euro, Franc and Pound. This shows great strength and an actually tighter correlation to the Commodity and Equity markets.
The volatile swings in the range bound market over the last two weeks finally concluded yesterday with a decisive reversal breakout signifying a top on the market at least for the short term. Nearly every supportive Commodity was lower on the day including even Gold with Crude Oil, Silver, Nasdaq and Euro leading the way down among the sectors. Although there was a slight rally yesterday afternoon to close a little off of the lows, the bounce was minimal and almost my entire board of supportive Commodities is red this morning. One of the biggest questions that will decide the size of this break is how much of this money is strictly long term and passive? While I can already see liquidation beginning in the extremely caught Copper market I was also nearly as concerned about the Crude Oil market a week ago. Like Copper there were massive amounts of long positions added since March and with prices just slightly lower all of these longs become net losers, which could fuel another liquidation break. While these Commodity markets are the most alarming thus far, if you put the Crude Oil or Copper chart up against any of the Stock Indexes you will see that as the strength these Equity markets were driven much higher and faster than the Commodities. Whether or not this is money that scares or has the opportunity to liquidate will drive how far Equities fall, but yesterday's break was minuscule compared to the amount that it would need to fall to catch up with some of the most correlated Commodities at or near their March lows. Because I have a number of bearish projections that are in the midst of their pattern or just beginning I believe that this is a break that is beginning a 20 day move to the downside. I recommend selling rallies in supportive Commodities for the time being.
Buys to Watch:
Gold/Silver Ratio- (Gold - Silver/2) While I do not recommend long entry on this position currently I am placing it here for position management on the mid-morning trade idea and because it is a great spread for playing continued downside performance on the market. The trade suggestion yesterday went out when the market was trading near the 270 level on the cup and handle breakout above 265 that had a projection to 290. Last night the market traded to the 290 level around 7:30 p.m., but unless you were sitting at your computer you likely did not have the ability to exit. The market proceeded to break to around the 278 level overnight, but has rallied back to around 285 this morning. I believe that it is likely that the market travels back to 290 today before it reaches 278, so you can use this as a stop loss or just take profits currently. I also believe that having a small position in this spread is not a bad idea if you are trading longer term as I believe it has much more bullish momentum over the next few weeks. Note: For those of you unfamiliar with the Gold/Silver Ratio I look at the 265 level, for example, as $265 in the Gold market because this is how the spread ticks dollar-wise. So, this move from 270 to 290 using 1 long Gold and 1 short Silver is equal to a $20 Gold move, or $2000 per 1 lot.
** After I wrote this paragraph the spread has rallied to 300 after the Metal open...good thing I send the letter around 8...I recommend taking profits on the market short term now, but to look for long entry on pullbacks.
Sells to Watch:
Stock Indexes (Nasdaq)- The Nasdaq has been the worst performer of the Equity sector over the last few days as the bearish head and shoulder patterns across all of the indexes have set in motion. The Nasdaq had a breakout value of 1991.5 and maintains a projection to 1921.25. The Nasdaq does have some resistance near the 1970 level, which held the highs for the market overnight. However, there really is not much good resistance again until the 1991 level. With the market already lower on the day I believe that you can move your buy stop to the 1970 level as I believe that there should be bearish continuation over the day. The S&P 500 pattern had a breakout value of 1775 and has a projection to 1135.75. The low volume zone from 1174 to 1176.75 acted as resistance for a high on the market range today and I believe can now be used as a buy stop on the larger move. With fast markets and few obvious support and resistance points being provided on the continuation I believe using a 15 minute chart for entry is the best method for the time being as with the markets already lower I do not have great points of entry. All of these projections are initial projections as well and I believe that the prospects for continuation below these levels is fairly high.
Copper- I do not usually implore people to hold a trade if they have a winner, as exit is a personal decision, but that is how strongly I feel about the short Copper right now and how caught I believe the long market participants are. The initial open interest report last evening only showed another couple thousand contracts liquidated, but this number will likely increase when the definitive reports are released. Going off this initial number there are still over 21,000 outstanding longs (out of 145,000 total) that are holding a position that they entered at a price at least above $3.2775. Early this morning there was a wave of liquidation across the market making Copper one of the worst Commodities on my board this morning. I still believe that Copper is heading for a test of it's lows from February in the $2.81 to $2.85 range and with the move this morning you can lower your longer term buy stop to just above the $3.1760 level. A market rally above this level would likely continue into another good low volume reversal sell zone between $3.20 and $3.22 for a short position re-initiation. This market is just beginning this liquidation wave, as it took much longer to initiate than I expected, so I recommend staying short the market despite the huge sell off over the last two weeks.
Put on the Radar:
Sell Crude Oil- The nearby June-July spread is awful signifying poor short term demand in a market that I believe has been significantly propped up by investment above the fundamental supply and demand prices. Like the Copper I expressed concern a week ago about the large amount of open interest pouring into the market that was adding to a net-losing position on the fundamental recovery and risk trade hopes. The initial open interest report for Crude Oil again showed an increase in open interest yesterday (which I believe will be adjusted lower) making the total nearly 200,000 longs that have entered the market since March 30th that are all holding losing positions. This looks like a market like the Copper that is setting up severe punishment for those following the buy the dip and buy the sell signal trade and I expect a wave of discretionary money long liquidation. Below $78 prices are well below the range from March and I believe that a test of $70 is very likely, so I recommend continuing to sell rallies despite the large break.
Notes:
Gold- Gold is no longer a good outright position as a long after my stop level of $1177 was hit yesterday as well as a number of others below this level. Gold is the best market to use as a long hedge or spread to buy against weakness like Silver to better hold the position. I do not recommend purchasing outright Gold for right now.
Bonds- Yesterday I suggested a sell the Equities and sell the Fixed Incomes relationship trade, that I still believe could be profitable, but the Bond market now has a bullish cup and handle breakout on it's weekly chart. The cup and handle pattern had a breakout range from 119.18 to 119.28 and has a projection range to 124.20 to 125.08. Although the rally in the Bonds has not impressed me much in relation to the stock market break I still recommend trading outright Bonds from the long side.
Currencies- Just when I really give up on the Currencies and their volatile range do they really start kicking into gear on a lower continuation. Both the Canadian and Australian Dollar have broken out of their consolidation range and respectively have projections to .9626 and .8884. Both of these Currencies are highly correlated to Commodity prices and have been the strengths on the economic recovery over the last year. I take this reversal in direction as an indication that this macro break is not just a European story anymore, but rather a global issue. I still have a third leg down projection on the Euro from it's initial move from 1.2750 to 1.28, but this projection is beginning to look rather small compared to the move that I believe is still in it's initial stages. I recommend continuing to sell rallies in the Euro through this third leg projection as it will likely extend further. Finally, I have a projection of 85.25 in the Dollar Index based on the daily head and shoulders pattern that was set off yesterday. The Dollar Index is finally rallying based off the decline of Currencies other than just the weak Euro, Franc and Pound. This shows great strength and an actually tighter correlation to the Commodity and Equity markets.
Tuesday, May 4, 2010
Tuesday 5/4/10 Mid-Morning Update
It is obvious that the market and anything remotely supportive has cinder blocks tied to it's ankles. I do not believe that this is a break to fade at all and to stick to selling rallies as I believe this is just the initial move. It is difficult to continue selling the board lower on collapse days such as this, but I have a couple trades that I believe are just entering in-play territory and that could be ripe for entry now.
Buy Gold/Silver Ratio- Gold collapsed under the pressure of the market today and took out my stop placement area along with many others. However, Silver has ridden higher on Gold's coattails for a while now to levels that I believe were grossly higher than it should have been. Silver performs weaker along with the rest of the macro market on a break while Gold is used as a run to safety and holds higher under the same circumstances. To chart the Gold/ Silver enter (Gold - Silver/2). A bullish cup and handle pattern on the daily chart set off today at the 265.0 price level that projects to 290. Sitting near 270 right now I believe that you can enter on a slight break with minimal risk on a potential 4 or 5:1 risk reward trade. The execution ratio is 1:1 for the Gold and Silver on the trade as per the contract size it makes the ticks relatively equal volatility wise. This trade should work on continuation a lower for the macro market.
Sell Equities vs. Sell Fixed Incomes- The market's gut reaction when a substantial break occurs in Equities is to buy Fixed Incomes, but thus far today the Fixed Incomes, and Yen for that matter, have had a very underwhelming performance on the rally. With speculation that The Fed will unlock interest rates in the near future (or at least hint at it) the interest rate vehicles have had a very difficult time continuing to the top of their year long range and should drop in price as interest rates rise. This bearish pressure on the Fixed Income market does not allow it to rally in a correlated manner to the stock market, so with an equal ratio the unconventional idea of selling fixed incomes and selling equities as a relationship trade can be profitable and ripe for entry currently. There are so many variations on how to make this trade that listing ideas is almost useless for right now without further exploration, but if you are interested in working on the idea shoot me an email and I would be happy to do some tinkering.
On the Radar:
Sell Japanese Yen Calls- For a number of months I have waited for the right time to look at selling far out Yen Calls, but the window of opportunity that I was looking for was only open for a couple hours. On a monthly chart the Yen negated it's up-trend since the summer of '07 and now on a weekly chart has a cup and handle pattern below 106.79 that projects to 100.12. Looking at the weekly chart you will also see a number of spikes that occurred each time the market reached the 115 level. In late 2008/early 2009 the Japanese Government was confirmed on an intervention attempt to devalue their Currency to keep exports globally competitive. Although it is unconfirmed and pure speculation I have a few guesses at what caused the other spikes right around this level as well. This appears to be an artificial boundary on a market that has a confirmed bearish reversal now on the longer term chart. I was looking for a rally into the large low volume traded gap from 109.18 to 110.35 from March 24th, but it was only rallied into for a few brief hours. If the Yen is able to mount a moderate rally I am looking at the 114 &115 Calls near this artificial boundary as a tool to sell premium on the December contract and collect time decay to fund other trades. There is also a good opportunity here to roll the expiration price lower as a price decline continues. As the Yen is tied to the Fixed Income Markets on a reinvestment interest rate trade it should continue to decline on interest rate hikes.
Buy Bonds vs. Sell Five Year Note- Like the Yen trade I have had this on my radar for months as the monthly and weekly charts are now forming a confirmed reversal on the trend that has lasted since '07. To chart the market enter (Bonds*3 - Five Year*7). On the daily chart there is a large head and shoulders pattern that is formed by connecting the December 31st high to the March 19th high to create the breakout neckline value of -452.18 that was set off today. This is a trade that is based on the raising of interest rates and unwinding of the buy the short end versus sell the long end yield curve trade. This is a longer term trade because of the large formation, but the pattern has a projection to -443.21. Execution ratio for the spread is the same as the chart with Bonds 3: Fives 7. I would explore options strategies for the trade or look at just using a smaller position to hopefully sit with for the long-haul to capture the move.
Finally, stick with that short Copper trade if you still have it. Although it may not be the lowest thing on the board today on the gut reaction trade there is still an enormous amount of longs still out there holding a large losing position now. It should be pretty clear to them by now that Copper is not a good "buy the dip or recovery" trade and that 17% of the market is caught technically. I recommend using a long Gold position as a partial hedge as the stock market is obviously shaky right now if you are having difficulty or second thoughts about staying with it.
Buy Gold/Silver Ratio- Gold collapsed under the pressure of the market today and took out my stop placement area along with many others. However, Silver has ridden higher on Gold's coattails for a while now to levels that I believe were grossly higher than it should have been. Silver performs weaker along with the rest of the macro market on a break while Gold is used as a run to safety and holds higher under the same circumstances. To chart the Gold/ Silver enter (Gold - Silver/2). A bullish cup and handle pattern on the daily chart set off today at the 265.0 price level that projects to 290. Sitting near 270 right now I believe that you can enter on a slight break with minimal risk on a potential 4 or 5:1 risk reward trade. The execution ratio is 1:1 for the Gold and Silver on the trade as per the contract size it makes the ticks relatively equal volatility wise. This trade should work on continuation a lower for the macro market.
Sell Equities vs. Sell Fixed Incomes- The market's gut reaction when a substantial break occurs in Equities is to buy Fixed Incomes, but thus far today the Fixed Incomes, and Yen for that matter, have had a very underwhelming performance on the rally. With speculation that The Fed will unlock interest rates in the near future (or at least hint at it) the interest rate vehicles have had a very difficult time continuing to the top of their year long range and should drop in price as interest rates rise. This bearish pressure on the Fixed Income market does not allow it to rally in a correlated manner to the stock market, so with an equal ratio the unconventional idea of selling fixed incomes and selling equities as a relationship trade can be profitable and ripe for entry currently. There are so many variations on how to make this trade that listing ideas is almost useless for right now without further exploration, but if you are interested in working on the idea shoot me an email and I would be happy to do some tinkering.
On the Radar:
Sell Japanese Yen Calls- For a number of months I have waited for the right time to look at selling far out Yen Calls, but the window of opportunity that I was looking for was only open for a couple hours. On a monthly chart the Yen negated it's up-trend since the summer of '07 and now on a weekly chart has a cup and handle pattern below 106.79 that projects to 100.12. Looking at the weekly chart you will also see a number of spikes that occurred each time the market reached the 115 level. In late 2008/early 2009 the Japanese Government was confirmed on an intervention attempt to devalue their Currency to keep exports globally competitive. Although it is unconfirmed and pure speculation I have a few guesses at what caused the other spikes right around this level as well. This appears to be an artificial boundary on a market that has a confirmed bearish reversal now on the longer term chart. I was looking for a rally into the large low volume traded gap from 109.18 to 110.35 from March 24th, but it was only rallied into for a few brief hours. If the Yen is able to mount a moderate rally I am looking at the 114 &115 Calls near this artificial boundary as a tool to sell premium on the December contract and collect time decay to fund other trades. There is also a good opportunity here to roll the expiration price lower as a price decline continues. As the Yen is tied to the Fixed Income Markets on a reinvestment interest rate trade it should continue to decline on interest rate hikes.
Buy Bonds vs. Sell Five Year Note- Like the Yen trade I have had this on my radar for months as the monthly and weekly charts are now forming a confirmed reversal on the trend that has lasted since '07. To chart the market enter (Bonds*3 - Five Year*7). On the daily chart there is a large head and shoulders pattern that is formed by connecting the December 31st high to the March 19th high to create the breakout neckline value of -452.18 that was set off today. This is a trade that is based on the raising of interest rates and unwinding of the buy the short end versus sell the long end yield curve trade. This is a longer term trade because of the large formation, but the pattern has a projection to -443.21. Execution ratio for the spread is the same as the chart with Bonds 3: Fives 7. I would explore options strategies for the trade or look at just using a smaller position to hopefully sit with for the long-haul to capture the move.
Finally, stick with that short Copper trade if you still have it. Although it may not be the lowest thing on the board today on the gut reaction trade there is still an enormous amount of longs still out there holding a large losing position now. It should be pretty clear to them by now that Copper is not a good "buy the dip or recovery" trade and that 17% of the market is caught technically. I recommend using a long Gold position as a partial hedge as the stock market is obviously shaky right now if you are having difficulty or second thoughts about staying with it.
Tuesday 5/4/10 Commodity Ideas
Opening Note:
Continuing the trend of volatile swings on little news the Equities had a strong reversal day yesterday with the Dow closing over 140 points higher despite a late day price fade. While all you will here if you turn on the news is that this is the largest daily gain in 2+ months you will not hear that this rally failed to even eclipse the highs from Friday when the market fell over 170 points on little news as well. Price volatility on a daily basis over the last week is nearly triple what it was on the majority of the 3 month rally, which is concerning for current market bulls as it shows indecision, fear, and usually a reversal in the price trend. Talking with fellow trading friends over the last few days I feel like each day the conversation has turned to "how goofy these markets are" and "unless you are on a screen watching all of the sectors you may not realize how messed up all the fundamental and technical relationships are". Right now there is a serious tug of war between the fundamental bulls and bears, technical traders, dip buying programs, and passive long term investors that has many markets trading sideways volatility while disregarding whatever story there is, whether fundamental or technical. On a down board today I can clearly say that with Gold being nearly the only Commodity higher thus far that the rest of the market is taking note of the loss of equilibrium and connection and putting their money into Gold for safety. Although many markets are still in a range, with many flirting with the bottom of this range today, I recommend playing the supportive market Commodity markets by selling rallies and positioning for a leg down by using longer term options as I believe that at least a moderate month of bearish corrective trade is on the horizon after the 60 day rally.
Buys to Watch:
Gold- Gold continues to post higher closes day after day on increasing open interest on it's 3rd leg rally. Gold has a daily head and shoulders projection to $1244, but also has a projection to $1208 on this third leg higher providing a range on expectations. Much of the interest in Gold recently has come as a run to safety from increasingly volatile Equities and weak European Currencies along with the use as a spread or hedge against a short position. Open interest increased another 12,000 contracts yesterday and daily Stochastics for Gold maintains a positive mode. As a note of caution though, the daily Stochastics and RSI have both moved into or near their overbought territory, but this is not a truly concerning indicator until it provides a sell signal. If you are holding Gold on the longer term move I believe you can move your stop placement to just below the $1177 lows from yesterday's trade that acted as support for the market overnight. For long entry on a day trade I have a "single print" low volume zone from the rally overnight from $1184.6 to $1185.5 that has stronger support from $1178 to 1182.
Sells to Watch:
Copper- Copper is now officially below all of the traded price for the months of March and April as the July contract is now below it's own low of $3.3090 and the weekly front month contract low of $3.2775 for March. Copper has become one of the leading weaknesses among all Commodities as it's relationship to Equities and the rest of the Metal complex has completely disconnected as it has drooped lower. Copper is often referred to as one of the better Equity direction indicators and it is telling a pretty grim tale so far with a reversal below all the trade over the last two months. Despite this moderate drop thus far, Copper still has a lot more bearish fuel in the tank as I still show over 25,000 (17+% of the entire market) outstanding long contracts that are definitely net losers since their addition since the beginning of March. The true question is how much of this money is passive and unmoving despite a drop in prices? I expected more liquidation of these losing long positions thus far, so I am slightly concerned that this is longer term money that is strictly allocated to Copper no matter what. However, this Copper market is not like the Wheat, where prices have barely recovered since The Great Recession and money is willing to sit long and withstand breaks on bigger prospects. Copper was one of the strongest markets on the entire recovery as it mostly outpaced Equities the whole way and open interest is just a smidge off the record breaking all time highs from January. I believe that this fundamental continuation on the recovery trade is being entered in Copper as an opportunity to "buy the dip", but that prices will continue lower and longs with any sort of discretion on where to invest their money will be forced to sell their up to 10% losing investment so far shortly. Daily Stochastics for Copper is entering the extremely oversold area, but still remains in a negative mode. However, the weekly Stochastics provided a fresh sell signal just below overbought territory last week. The next support level for Copper is from $3.20 to $3.22 on it's way towards a likely test of the $2.81 to $2.85 previous low on the weekly chart. For short entry there is a lower volume zone from roughly $3.2950 to 3.31 and I believe that on the longer term trade you can definitely move your stop up to the $3.35 level if not $3.33. Note: You can also use a long gold or long equity position as a hedge on an initial short position for Copper and remove once you have some room on the profit side.
Put on the Radar:
Heating Oil- I have had Heating Oil in the buy section for the last two days, but the fundamental short term Crude picture and price action over the last 24 hours have me spooked on any long entry prospects for the time being. The daily head and shoulders pattern had a breakout of $2.2925 and has a neckline value of $2.2955 today. With the June July Crude Oil spread reaching the critically awful short term demand price of -$3.25 with prospects of continuing lower I believe that the Energy sector will have an extremely difficult time holding prices near the $87 recovery highs as the investment driven buying is way overextended beyond actual demand. While the Gulf Oil Spill may continue to raise open interest in the Energies on future expectations I believe that this lack of short term demand and rally failure yesterday will outweigh any investment in near term Energies. I recommend selling Energy longs for the time being, but if you are stubbornly bullish there is a low volume zone in Heating Oil from $2.3084 to $2.3112 to place an exit stop below. Heating Oil is the best long of the sector I believe still as it continues to gain on Crude and open interest rises daily. I would keep this low volume zone on your radar and if Crude is able to hold it's price level somehow then you can look at getting long again.
Stock Index Head and Shoulders- I am a pretty big believer in the harder they come, the harder they fall principle, so I am more apt to look at selling the Nasdaq on the bearish head and shoulders pattern after it is initiated. The Nasdaq has the largest projection of the Indexes with a breakout neckline value of 1991.5 today and a projection to 1921.25. Second best in my opinion is the S&P 500 with a breakout value of 1175.00 and a projection to 1135.75. I recommend waiting for the breakout on these patterns as Equities have obviously traded their volatile sideways range, but with prices below 1180 on the S&P I predict that the move is likely to happen.
Notes:
Currencies- I have voiced my frustration over the Currencies volatile sideways action over the last few weeks, but it looks like a downside breakout on a number of these ranges is prime to happen today. The Euro has created new lows on it's third leg down move and maintains a projection range from 1.2750 to 1.28 on this move. The Australian Dollar has also traded slightly below it's volatility range from .9100 to .9300 this morning along with the Canadian in it's .9800 to 1.0000 range. The Canadian and Aussie moving below this range is a bearish signal and correlation for Equities and Commodities as the Dollar is finally moving higher on something other than Europe.
July Soybeans- I ran out of time but I have a sneaky daily head and shoulders pattern that projects to $9.56 3/4, so check it out with your own analysis.
Continuing the trend of volatile swings on little news the Equities had a strong reversal day yesterday with the Dow closing over 140 points higher despite a late day price fade. While all you will here if you turn on the news is that this is the largest daily gain in 2+ months you will not hear that this rally failed to even eclipse the highs from Friday when the market fell over 170 points on little news as well. Price volatility on a daily basis over the last week is nearly triple what it was on the majority of the 3 month rally, which is concerning for current market bulls as it shows indecision, fear, and usually a reversal in the price trend. Talking with fellow trading friends over the last few days I feel like each day the conversation has turned to "how goofy these markets are" and "unless you are on a screen watching all of the sectors you may not realize how messed up all the fundamental and technical relationships are". Right now there is a serious tug of war between the fundamental bulls and bears, technical traders, dip buying programs, and passive long term investors that has many markets trading sideways volatility while disregarding whatever story there is, whether fundamental or technical. On a down board today I can clearly say that with Gold being nearly the only Commodity higher thus far that the rest of the market is taking note of the loss of equilibrium and connection and putting their money into Gold for safety. Although many markets are still in a range, with many flirting with the bottom of this range today, I recommend playing the supportive market Commodity markets by selling rallies and positioning for a leg down by using longer term options as I believe that at least a moderate month of bearish corrective trade is on the horizon after the 60 day rally.
Buys to Watch:
Gold- Gold continues to post higher closes day after day on increasing open interest on it's 3rd leg rally. Gold has a daily head and shoulders projection to $1244, but also has a projection to $1208 on this third leg higher providing a range on expectations. Much of the interest in Gold recently has come as a run to safety from increasingly volatile Equities and weak European Currencies along with the use as a spread or hedge against a short position. Open interest increased another 12,000 contracts yesterday and daily Stochastics for Gold maintains a positive mode. As a note of caution though, the daily Stochastics and RSI have both moved into or near their overbought territory, but this is not a truly concerning indicator until it provides a sell signal. If you are holding Gold on the longer term move I believe you can move your stop placement to just below the $1177 lows from yesterday's trade that acted as support for the market overnight. For long entry on a day trade I have a "single print" low volume zone from the rally overnight from $1184.6 to $1185.5 that has stronger support from $1178 to 1182.
Sells to Watch:
Copper- Copper is now officially below all of the traded price for the months of March and April as the July contract is now below it's own low of $3.3090 and the weekly front month contract low of $3.2775 for March. Copper has become one of the leading weaknesses among all Commodities as it's relationship to Equities and the rest of the Metal complex has completely disconnected as it has drooped lower. Copper is often referred to as one of the better Equity direction indicators and it is telling a pretty grim tale so far with a reversal below all the trade over the last two months. Despite this moderate drop thus far, Copper still has a lot more bearish fuel in the tank as I still show over 25,000 (17+% of the entire market) outstanding long contracts that are definitely net losers since their addition since the beginning of March. The true question is how much of this money is passive and unmoving despite a drop in prices? I expected more liquidation of these losing long positions thus far, so I am slightly concerned that this is longer term money that is strictly allocated to Copper no matter what. However, this Copper market is not like the Wheat, where prices have barely recovered since The Great Recession and money is willing to sit long and withstand breaks on bigger prospects. Copper was one of the strongest markets on the entire recovery as it mostly outpaced Equities the whole way and open interest is just a smidge off the record breaking all time highs from January. I believe that this fundamental continuation on the recovery trade is being entered in Copper as an opportunity to "buy the dip", but that prices will continue lower and longs with any sort of discretion on where to invest their money will be forced to sell their up to 10% losing investment so far shortly. Daily Stochastics for Copper is entering the extremely oversold area, but still remains in a negative mode. However, the weekly Stochastics provided a fresh sell signal just below overbought territory last week. The next support level for Copper is from $3.20 to $3.22 on it's way towards a likely test of the $2.81 to $2.85 previous low on the weekly chart. For short entry there is a lower volume zone from roughly $3.2950 to 3.31 and I believe that on the longer term trade you can definitely move your stop up to the $3.35 level if not $3.33. Note: You can also use a long gold or long equity position as a hedge on an initial short position for Copper and remove once you have some room on the profit side.
Put on the Radar:
Heating Oil- I have had Heating Oil in the buy section for the last two days, but the fundamental short term Crude picture and price action over the last 24 hours have me spooked on any long entry prospects for the time being. The daily head and shoulders pattern had a breakout of $2.2925 and has a neckline value of $2.2955 today. With the June July Crude Oil spread reaching the critically awful short term demand price of -$3.25 with prospects of continuing lower I believe that the Energy sector will have an extremely difficult time holding prices near the $87 recovery highs as the investment driven buying is way overextended beyond actual demand. While the Gulf Oil Spill may continue to raise open interest in the Energies on future expectations I believe that this lack of short term demand and rally failure yesterday will outweigh any investment in near term Energies. I recommend selling Energy longs for the time being, but if you are stubbornly bullish there is a low volume zone in Heating Oil from $2.3084 to $2.3112 to place an exit stop below. Heating Oil is the best long of the sector I believe still as it continues to gain on Crude and open interest rises daily. I would keep this low volume zone on your radar and if Crude is able to hold it's price level somehow then you can look at getting long again.
Stock Index Head and Shoulders- I am a pretty big believer in the harder they come, the harder they fall principle, so I am more apt to look at selling the Nasdaq on the bearish head and shoulders pattern after it is initiated. The Nasdaq has the largest projection of the Indexes with a breakout neckline value of 1991.5 today and a projection to 1921.25. Second best in my opinion is the S&P 500 with a breakout value of 1175.00 and a projection to 1135.75. I recommend waiting for the breakout on these patterns as Equities have obviously traded their volatile sideways range, but with prices below 1180 on the S&P I predict that the move is likely to happen.
Notes:
Currencies- I have voiced my frustration over the Currencies volatile sideways action over the last few weeks, but it looks like a downside breakout on a number of these ranges is prime to happen today. The Euro has created new lows on it's third leg down move and maintains a projection range from 1.2750 to 1.28 on this move. The Australian Dollar has also traded slightly below it's volatility range from .9100 to .9300 this morning along with the Canadian in it's .9800 to 1.0000 range. The Canadian and Aussie moving below this range is a bearish signal and correlation for Equities and Commodities as the Dollar is finally moving higher on something other than Europe.
July Soybeans- I ran out of time but I have a sneaky daily head and shoulders pattern that projects to $9.56 3/4, so check it out with your own analysis.
Monday, May 3, 2010
Monday 5/3/10 Commodity Ideas
Opening Note:
After a strong recovery in the Stock Market Thursday, Equities tumbled again on Friday as rumors of a Goldman criminal case and European solvency concerns fueled the bearish action. While Equities were sharply down this was not the case for most Commodities as the Gulf Oil spill inflated Energy prices and confirmation on Chinese Corn purchase rumors rallied Grains. While Gold and Silver also advanced, the Currency sector has become quite a hot mess, as previously stable markets like the Canadian Dollar have become wildly volatile and The Euro sits in a volatile range, but can not hold any decline in prices for more than a day. On Sunday the Eurozone agreed upon a bailout package to aid Greece, but the World reaction thus far has not been very positive. Overnight the Macro market is slightly positive, but with a small range thus far. Today is the first of the month, so I will be holding off to watch the opens across the market to see if the money flow is back on with The Fed extending it's cheap money stimulus plan. After the break on Friday all of the Equity Indexes are sitting near a breakout on a bearish daily head and shoulders pattern that projects to the first bearish correction that Equities have had in nearly 3 months. While equities seem really heavy I am looking at trading from the long side for the Energy markets until the Gulf Oil leak is resolved. While it is clear from the wide contango that demand for Crude is not there at these prices I do not see much to take the sector lower with all the concern in the market.
Buys to Watch:
Gold- The daily head and shoulders pattern in the Gold is still working towards its $1244 projection as it is again slightly higher today after gains on Friday. Open interest continues to rise in Gold and is approaching the all time highs of roughly 585,000 contracts from January of '08. The open interest continues to add fuel as Gold is being used as a hedge against the risk trade and as a substitute for the weak European Currencies. The daily and weekly Stochastics indicators also both remain in a positive mode for Gold. Looking at the daily chart I have the Gold continuing on the 3rd leg up on it's rally from the lows of this year, and as a contradictory projection from the head and shoulders, I have a rough projection on the 3rd leg to $1208. Keep this number in mind as it approaches this level and tighten up the risk on the trade between the two projections if prices extend there. I do not have a good low volume zone for entry today on the Gold, but there is some support around the $1170 level that should hold prices on a break. If you are holding a long term position on the Gold move I believe that you can safely move your stop up to $1167 and likely higher later in the day if the market continues to rally.
Heating Oil- I had both the Heating Oil and RBOB in the buy section Friday on their head and shoulders pattern, but with my slight lean towards the Heat over the RBOB as a better buy I will take a smidgen of credit on the better move and recommend using the Heat for long execution going forward. The Heating Oil had a head and shoulders breakout on the daily chart Friday with a neckline of 2.2935 and a projection to 2.4149. Today the upsloping neckline has a value of 2.2945. The Heating Oil has gained significantly on the range bound spread between itself and the RBOB and also is rallying in relation to the Crude Oil. Open Interest has risen sharply in the Heating Oil on the recent rally as well, as opposed to the RBOB Gas, which has sat fairly steady. Daily Stochastics for all the Energy markets are in a positive mode that supports bullish continuation as well. With the Gulf Spill highly unresolved and Oil continuing to leak I believe that it is still prudent to play the long side for the Energy sector. I have a small low volume zone in the Heating Oil just below the daily price range for the market today between 2.3085 and 2.3105 for long entry on a break in prices, but I feel that it is unlikely that new lows are in store for today unless Equities take a rough tumble.
Sells to Watch:
Copper- (Roll contract month to July) On Friday Copper was again the weakness among the metal sector as it closed lower on the day despite higher prices in Gold and Silver. I have not been subtle about my opinion that there are over 27,000 open long positions in the Copper that are net losers with a break below the March price lows and that the market could see a 50 cent break off of it. For the July contract the lows in March were 3.3090 as opposed to the 3.2900 for the May contract. However, I am using the weekly chart lows from March of 3.2775 as an area that should force some long capitulation. Surprisingly open interest actually rose 2,000 contracts on Friday on the price break as buying dips is still the trendy thing to do, but this is a different technical situation in a thin market. I rarely watch business television, but on Thursday I actually heard a Fast Money lunch time contributor say he was bullish emerging markets and that he was buying Copper as a way to play the fundamental idea. I think that this open interest is coming from fundamental traders and long term position investors that are unaware of the technicals and still buying Copper on a recovering economy trade. Copper has continued to weaken compared to Equities over the last couple months and with the thin market I believe that Copper should test the early February lows of $2.8110 on the weekly chart as longs sell out of their position. As a hedge on short entry you can buy Equities against the Copper and remove the long Equity side if liquidation begins.
Put on the Radar:
Equity Head and Shoulders- The S&P 500 and Nasdaq have the technically better looking bearish head and shoulder patterns right now, but with the larger projected move and closer breakout level I believe that the Nasdaq is the best potential sale. The Nasdaq has a neckline breakout on the head and shoulders pattern of 1991 with a projection to 1920.75, while the S&P breakout sits at 1175.5 today with a projection to 1136.25. I am sure many people remember the failed bearish head and shoulders pattern from last July that rocketed the market to new highs, but I believe that the mentality of the market and Index prices are much different now. After nearly 3 months of straight rally action the market is in need of a break. Bullish confidence is also at new highs on the rally as market participants have been trained to "buy dips and buy the sell signals" as that has what has pretty much worked over the last year. Volatility has continued to increase lately as well, which is another technical signal of a potential reversal in prices. I recommend waiting for the breakout on entry as the market continues to swing on the slightest bit of news and can be choppy, but have more confidence in selling this breakout if it occurs than other sell signals that have failed over the last year. "Dr. Copper" as an indicator of market direction is also saying that this sell off is likely to happen.
Notes:
Australian Dollar- The breakout on the continuation wedge pattern failed on Friday after rallying with strength earlier in the day, but later falling with Equities. After failing on the initial breakout attempt I do not feel chasing subsequent attempts is worthwhile at this time. As I stated in the Opening Note I am not a fan of the Currency Sector for the time being as much of the trade has become a volatile range that is traded on rumors and ruled by the shorter term chart trader on movement. All I know is that I would rather sell the Yen than anything else in the Currencies, but I am staying out of the sector until direction becomes more clear.
After a strong recovery in the Stock Market Thursday, Equities tumbled again on Friday as rumors of a Goldman criminal case and European solvency concerns fueled the bearish action. While Equities were sharply down this was not the case for most Commodities as the Gulf Oil spill inflated Energy prices and confirmation on Chinese Corn purchase rumors rallied Grains. While Gold and Silver also advanced, the Currency sector has become quite a hot mess, as previously stable markets like the Canadian Dollar have become wildly volatile and The Euro sits in a volatile range, but can not hold any decline in prices for more than a day. On Sunday the Eurozone agreed upon a bailout package to aid Greece, but the World reaction thus far has not been very positive. Overnight the Macro market is slightly positive, but with a small range thus far. Today is the first of the month, so I will be holding off to watch the opens across the market to see if the money flow is back on with The Fed extending it's cheap money stimulus plan. After the break on Friday all of the Equity Indexes are sitting near a breakout on a bearish daily head and shoulders pattern that projects to the first bearish correction that Equities have had in nearly 3 months. While equities seem really heavy I am looking at trading from the long side for the Energy markets until the Gulf Oil leak is resolved. While it is clear from the wide contango that demand for Crude is not there at these prices I do not see much to take the sector lower with all the concern in the market.
Buys to Watch:
Gold- The daily head and shoulders pattern in the Gold is still working towards its $1244 projection as it is again slightly higher today after gains on Friday. Open interest continues to rise in Gold and is approaching the all time highs of roughly 585,000 contracts from January of '08. The open interest continues to add fuel as Gold is being used as a hedge against the risk trade and as a substitute for the weak European Currencies. The daily and weekly Stochastics indicators also both remain in a positive mode for Gold. Looking at the daily chart I have the Gold continuing on the 3rd leg up on it's rally from the lows of this year, and as a contradictory projection from the head and shoulders, I have a rough projection on the 3rd leg to $1208. Keep this number in mind as it approaches this level and tighten up the risk on the trade between the two projections if prices extend there. I do not have a good low volume zone for entry today on the Gold, but there is some support around the $1170 level that should hold prices on a break. If you are holding a long term position on the Gold move I believe that you can safely move your stop up to $1167 and likely higher later in the day if the market continues to rally.
Heating Oil- I had both the Heating Oil and RBOB in the buy section Friday on their head and shoulders pattern, but with my slight lean towards the Heat over the RBOB as a better buy I will take a smidgen of credit on the better move and recommend using the Heat for long execution going forward. The Heating Oil had a head and shoulders breakout on the daily chart Friday with a neckline of 2.2935 and a projection to 2.4149. Today the upsloping neckline has a value of 2.2945. The Heating Oil has gained significantly on the range bound spread between itself and the RBOB and also is rallying in relation to the Crude Oil. Open Interest has risen sharply in the Heating Oil on the recent rally as well, as opposed to the RBOB Gas, which has sat fairly steady. Daily Stochastics for all the Energy markets are in a positive mode that supports bullish continuation as well. With the Gulf Spill highly unresolved and Oil continuing to leak I believe that it is still prudent to play the long side for the Energy sector. I have a small low volume zone in the Heating Oil just below the daily price range for the market today between 2.3085 and 2.3105 for long entry on a break in prices, but I feel that it is unlikely that new lows are in store for today unless Equities take a rough tumble.
Sells to Watch:
Copper- (Roll contract month to July) On Friday Copper was again the weakness among the metal sector as it closed lower on the day despite higher prices in Gold and Silver. I have not been subtle about my opinion that there are over 27,000 open long positions in the Copper that are net losers with a break below the March price lows and that the market could see a 50 cent break off of it. For the July contract the lows in March were 3.3090 as opposed to the 3.2900 for the May contract. However, I am using the weekly chart lows from March of 3.2775 as an area that should force some long capitulation. Surprisingly open interest actually rose 2,000 contracts on Friday on the price break as buying dips is still the trendy thing to do, but this is a different technical situation in a thin market. I rarely watch business television, but on Thursday I actually heard a Fast Money lunch time contributor say he was bullish emerging markets and that he was buying Copper as a way to play the fundamental idea. I think that this open interest is coming from fundamental traders and long term position investors that are unaware of the technicals and still buying Copper on a recovering economy trade. Copper has continued to weaken compared to Equities over the last couple months and with the thin market I believe that Copper should test the early February lows of $2.8110 on the weekly chart as longs sell out of their position. As a hedge on short entry you can buy Equities against the Copper and remove the long Equity side if liquidation begins.
Put on the Radar:
Equity Head and Shoulders- The S&P 500 and Nasdaq have the technically better looking bearish head and shoulder patterns right now, but with the larger projected move and closer breakout level I believe that the Nasdaq is the best potential sale. The Nasdaq has a neckline breakout on the head and shoulders pattern of 1991 with a projection to 1920.75, while the S&P breakout sits at 1175.5 today with a projection to 1136.25. I am sure many people remember the failed bearish head and shoulders pattern from last July that rocketed the market to new highs, but I believe that the mentality of the market and Index prices are much different now. After nearly 3 months of straight rally action the market is in need of a break. Bullish confidence is also at new highs on the rally as market participants have been trained to "buy dips and buy the sell signals" as that has what has pretty much worked over the last year. Volatility has continued to increase lately as well, which is another technical signal of a potential reversal in prices. I recommend waiting for the breakout on entry as the market continues to swing on the slightest bit of news and can be choppy, but have more confidence in selling this breakout if it occurs than other sell signals that have failed over the last year. "Dr. Copper" as an indicator of market direction is also saying that this sell off is likely to happen.
Notes:
Australian Dollar- The breakout on the continuation wedge pattern failed on Friday after rallying with strength earlier in the day, but later falling with Equities. After failing on the initial breakout attempt I do not feel chasing subsequent attempts is worthwhile at this time. As I stated in the Opening Note I am not a fan of the Currency Sector for the time being as much of the trade has become a volatile range that is traded on rumors and ruled by the shorter term chart trader on movement. All I know is that I would rather sell the Yen than anything else in the Currencies, but I am staying out of the sector until direction becomes more clear.
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