Opening Note:
This weekend a deal was struck between Greece and other members of the EU to provide financial support causing the market to open gapped higher in many supportive markets. The Euro opened over a full point higher above it's range for the last couple weeks on the bailout news. Friday saw a strong weekly closing rally in the sector strength of Equities as the Dow eclipsed the 11,000 level for the first time in 18 months. However, overnight and into this morning much of the market has weakened closing much of the gap created over the weekend leaving a number of Currencies and Crude Oil lower on the day already. This weakness has me concerned with buying the market today because opening with a gap was a strong sign that has all but given up when it should have supported higher prices. I think that there is potential for Commodities and Equities to continue lower today on this cautionary creep and recommend looking for stronger sales today rather than buys.
Buys to Watch:
Sells to Watch:
Cotton- Cotton has a bearish cup and handle pattern that was set off Friday below the breakout of 79.27 with a projection to 75.58. On Friday prices traded below all of the range trade since late February and as open interest has continued to rise over this time it appears that there are a number of large long positions that may be caught if prices continue to fall. Prices were supported on a rally after the open yesterday evening, but have traded in a tight sideways range since for most of the night. Above the highs for the day there is a low volume traded zone for short entry from 79.44 to 79.60 with moderate resistance higher from 79.62 to 79.84. It is necessary to use a tight stop on execution at this level though as there is another large low volume zone that stretches for nearly a full cent above this area.
Crude Oil- This morning Crude was one of the first Commodities to poke it's head lower on the day after a higher open and strength overnight. On Friday I thought that Crude could come under pressure if it was unable to rally above resistance from 86.38 to 86.82, which it did after the resistance provided a top on the day. This failure negated the possibility of a rally to higher prices after a brief consolidation and now looks like it has provided a top on a moderate break. The biggest story in the Crude market right now is the spreads involving the front month of May. They have completely fallen off of a cliff over the last week, which is a bearish signal for the front month outright. Stochastics also produced a sell signal on Friday in over-bought territory that is looking for confirmation today. Right now I do not have a good projection for Crude, but think that it is likely heading for a test of $80 on the bottom end of the previous consolidation range. While a moderate low volume area provided the highs on the rally on yesterday evening's opening I do not have a good short entry area right now, so I recommend using intraday charts and indicators for entry for right now. I believe that Crude is the best sale right now.
Put on the Radar:
Euro- The Euro opened on a gap higher overnight that was above the range that it has traded for the last two weeks setting off a bullish cup and handle pattern. The pattern has a breakout of 1.3593 with a projection to 1.3903. Although it was higher overnight the rally in the Euro has given up on European trading hours and has now reentered the top of it's consolidation range. Because the Euro is trading Greece news and rumors it has been a volatile and at times unpredictable market trading whatever the emotion is for the day. Because of this weakness and the rumor driven trade I do not recommend long entry in the market for right now, but to be aware of the pattern if it is reconfirmed and shows new strength.
Gold- I am still waiting for a close above the old high trade for this year in Gold of $1164.1 to move it to the buy list. The Gold has a large bullish head and shoulders pattern on the daily chart that has a projection to $1244. Overnight the Gold traded above this level, but has failed to maintain gains like much of the market as it is making new lows after it's morning open. The chart is still very strong technically with a nice up-trend on it's recent move and open interest continuing to pile into the market. However, both RSI and Stochastics are now in over-bought territory. I still recommend waiting for a close above this $1164 level for long entry into the market to confirm the larger move.
Notes:
Copper- I like to take special note when occurrences like this happen as the Copper had a large stop clearing rally above the market last evening around 6 pm. There is a disturbing trend over the last year of these blow outs in thinner markets during off hours. It is possible that this was just a margin call liquidation of a position, but I have seen it happen too many times to believe that this is just normal market action. I do not like to buy into many conspiracy theories, but there is a strong possibility that big money is coming into these thin markets with an idea of where stops lay and manipulating the markets for their advantage.
Monday, April 12, 2010
Friday, April 9, 2010
Friday 4/9/10 Commodity Ideas
Opening Note:
After a day and half of poor market action leading into the morning yesterday the macro market found a strong uptrend on the intraday chart off of spike lows that carried many of the individual markets slightly higher to unchanged on the day. Most notable was the quick sell off in Equities on the 8:30 open that found the low of the day by 8:45 and caught a strong bid rally back to gains on the rest of the day. This spike recovery in the market paired with the continuation on gains in open interest across Commodities has me sitting a bit uncertain right now on big picture direction, because there may not actually be one right now. The Currency markets again are up to volatile sideways action with more false consolidation and pattern breakouts as they are trading the bipolar Greece news and rumors. The Euro found support yesterday as it neared the old low trade and is again rallying on short covering as it is very difficult to stay short for more than a couple days. I believe that the European Currencies right now are the key to any directional move if the market will have one. With the Euro in a sideways to only slightly lower range trade both Commodities and Equities seem content to continue on an upwards path of small gains and until there is a definitive breakout to one direction this looks like the game plan.
*USDA supply/demand report and crop production released this morning at 7:30 a.m. If there is notable news or trade ideas I will send an update later prior to the Grain open.
Buys to Watch:
Sells to Watch:
Cotton- On a weekly chart Cotton has one of the strongest rallies of any Commodity off the bottom from March of last year. In fact, until the last three days of large breaks Cotton appeared to be a potentially strong buy on a weekly breakout. However, after a failure testing the high or the recent range Cotton has fallen apart and posted a new 20 day low close below the range of the last month and a half. Fundamentally Cotton is battling with other crops like Soybeans and Corn for acreage and has also had a boost in exports in the February report, all of which led to the rally 2 months ago. Open interest has continued to rise since February on this story, but this fast price drop looks like it may have a lot of longs caught in the market. The daily chart has a double top move out of the consolidation range with a breakout of 79.27 cents and a projection to 75.58. Right now resistance for entry is tricky with much of the downward action coming on acceleration into the end of the day. Right now the best low risk entry level is against resistance from 79.50 to 79.80. A rally above these prices easily could cover the acceleration from yesterday up to 80.56, so keep the stops tight and enter with an initial smaller position if you decide to execute here as you can add when the move is confirmed. There is some moderate support below the market at the recent low close of the range at 78.77
*The Cotton supply and demand report at 7:30 a.m has not drastically effected the market thus far. As I am writing I have not had a chance to look it over yet, but there does not appear to be much rally potentially off the numbers.
Swiss Franc- The Swiss Franc caught a rally yesterday along with the rest of the market after it temporarily set off it's bearish double top pattern. The pattern has a breakout of .9307 and a projection to .9089. With many of the European Currencies trading the Greek daily news and rumor reports the trade has been less predictable lately so I recommend waiting for confirmation with two lower closes on this move before entering a short. If the Swiss Franc pattern does set off the Euro will most likely breakout below consolidation as well, which would be the better sell.
Put on the Radar:
Gold- Despite my fundamental reasoning behind the Gold trade yesterday the chart always takes precedence over the fundamentals and right now the Gold chart is very strong. The large head and shoulders pattern on the daily chart continues to have a nice strong uptrending base and open interest continues to rise on the rally displaying further strength (sidenote: my OI numbers are altered sometimes so yesterday's open interest rise was incorrectly stated). The old high close for the Gold of $1153.9 has yet to be eclipsed along with the high trade of $1164.1. With a close above $1165 I will move the Gold to the buy side of my approach and look for pullbacks and entry levels to buy on the projection to $1244.
Crude Oil and Copper- Both Crude Oil and Copper found a rally yesterday morning after overnight weakness and are stronger again today. However, I think that both markets as the strength of their sectors need to find another rally continuation today above nearby resistance or they will likely take some heat going into next week. Stronger Crude resistance sits between 86.38 and 86.82 and stronger Copper resistance sits between 3.6050 and 3.6260. The Crude found a current high on the day against these levels and Copper has rallied into them but failed to continue higher. If these levels hold for today I think you can use them as stops on a short of these markets.
Australian Dollar- The Australian Dollar has a sneaky head and shoulders pattern on it's weekly chart that is likely set off with a weekly close today above .9153. The pattern has a projection to .9851. The Aussie along with the Canadian Dollar have been the strengths of the currency sector on the recovery. Looking at the daily Aussie chart I do not have good buy entry levels right now, but keep it on your radar as a buy for long entry spots.
Notes:
After a day and half of poor market action leading into the morning yesterday the macro market found a strong uptrend on the intraday chart off of spike lows that carried many of the individual markets slightly higher to unchanged on the day. Most notable was the quick sell off in Equities on the 8:30 open that found the low of the day by 8:45 and caught a strong bid rally back to gains on the rest of the day. This spike recovery in the market paired with the continuation on gains in open interest across Commodities has me sitting a bit uncertain right now on big picture direction, because there may not actually be one right now. The Currency markets again are up to volatile sideways action with more false consolidation and pattern breakouts as they are trading the bipolar Greece news and rumors. The Euro found support yesterday as it neared the old low trade and is again rallying on short covering as it is very difficult to stay short for more than a couple days. I believe that the European Currencies right now are the key to any directional move if the market will have one. With the Euro in a sideways to only slightly lower range trade both Commodities and Equities seem content to continue on an upwards path of small gains and until there is a definitive breakout to one direction this looks like the game plan.
*USDA supply/demand report and crop production released this morning at 7:30 a.m. If there is notable news or trade ideas I will send an update later prior to the Grain open.
Buys to Watch:
Sells to Watch:
Cotton- On a weekly chart Cotton has one of the strongest rallies of any Commodity off the bottom from March of last year. In fact, until the last three days of large breaks Cotton appeared to be a potentially strong buy on a weekly breakout. However, after a failure testing the high or the recent range Cotton has fallen apart and posted a new 20 day low close below the range of the last month and a half. Fundamentally Cotton is battling with other crops like Soybeans and Corn for acreage and has also had a boost in exports in the February report, all of which led to the rally 2 months ago. Open interest has continued to rise since February on this story, but this fast price drop looks like it may have a lot of longs caught in the market. The daily chart has a double top move out of the consolidation range with a breakout of 79.27 cents and a projection to 75.58. Right now resistance for entry is tricky with much of the downward action coming on acceleration into the end of the day. Right now the best low risk entry level is against resistance from 79.50 to 79.80. A rally above these prices easily could cover the acceleration from yesterday up to 80.56, so keep the stops tight and enter with an initial smaller position if you decide to execute here as you can add when the move is confirmed. There is some moderate support below the market at the recent low close of the range at 78.77
*The Cotton supply and demand report at 7:30 a.m has not drastically effected the market thus far. As I am writing I have not had a chance to look it over yet, but there does not appear to be much rally potentially off the numbers.
Swiss Franc- The Swiss Franc caught a rally yesterday along with the rest of the market after it temporarily set off it's bearish double top pattern. The pattern has a breakout of .9307 and a projection to .9089. With many of the European Currencies trading the Greek daily news and rumor reports the trade has been less predictable lately so I recommend waiting for confirmation with two lower closes on this move before entering a short. If the Swiss Franc pattern does set off the Euro will most likely breakout below consolidation as well, which would be the better sell.
Put on the Radar:
Gold- Despite my fundamental reasoning behind the Gold trade yesterday the chart always takes precedence over the fundamentals and right now the Gold chart is very strong. The large head and shoulders pattern on the daily chart continues to have a nice strong uptrending base and open interest continues to rise on the rally displaying further strength (sidenote: my OI numbers are altered sometimes so yesterday's open interest rise was incorrectly stated). The old high close for the Gold of $1153.9 has yet to be eclipsed along with the high trade of $1164.1. With a close above $1165 I will move the Gold to the buy side of my approach and look for pullbacks and entry levels to buy on the projection to $1244.
Crude Oil and Copper- Both Crude Oil and Copper found a rally yesterday morning after overnight weakness and are stronger again today. However, I think that both markets as the strength of their sectors need to find another rally continuation today above nearby resistance or they will likely take some heat going into next week. Stronger Crude resistance sits between 86.38 and 86.82 and stronger Copper resistance sits between 3.6050 and 3.6260. The Crude found a current high on the day against these levels and Copper has rallied into them but failed to continue higher. If these levels hold for today I think you can use them as stops on a short of these markets.
Australian Dollar- The Australian Dollar has a sneaky head and shoulders pattern on it's weekly chart that is likely set off with a weekly close today above .9153. The pattern has a projection to .9851. The Aussie along with the Canadian Dollar have been the strengths of the currency sector on the recovery. Looking at the daily Aussie chart I do not have good buy entry levels right now, but keep it on your radar as a buy for long entry spots.
Notes:
Thursday, April 8, 2010
Thursday 4/8/10 Commodity Ideas
Opening Note:
Weakness in the core Commodity sectors of Energies and Metals from yesterday continued overnight with Equities beginning to fall after a poor consumer credit number that was much lower than expectations. After the strengths of the Energy and Metal sectors, Heating Oil and Copper, reached their initial projections they failed to continue on a rally after posting new contract highs leading the rest of the sector down. The Dollar is also stronger this morning as the Euro threatens to make new lows below the previous low trade of 1.3266. The bullish cup and handle pattern on the Euro/Yen Cross (a good market direction indicator) has now been negated and looks like it is on a push and fail pattern as it failed to reach it's projection out of the consolidation range and is likely headed for a test on the bottom side of the consolidation from the previous two months. All of this market action is pointing towards a potential macro leg down beginning after the nearly unbroken 2 month rally in the Equity market. I suggest playing the short side on the Equities, Metals, and Energies for right now rather than the buy.
Buys to Watch:
Sells to Watch:
Swiss Franc (and other European Currencies)- The Swiss Franc has an almost double top pattern that has set off this morning with a breakout level of .9307 and a projection to .9089. This morning the Swiss is equivalently weak to the Euro, but the Euro on it's own has the weakest individual chart right now as it is already below the consolidation levels from February and early March. If this pattern is confirmed by a lower close today and tomorrow I like shorting the Euro more as it is approaching new lows. I have a projection on a new third leg down from 1.2750 to 1.28.
Put on the Radar:
Gold- Gold has a large head and shoulders pattern that had a breakout yesterday at $1135.2 and that has a projection to new contract highs at $1244.6. Technically the chart looks very strong as open interest has flooded into the market on the recent rally. Yesterday alone open interest rose over 22,000 contracts, a 4.4% increase. The recent rally on the failed bearish head and shoulders pattern has been very strong and has a nice uptrend base that it has rallied off of. The Stochastics and RSI values do remain in a strong uptrend, but are heading into overbought territory on the rally. Right now resistance in Gold lies at the old high close for the year of $1153.9 and the high trade of $1164.1. While the technicals remain strong I have a lot of fundamental and relationship issues with a continuation on the Gold pattern right now. As I stated in the opening note it appears that Energies, Equities, Currencies, and other Metals are not supportive of this Gold move as a commodity with the rest of the macro picture looking tired. Gold was the weakness in the metal sector on the rally from the February lows and has remained that way until this 2 week push so I am skeptical of what caused this recent change. One could argue that this is a store of value as an alternative to the weak European Currencies, which could be partly true, but as the Currencies tumbled in mid-January so did the Gold. The Gold was stronger in comparison to the Euro, but it definitely was not strong on it's individual chart with the market running into it and I do not understand why this action would be different now. In my opinion, other than just technical strength, this really only leaves a "run to safety" theory on the Gold rally. The markets are not too weak right now with Equities still near their highs, so unless this is a preemptive run on another catastrophe I can not find a good reason for this Gold rally other than it was straight-up oversold on it's own or just a head and shoulders pile in. This leaves me skeptical of the Gold's continuation on this pattern. Trade Idea: Volatility seems pretty cheap on the Gold market right now so I am looking at options strategies for entry. With the market hanging around $1150 again today I like buying the $1100 put and $1200 call strangle. Yesterday you could buy it for around $6 with 19 days still left until expiration, which seems cheap to me. While it is possible the market hangs around the $1150 level for a little while I believe that there should be a strong continuation or rejection soon and this trade leaves you open to volatility either way with the option of covering the losing side of the trade after the move is more certain.
Equities- I have been skeptical and concerned with the rally continuation on the Equities for about three weeks now as I believe that the now 2 month rally is overdue for a correction. Yesterday the market had one of it's most sizable down days throughout the rally based off a poor consumer credit number that was way out of line with expectations. Despite this number Equities still had a nice recovery bounce prior to the close to make it only a moderate down day. Consumer spending makes up a large portion of the national economy so I look at this poor number as very important and a good indicator that fundamentals are not as strong as many believe. As we head into the summer it is likely that the Fed will release the lock on near zero interest rates and end some of the borrow cheap and invest large game that has been going on for some time. Once interest rates begin to rise the market should begin to fade with less money flow support. One of the biggest red flags for me is the standard reasoning for the continuation for this rally of "There's still so much money on the sidelines and money will continue to flow in" and "Buy dips because that's what has been working". While supply and demand are the basics of a market and new money flow into Equities is that demand the Equity markets are beginning to feel a bit like a Ponzi scheme (do not intend for the bad connotation, but rather the ideology and set up) where new money in is providing profits right now for the earlier money. I am also skeptical of any market where investors and traders are trained to do a certain strategy regardless of the situation, like buying dips. Unless the fundamentals of the consumer begin to catch up to this strong rally I think that the Equities will start a larger correction.
Japanese Yen- Both the monthly and weekly chart of the Yen are beginning to look very bearish with a possible reversal upcoming on the strong rally from June of 2007. The monthly chart has had a strong uptrend, but this was violated on the March monthly close from last month. Furthermore, the weekly chart has a cup and handle topping pattern with a breakout of 106.79 and a projection to 100.12. The Yen is tied to the interest rates on an investment carry trade, so I take this recent weakness in the Yen as an indicator that interest rates are nearing the point that they will begin to rise. I have my eye on the large low volume area on the Yen between 109.20 an 110.34. I am beginning to look at positioning for the rise in interest rates and I believe that the Yen is a strong part of that strategy. While I only have confirmation on the first time that it occurred it appears that the Japanese government is protecting the global value of it's exports by devaluing it's currency around the 115 level, which it has failed on a spike each time it has reached these levels. Because you have this artificial boundary on the market and the Yen should fall on interest rate increases I am looking for a rally into this 109 to 110 zone to sell 114 or 115 calls on the far out December contract to collect premium.
Notes:
Cocoa- While I still believe that the Cocoa is on a push and fail pattern that takes it back to a test of the lows near $2750 I no longer like selling a rally into the $2920 to $2942 resistance level. Because the Cocoa has moved for than halfway back on the projected move a rally back near the previous highs could be a sign of strength, so I am taking it off my trade list.
Grains- In what is potentially an oversold market the Grains had a sharp short covering and stop-running rally yesterday just after noon on news that China was purchasing Corn. Hopefully the rally was quick enough that you did not have time to sell Corn in the report gap as the market rallied above any nearby resistance on the rally. Taking Grain prices lower has been a struggle this Spring on poor fundamentals, and I think this strong rally is an indication that it is time to focus more on the buy side of the market. Caution: The Wheat market looks like it may be primed for a strong short covering rally if bullish fundamentals emerge. Open interest has continued to strongly rise throughout this year on weaker prices as most of the world is on the bearish train for Wheat. A strong rally could set off a much larger chain of unwinding.
Weakness in the core Commodity sectors of Energies and Metals from yesterday continued overnight with Equities beginning to fall after a poor consumer credit number that was much lower than expectations. After the strengths of the Energy and Metal sectors, Heating Oil and Copper, reached their initial projections they failed to continue on a rally after posting new contract highs leading the rest of the sector down. The Dollar is also stronger this morning as the Euro threatens to make new lows below the previous low trade of 1.3266. The bullish cup and handle pattern on the Euro/Yen Cross (a good market direction indicator) has now been negated and looks like it is on a push and fail pattern as it failed to reach it's projection out of the consolidation range and is likely headed for a test on the bottom side of the consolidation from the previous two months. All of this market action is pointing towards a potential macro leg down beginning after the nearly unbroken 2 month rally in the Equity market. I suggest playing the short side on the Equities, Metals, and Energies for right now rather than the buy.
Buys to Watch:
Sells to Watch:
Swiss Franc (and other European Currencies)- The Swiss Franc has an almost double top pattern that has set off this morning with a breakout level of .9307 and a projection to .9089. This morning the Swiss is equivalently weak to the Euro, but the Euro on it's own has the weakest individual chart right now as it is already below the consolidation levels from February and early March. If this pattern is confirmed by a lower close today and tomorrow I like shorting the Euro more as it is approaching new lows. I have a projection on a new third leg down from 1.2750 to 1.28.
Put on the Radar:
Gold- Gold has a large head and shoulders pattern that had a breakout yesterday at $1135.2 and that has a projection to new contract highs at $1244.6. Technically the chart looks very strong as open interest has flooded into the market on the recent rally. Yesterday alone open interest rose over 22,000 contracts, a 4.4% increase. The recent rally on the failed bearish head and shoulders pattern has been very strong and has a nice uptrend base that it has rallied off of. The Stochastics and RSI values do remain in a strong uptrend, but are heading into overbought territory on the rally. Right now resistance in Gold lies at the old high close for the year of $1153.9 and the high trade of $1164.1. While the technicals remain strong I have a lot of fundamental and relationship issues with a continuation on the Gold pattern right now. As I stated in the opening note it appears that Energies, Equities, Currencies, and other Metals are not supportive of this Gold move as a commodity with the rest of the macro picture looking tired. Gold was the weakness in the metal sector on the rally from the February lows and has remained that way until this 2 week push so I am skeptical of what caused this recent change. One could argue that this is a store of value as an alternative to the weak European Currencies, which could be partly true, but as the Currencies tumbled in mid-January so did the Gold. The Gold was stronger in comparison to the Euro, but it definitely was not strong on it's individual chart with the market running into it and I do not understand why this action would be different now. In my opinion, other than just technical strength, this really only leaves a "run to safety" theory on the Gold rally. The markets are not too weak right now with Equities still near their highs, so unless this is a preemptive run on another catastrophe I can not find a good reason for this Gold rally other than it was straight-up oversold on it's own or just a head and shoulders pile in. This leaves me skeptical of the Gold's continuation on this pattern. Trade Idea: Volatility seems pretty cheap on the Gold market right now so I am looking at options strategies for entry. With the market hanging around $1150 again today I like buying the $1100 put and $1200 call strangle. Yesterday you could buy it for around $6 with 19 days still left until expiration, which seems cheap to me. While it is possible the market hangs around the $1150 level for a little while I believe that there should be a strong continuation or rejection soon and this trade leaves you open to volatility either way with the option of covering the losing side of the trade after the move is more certain.
Equities- I have been skeptical and concerned with the rally continuation on the Equities for about three weeks now as I believe that the now 2 month rally is overdue for a correction. Yesterday the market had one of it's most sizable down days throughout the rally based off a poor consumer credit number that was way out of line with expectations. Despite this number Equities still had a nice recovery bounce prior to the close to make it only a moderate down day. Consumer spending makes up a large portion of the national economy so I look at this poor number as very important and a good indicator that fundamentals are not as strong as many believe. As we head into the summer it is likely that the Fed will release the lock on near zero interest rates and end some of the borrow cheap and invest large game that has been going on for some time. Once interest rates begin to rise the market should begin to fade with less money flow support. One of the biggest red flags for me is the standard reasoning for the continuation for this rally of "There's still so much money on the sidelines and money will continue to flow in" and "Buy dips because that's what has been working". While supply and demand are the basics of a market and new money flow into Equities is that demand the Equity markets are beginning to feel a bit like a Ponzi scheme (do not intend for the bad connotation, but rather the ideology and set up) where new money in is providing profits right now for the earlier money. I am also skeptical of any market where investors and traders are trained to do a certain strategy regardless of the situation, like buying dips. Unless the fundamentals of the consumer begin to catch up to this strong rally I think that the Equities will start a larger correction.
Japanese Yen- Both the monthly and weekly chart of the Yen are beginning to look very bearish with a possible reversal upcoming on the strong rally from June of 2007. The monthly chart has had a strong uptrend, but this was violated on the March monthly close from last month. Furthermore, the weekly chart has a cup and handle topping pattern with a breakout of 106.79 and a projection to 100.12. The Yen is tied to the interest rates on an investment carry trade, so I take this recent weakness in the Yen as an indicator that interest rates are nearing the point that they will begin to rise. I have my eye on the large low volume area on the Yen between 109.20 an 110.34. I am beginning to look at positioning for the rise in interest rates and I believe that the Yen is a strong part of that strategy. While I only have confirmation on the first time that it occurred it appears that the Japanese government is protecting the global value of it's exports by devaluing it's currency around the 115 level, which it has failed on a spike each time it has reached these levels. Because you have this artificial boundary on the market and the Yen should fall on interest rate increases I am looking for a rally into this 109 to 110 zone to sell 114 or 115 calls on the far out December contract to collect premium.
Notes:
Cocoa- While I still believe that the Cocoa is on a push and fail pattern that takes it back to a test of the lows near $2750 I no longer like selling a rally into the $2920 to $2942 resistance level. Because the Cocoa has moved for than halfway back on the projected move a rally back near the previous highs could be a sign of strength, so I am taking it off my trade list.
Grains- In what is potentially an oversold market the Grains had a sharp short covering and stop-running rally yesterday just after noon on news that China was purchasing Corn. Hopefully the rally was quick enough that you did not have time to sell Corn in the report gap as the market rallied above any nearby resistance on the rally. Taking Grain prices lower has been a struggle this Spring on poor fundamentals, and I think this strong rally is an indication that it is time to focus more on the buy side of the market. Caution: The Wheat market looks like it may be primed for a strong short covering rally if bullish fundamentals emerge. Open interest has continued to strongly rise throughout this year on weaker prices as most of the world is on the bearish train for Wheat. A strong rally could set off a much larger chain of unwinding.
Wednesday, April 7, 2010
Wednesday 4/7/10 Commodity Ideas
Opening Note:
While there has been some entry money flow across the market in Commodities and Equities as the 2nd Quarter of the year has begun I am concerned with Commodities lack of price acceleration off of this money flow. Both Energies and Metals have become stagnant as their Heating Oil and Copper strengths have failed to continue on gains despite posting new high closes this month. It is difficult for me to recommend selling these individual sectors right now without much resistance to place stops above them, but I am very hesitant about buying them on any continuation prospects and would much rather play the short side of the trade for right now. With the start of this new quarter the European Currencies are again getting beat up on what could be a downside breakout below support on a new bearish leg. This Currency move does not help the bullish Commodity cause as they have been more highly correlated the past month. Furthermore, what appeared to be a bullish cup and handle pattern on the Euro/Yen Cross rate is on the verge of being negated with a close below 125.13 (on the YR symbol CQG chart). Because the Euro/Yen cross is a decent indicator of overall market direction the rejection of this pattern and further weakness of the spread should also be taken as bearish the market. I still have my eye closely pinned on the Gold market right now as the bullish head and shoulders pattern has a breakout neckline that has been traded around for the last 24 hours. While I originally mistook this move in Gold as more of a Commodity story it appears that the Gold is being used as a substitute for some of the European Currencies. Regardless of the blend of it's fundamental story I do not have faith that the Gold will continue higher on this projection and recommend holding off on a long entry strategy. A rejection of this breakout should be another indicator of short term market weakness to follow. Yesterday I stated that I would send a supplemental newsletter with a fixed income and Yen trade, but I am still working on some of the ideas. This is a longer term trade that is not necessary to put on even this week, so I will send it out as soon as I work out some of the kinks.
Buys to Watch: I have none again today
Sells to Watch:
Swiss Franc (and other European Currencies)- The Swiss Franc has a double top pattern that is close to being set in motion. The pattern has a breakout of .9307 with a projection to .9089. While the bearish pattern is in the Swiss Franc market I am more interested in shorting the overall weaker Euro chart off of these pattern values. I still have a third leg down projection for the Euro from 1.2750 to 1.28 and as it is nearing its previous low close the prospects of this larger move are looking better. The British Pound is also still interesting to me as it is near the top of its range for the last month. The Pound was weaker than the Euro on the currency leg down from mid-January and I think that this is a pattern that could repeat on another leg. I am watching the next couple days in the Pound to see if it performs weaker than the Euro and therefore as the better short on a bearish move. Because it is difficult to stay short one of the European Currencies on it's own I would also look at possibly doing a spread on the short by buying some Australian or Canadian Dollar strength.
Cocoa- I was on the rally train for the Cocoa a week ago, but I was turned off the trade by excessive volatility swings and a lack of continuation on the pattern. It looks like the Cocoa could be moving on a push and fail pattern where the market has a directional projection out of a consolidation range that it fails to reach on a lack of acceleration and instead slingshots out the other end of its consolidation range. I would hold off on selling any sort of downwards continuation on the market like this morning, but there is a good area to sell if the market has a pullback rally. From $2920 to 2942 there is a good low volume price zone that has multiple days of resistance above it from $2948 to 2986. Although I do not have a good projection for this move I am looking for at least a test of the base around $2750 and at these levels there is good risk/reward.
Corn- While Soybeans and Wheat have rallied off their lows after the report May Corn has not had much of a bounce. I believe that the Corn is now the clear weakness of the Grain sector and is the best short. I am looking for a rally in Corn to the gap on the morning of the report between $3.50 1/2 to $3.52 for the opportunity to sell. I still have a bearish head and shoulders projection on the Corn to $3.30 1/2.
Put on the Radar:
Gold- Gold has a bullish head and shoulders pattern with a breakout level today of $1135.2 with a projection to $1244.6. While a move of this magnitude would be very supportive of Commodities it appears that the driving force behind the Gold is Currency. By looking at the Gold/Euro chart you can see that the market has continued to higher levels on contrary moves in both markets for the last four days of this month, which means that there is a market of people that are buying the Gold as a store of value away from the Euro and as more of a spread. The Gold has been the laggard of the Metal sector for most of this year, but since the start of this month it has finally had some open interest gains on this move. However, regardless of the fundamental reason or money flow this year I do not have confidence that the pattern will hold. I am sitting back right now and looking for signs of weakness to execute a short. Right now the May $1100 puts for Gold are offered around $3.50 with a Delta of around 15 and 20 days left till expiration. On a failure on the pattern I think that this is a good low risk strategy.
Notes:
Japanese Yen- The Yen has had two strong days off of the bottom of it's recent leg down and has traded a volatile sideways range today that continues to knock out short stops above the market. I do not see a good entry level to sell above the market right now until above 109, so I would recommend liquidating shorts for the time being and waiting for a better re-entry opportunity. The bearish cup and handle pattern on the weekly chart has a breakout of 106.79 with a projection to 100.12, but the market may need a consolidation rally prior to downward continuation.
While there has been some entry money flow across the market in Commodities and Equities as the 2nd Quarter of the year has begun I am concerned with Commodities lack of price acceleration off of this money flow. Both Energies and Metals have become stagnant as their Heating Oil and Copper strengths have failed to continue on gains despite posting new high closes this month. It is difficult for me to recommend selling these individual sectors right now without much resistance to place stops above them, but I am very hesitant about buying them on any continuation prospects and would much rather play the short side of the trade for right now. With the start of this new quarter the European Currencies are again getting beat up on what could be a downside breakout below support on a new bearish leg. This Currency move does not help the bullish Commodity cause as they have been more highly correlated the past month. Furthermore, what appeared to be a bullish cup and handle pattern on the Euro/Yen Cross rate is on the verge of being negated with a close below 125.13 (on the YR symbol CQG chart). Because the Euro/Yen cross is a decent indicator of overall market direction the rejection of this pattern and further weakness of the spread should also be taken as bearish the market. I still have my eye closely pinned on the Gold market right now as the bullish head and shoulders pattern has a breakout neckline that has been traded around for the last 24 hours. While I originally mistook this move in Gold as more of a Commodity story it appears that the Gold is being used as a substitute for some of the European Currencies. Regardless of the blend of it's fundamental story I do not have faith that the Gold will continue higher on this projection and recommend holding off on a long entry strategy. A rejection of this breakout should be another indicator of short term market weakness to follow. Yesterday I stated that I would send a supplemental newsletter with a fixed income and Yen trade, but I am still working on some of the ideas. This is a longer term trade that is not necessary to put on even this week, so I will send it out as soon as I work out some of the kinks.
Buys to Watch: I have none again today
Sells to Watch:
Swiss Franc (and other European Currencies)- The Swiss Franc has a double top pattern that is close to being set in motion. The pattern has a breakout of .9307 with a projection to .9089. While the bearish pattern is in the Swiss Franc market I am more interested in shorting the overall weaker Euro chart off of these pattern values. I still have a third leg down projection for the Euro from 1.2750 to 1.28 and as it is nearing its previous low close the prospects of this larger move are looking better. The British Pound is also still interesting to me as it is near the top of its range for the last month. The Pound was weaker than the Euro on the currency leg down from mid-January and I think that this is a pattern that could repeat on another leg. I am watching the next couple days in the Pound to see if it performs weaker than the Euro and therefore as the better short on a bearish move. Because it is difficult to stay short one of the European Currencies on it's own I would also look at possibly doing a spread on the short by buying some Australian or Canadian Dollar strength.
Cocoa- I was on the rally train for the Cocoa a week ago, but I was turned off the trade by excessive volatility swings and a lack of continuation on the pattern. It looks like the Cocoa could be moving on a push and fail pattern where the market has a directional projection out of a consolidation range that it fails to reach on a lack of acceleration and instead slingshots out the other end of its consolidation range. I would hold off on selling any sort of downwards continuation on the market like this morning, but there is a good area to sell if the market has a pullback rally. From $2920 to 2942 there is a good low volume price zone that has multiple days of resistance above it from $2948 to 2986. Although I do not have a good projection for this move I am looking for at least a test of the base around $2750 and at these levels there is good risk/reward.
Corn- While Soybeans and Wheat have rallied off their lows after the report May Corn has not had much of a bounce. I believe that the Corn is now the clear weakness of the Grain sector and is the best short. I am looking for a rally in Corn to the gap on the morning of the report between $3.50 1/2 to $3.52 for the opportunity to sell. I still have a bearish head and shoulders projection on the Corn to $3.30 1/2.
Put on the Radar:
Gold- Gold has a bullish head and shoulders pattern with a breakout level today of $1135.2 with a projection to $1244.6. While a move of this magnitude would be very supportive of Commodities it appears that the driving force behind the Gold is Currency. By looking at the Gold/Euro chart you can see that the market has continued to higher levels on contrary moves in both markets for the last four days of this month, which means that there is a market of people that are buying the Gold as a store of value away from the Euro and as more of a spread. The Gold has been the laggard of the Metal sector for most of this year, but since the start of this month it has finally had some open interest gains on this move. However, regardless of the fundamental reason or money flow this year I do not have confidence that the pattern will hold. I am sitting back right now and looking for signs of weakness to execute a short. Right now the May $1100 puts for Gold are offered around $3.50 with a Delta of around 15 and 20 days left till expiration. On a failure on the pattern I think that this is a good low risk strategy.
Notes:
Japanese Yen- The Yen has had two strong days off of the bottom of it's recent leg down and has traded a volatile sideways range today that continues to knock out short stops above the market. I do not see a good entry level to sell above the market right now until above 109, so I would recommend liquidating shorts for the time being and waiting for a better re-entry opportunity. The bearish cup and handle pattern on the weekly chart has a breakout of 106.79 with a projection to 100.12, but the market may need a consolidation rally prior to downward continuation.
Tuesday, April 6, 2010
Tuesday 4/6/10 Commodity Ideas
Opening Note:
After the Unemployment Report on Friday much of my focus has now turned to money flow at the start of this new quarter. As the recovery rally has progressed for over a year now the monthly inflow of new money into the markets has become an event that is almost taken for granted and much of the life blood on it's continuation. While Equities have had opening rallies with new allocation for the first two full days of the month the case has not been the same for Commodities. On Thursday April 1st Europe woke up and allocated to Commodities, which was continued on the U.S. as well. However, with Europe on holiday yesterday there was no buying in the early morning on Monday, which was followed by a lack of allocation in the U.S. as well. I believed that this morning Europe would likely would wake up and begin allocating to Commodities again on the open, but this as well was not the case overnight as they were more interested in shorting their own currencies. Although some Commodity sectors like Energies and Metals did post gains the last couple days I believe that much of this move has been on the coattails of the Equity market with Energies being the most highly correlated and therefore the strongest. Taking into account this money flow analysis, the Energy sector completing it's daily cup and handle pattern and the Metals showing signs of slowing I am now weary of being long these core Commodities. I am focused on the large head and shoulders pattern on the daily chart for the Gold right now as an indicator for Commodity direction. I will discuss this further later in the newsletter, but if Gold does rally to new highs it has wide implications across the market that could start a huge bull rally. I instead am looking for a failure on this pattern to confirm my belief that a new leg down will begin in the market.
*Due to this uncertainty right now I do not have a great deal of trades, but I am formulating a large one using the fixed income market and the Yen which I will discuss later today on a supplemental newsletter and would appreciate feedback on.
Buys to Watch: With Energies completing their pattern projections and Metals fading I do not have buys right now
Sells to Watch:
Japanese Yen- With strength overnight likely related to a rally in fixed income and a pullback on the Euro/Yen bullish pattern the Yen is firmer thus far for a second day. While I do not have good sell entry levels right now I am focusing on the resistance from 106.44 to 106.75. The daily chart has a topping pattern that was set off below 108.60 that has a projection to 104.10. The bigger story however, which I will cover more later, is the bearish cup and handle pattern on the weekly chart that was set off on Thursday. The cup and handle has a breakout value of 106.79 with a projection to 100.12. Stochastics for this chart provided a sell signal three weeks ago and along with RSI remain in a bearish mode and supportive of the trade. The earlier resistance level correlates nearly perfectly with the breakout on this cup and handle so I am looking for a confirmation of failure at these levels to explore some options strategies for playing this larger move.
Put on the Radar:
Gold- By drawing a neckline across the highs in the June Gold from January 11th to March 3rd you can see the large bullish head and shoulders pattern that has formed on the daily chart. On the descending neckline the pattern has a breakout value of $1135.7 today with a projection to $1245.1. As I stated in the Opening Note I do not have confidence that this is a pattern that will set off and continue and am therefore looking for a rejection or negation. Yesterday the Gold made a weak attempt at the breakout level, but has failed further on this attempt overnight. Gold has been the weakest performer in the Metals sector on the rally since February so I would take a reversal to strength as an indicator that Commodities should begin a very strong rally across the board and into the Summer. Much of Gold's strength during the final quarter of last year was created by the removal of corporate price hedges in the market that set off huge technical patterns and money flows. This rally however did not have much of a good reason for occurring other than the release of hedges and a money run, so I take this weakness in Gold as a correction to a fair price in relation to the rest of the macro market with all else equal. If Gold is now close to an equilibrium market price I take the rejection of this pattern as a bearish sign for Commodities and the overall market.
Notes:
Crude Oil and Heating Oil- Crude Oil has now come within 20 ticks of it's $87.18 projection and Heating Oil has more than completed it's projection to 225.13 cents. I recommend taking profits on longs for now and taking some time to reevaluate the market as I obviously have some bearish overtones running through my head. I know that many people only trade the Crude in the Energy sector, but to show my analysis on why I believed Heating Oil was the stronger buy take a look at some of the relationships across the sector and how they added value to the Heating Oil trade. On CQG enter RBEHOE to see the RBOB (Gas) market versus the Heating Oil and you can see the huge break in the market that favored the Heating Oil. Furthermore, on CQG enter HOECLE to pull up the chart on the Heating Oil versus Crude crack spread that shows margins on creating Heating Oil from Crude and notice the strong three day move favoring Heating Oil to Crude. By keeping these market spreads on your radar you can add value to the trade by playing the stronger market unless you are bound by liquidity issues to the Crude.
Silver- Yesterday I said that I would give the Silver one more shot on the buy side today, but after weakness overnight I am giving up on it. The new leg up on Silver still has a projection from $18.30 to $18.65, but with Gold already bouncing around it's head and shoulders breakout I do not believe that a strong continuation on the Silver rally is likely. I actually am keeping the idea of shorting Silver in the future on the back of my radar based on the Gold market and broader Commodity picture.
Copper- As Copper is tied to the Silver and Gold in the Metal sector I would recommend taking profits on Copper longs and reevaluating the market. The continuation triangle pattern on the Copper still has a projection from $3.72 to 3.75, but the prospects of a strong rally to these levels look diminished. I was expecting the market to have a much stronger rally out of the pattern as it was already above it's highs, but it has sat fairly sideways for the start of this week. The good news is that this was most likely a profitable trade from most possible entry points, so ring the cash register for now as you can always get back in later.
After the Unemployment Report on Friday much of my focus has now turned to money flow at the start of this new quarter. As the recovery rally has progressed for over a year now the monthly inflow of new money into the markets has become an event that is almost taken for granted and much of the life blood on it's continuation. While Equities have had opening rallies with new allocation for the first two full days of the month the case has not been the same for Commodities. On Thursday April 1st Europe woke up and allocated to Commodities, which was continued on the U.S. as well. However, with Europe on holiday yesterday there was no buying in the early morning on Monday, which was followed by a lack of allocation in the U.S. as well. I believed that this morning Europe would likely would wake up and begin allocating to Commodities again on the open, but this as well was not the case overnight as they were more interested in shorting their own currencies. Although some Commodity sectors like Energies and Metals did post gains the last couple days I believe that much of this move has been on the coattails of the Equity market with Energies being the most highly correlated and therefore the strongest. Taking into account this money flow analysis, the Energy sector completing it's daily cup and handle pattern and the Metals showing signs of slowing I am now weary of being long these core Commodities. I am focused on the large head and shoulders pattern on the daily chart for the Gold right now as an indicator for Commodity direction. I will discuss this further later in the newsletter, but if Gold does rally to new highs it has wide implications across the market that could start a huge bull rally. I instead am looking for a failure on this pattern to confirm my belief that a new leg down will begin in the market.
*Due to this uncertainty right now I do not have a great deal of trades, but I am formulating a large one using the fixed income market and the Yen which I will discuss later today on a supplemental newsletter and would appreciate feedback on.
Buys to Watch: With Energies completing their pattern projections and Metals fading I do not have buys right now
Sells to Watch:
Japanese Yen- With strength overnight likely related to a rally in fixed income and a pullback on the Euro/Yen bullish pattern the Yen is firmer thus far for a second day. While I do not have good sell entry levels right now I am focusing on the resistance from 106.44 to 106.75. The daily chart has a topping pattern that was set off below 108.60 that has a projection to 104.10. The bigger story however, which I will cover more later, is the bearish cup and handle pattern on the weekly chart that was set off on Thursday. The cup and handle has a breakout value of 106.79 with a projection to 100.12. Stochastics for this chart provided a sell signal three weeks ago and along with RSI remain in a bearish mode and supportive of the trade. The earlier resistance level correlates nearly perfectly with the breakout on this cup and handle so I am looking for a confirmation of failure at these levels to explore some options strategies for playing this larger move.
Put on the Radar:
Gold- By drawing a neckline across the highs in the June Gold from January 11th to March 3rd you can see the large bullish head and shoulders pattern that has formed on the daily chart. On the descending neckline the pattern has a breakout value of $1135.7 today with a projection to $1245.1. As I stated in the Opening Note I do not have confidence that this is a pattern that will set off and continue and am therefore looking for a rejection or negation. Yesterday the Gold made a weak attempt at the breakout level, but has failed further on this attempt overnight. Gold has been the weakest performer in the Metals sector on the rally since February so I would take a reversal to strength as an indicator that Commodities should begin a very strong rally across the board and into the Summer. Much of Gold's strength during the final quarter of last year was created by the removal of corporate price hedges in the market that set off huge technical patterns and money flows. This rally however did not have much of a good reason for occurring other than the release of hedges and a money run, so I take this weakness in Gold as a correction to a fair price in relation to the rest of the macro market with all else equal. If Gold is now close to an equilibrium market price I take the rejection of this pattern as a bearish sign for Commodities and the overall market.
Notes:
Crude Oil and Heating Oil- Crude Oil has now come within 20 ticks of it's $87.18 projection and Heating Oil has more than completed it's projection to 225.13 cents. I recommend taking profits on longs for now and taking some time to reevaluate the market as I obviously have some bearish overtones running through my head. I know that many people only trade the Crude in the Energy sector, but to show my analysis on why I believed Heating Oil was the stronger buy take a look at some of the relationships across the sector and how they added value to the Heating Oil trade. On CQG enter RBEHOE to see the RBOB (Gas) market versus the Heating Oil and you can see the huge break in the market that favored the Heating Oil. Furthermore, on CQG enter HOECLE to pull up the chart on the Heating Oil versus Crude crack spread that shows margins on creating Heating Oil from Crude and notice the strong three day move favoring Heating Oil to Crude. By keeping these market spreads on your radar you can add value to the trade by playing the stronger market unless you are bound by liquidity issues to the Crude.
Silver- Yesterday I said that I would give the Silver one more shot on the buy side today, but after weakness overnight I am giving up on it. The new leg up on Silver still has a projection from $18.30 to $18.65, but with Gold already bouncing around it's head and shoulders breakout I do not believe that a strong continuation on the Silver rally is likely. I actually am keeping the idea of shorting Silver in the future on the back of my radar based on the Gold market and broader Commodity picture.
Copper- As Copper is tied to the Silver and Gold in the Metal sector I would recommend taking profits on Copper longs and reevaluating the market. The continuation triangle pattern on the Copper still has a projection from $3.72 to 3.75, but the prospects of a strong rally to these levels look diminished. I was expecting the market to have a much stronger rally out of the pattern as it was already above it's highs, but it has sat fairly sideways for the start of this week. The good news is that this was most likely a profitable trade from most possible entry points, so ring the cash register for now as you can always get back in later.
Monday, April 5, 2010
Monday 4/5/10 Commodity Ideas
Opening Note:
With many Commodity markets closed the Unemployment numbers released Friday showed an increase in employment, but came in near market expectations and did not have a significant impact on the markets on continuation into today as I expected. One thing to note is that of the 162,000 increase in payrolls over 1/4 of the increase came from the temporary hiring of 48,000 census workers. With Unemployment now out of the way the market will focus on new quarterly allocation as we begin the second full day of trading for the second quarter. On Thursday, the first day of the new quarter, the market did have new allocation in many individual markets on their opens, which was indicated earlier by similar buying on the European market open. Overnight there was not buying on the European open, but this is likely because of the Easter Monday Holiday that has European exchanges closed. So, the jury is still out on whether new money flow will enter the market this morning. While Energies and Metals have completed nearly 2/3 of their bullish continuation patterns Equities have struggled to battle higher lately. While the Dow and S&P have eked out small gains to new highs the Nasdaq, which has been the Equity Index leader for a year, gave up nearly all of it's gains after a strong open on Thursday. I believe that the weak action of the leader among the sector is another sign that Equities are likely in a topping formation and are susceptible to a break after nearly two straight months of rallying if new allocation does not lead the market higher. There is speculation that the Fed could raise the discount rate again today or in the near future further widening the gap between it and the Fed Funds rate, so be cautious as this is another signal that near zero interest rates may be on the way out the door sooner rather than later.
Buys to Watch:
Crude Oil or Heating Oil- Both the Crude and Heating Oil have bullish cup and handle patterns, but I still believe that the Heating Oil is the stronger buy of the two as it posted larger gains again on Thursday. The Energy sector was strong out of the box on Thursday so any low volume buy zones below the market were not entered for optimum purchase. The Crude cup and handle pattern had a breakout of $83.36 and has a projection to $87.18 while the Heating Oil had a breakout of 215.63 cents with a projection to 225.13. Both markets are now battling with contract high closes and trade values which will provide temporary resistance. I do not have good nearby low volume entry zones in either of theses markets right now, but lower trade for a day or two could provide better long entry. For Crude there is a low volume zone from 83.72 to 84.10 with support from 83.30 to 83.50 and similarly in the Heating Oil there is a low volume zone from 217.45 to 218.70 with support from 215.70 to 217.40 (there is also a small zone in Heat from 221.85 to 221.95 if the market makes new lows today). With each market already completing over 2/3 of it's projection I do not place as strong of a buy on this trade right now and would recommend waiting for better entry than jumping in or using short term charts for long entry right now.
Copper- Copper has a small triangle continuation pattern that has a projection from $3.72 to $3.75. On Thursday Copper decisively made a new high close as open interest continued to sharply increase on the bullish breakout. The low volume buy zone that I described Thursday from 3.5740 to 3.5900 with support below to 3.5590 held nicely and provided good long entry. Today I have a small zone from 3.5860 to 3.5900 with support from 3.5670 to 3.5820, but this is not a very strong zone so I would recommend using a smaller position than you would normally use for entry at these levels. Copper continues to be the strength of the Metals and of Commodities, but as a note of caution, both Stochastics and RSI have travelled into overbought territory recently on the daily chart.
Silver- Silver has not performed as strong as I had expected, but the market finally has some open interest creeping back in so I am leaving this as a buy for today. The Gold to Silver ratio (Gold - Silver/2) continues to weaken on its downside breakout from consolidation showing Silver strength over the Gold. I originally had a projection of $18.65 on the breakout above $17.60 for silver, but am adjusting this to a projection range from $18.30 to 18.65 as it is very possible that this just a new leg up rather than a pattern breakout. There is a low volume buy zone for Silver from 17.75 to 17.825 today that was entered briefly overnight with support from 17.68 to 17.72. The support here is not as strong though because there is another low volume zone near the breakout from 17.60 to 17.64 below it. I believe that Copper is the stronger buy of the two, but if you feel strongly about buying Gold right now I would execute this trade in the Silver as it has better short term upside potential.
Sells to Watch:
Japanese Yen- The resistance levels given on Thursday did hold strong as the top of the range for the Yen and were followed by weakness Friday after the Unemployment report. The topping pattern on the Yen had a breakout of 108.60 with a projection to 104.10, which is over 2/3 completed. Above the market trade today I have a low volume sell zone from 106.04 to 106.32 with resistance above from 106.44 to 106.75. As with many of the other patterns I become less aggressive with my sell size as the market nears it's projection so I would lighten up on selling the Yen at this point. Note: Momentum indicators for the Yen are in extremely oversold territory right now after the large break.
Put on the Radar:
Gold- Gold has a large head and shoulders bottom that is forming on the daily chart. The breakout value today is $1136.1 and has a rally projection increase of $109.50 to $1245.6 today. While the gold does have strong momentum indicators currently it has been the laggard of the Metal sector. A move of this magnitude would have strongly bullish implications for the rest of Commodities and I do not have a strong belief that it will occur. I would use the neckline on the head and shoulders pattern as resistance for right now and use any bullish ideas in the Gold to execute in Silver or Copper for the time being.
Euro/Yen Cross- The YR symbol market on CQG has completed over half of the cup and handle breakout pattern from 125.13 to 129.26. The market is slightly weaker this morning, but still has good continuation prospects as the Yen continues to weaken on it's topping pattern. This Currency move has supported Commodities and Equities so take note as it nears it's projection for any loss of momentum that could indicate a shift in the overall bullishness of the market.
Notes:
Corn- May Corn has a bearish head and shoulders pattern on its daily chart with a breakout at $3.59 and a projection to $3.30 1/2. While the Corn is weak and is likely to continue to be a good sale I am not even sure that it is the weakest market in the Grain sector, which is why I have this trade placed in the Notes section. I still have a low volume zone above the market from $3.48 1/2 to 3.52 that was temporarily entered Thursday with resistance above from 3.52 to 3.54. The price value from $3.50 1/2 to $3.52 is the gap from the Wednesday reports bearish open and is a stronger sale.
With many Commodity markets closed the Unemployment numbers released Friday showed an increase in employment, but came in near market expectations and did not have a significant impact on the markets on continuation into today as I expected. One thing to note is that of the 162,000 increase in payrolls over 1/4 of the increase came from the temporary hiring of 48,000 census workers. With Unemployment now out of the way the market will focus on new quarterly allocation as we begin the second full day of trading for the second quarter. On Thursday, the first day of the new quarter, the market did have new allocation in many individual markets on their opens, which was indicated earlier by similar buying on the European market open. Overnight there was not buying on the European open, but this is likely because of the Easter Monday Holiday that has European exchanges closed. So, the jury is still out on whether new money flow will enter the market this morning. While Energies and Metals have completed nearly 2/3 of their bullish continuation patterns Equities have struggled to battle higher lately. While the Dow and S&P have eked out small gains to new highs the Nasdaq, which has been the Equity Index leader for a year, gave up nearly all of it's gains after a strong open on Thursday. I believe that the weak action of the leader among the sector is another sign that Equities are likely in a topping formation and are susceptible to a break after nearly two straight months of rallying if new allocation does not lead the market higher. There is speculation that the Fed could raise the discount rate again today or in the near future further widening the gap between it and the Fed Funds rate, so be cautious as this is another signal that near zero interest rates may be on the way out the door sooner rather than later.
Buys to Watch:
Crude Oil or Heating Oil- Both the Crude and Heating Oil have bullish cup and handle patterns, but I still believe that the Heating Oil is the stronger buy of the two as it posted larger gains again on Thursday. The Energy sector was strong out of the box on Thursday so any low volume buy zones below the market were not entered for optimum purchase. The Crude cup and handle pattern had a breakout of $83.36 and has a projection to $87.18 while the Heating Oil had a breakout of 215.63 cents with a projection to 225.13. Both markets are now battling with contract high closes and trade values which will provide temporary resistance. I do not have good nearby low volume entry zones in either of theses markets right now, but lower trade for a day or two could provide better long entry. For Crude there is a low volume zone from 83.72 to 84.10 with support from 83.30 to 83.50 and similarly in the Heating Oil there is a low volume zone from 217.45 to 218.70 with support from 215.70 to 217.40 (there is also a small zone in Heat from 221.85 to 221.95 if the market makes new lows today). With each market already completing over 2/3 of it's projection I do not place as strong of a buy on this trade right now and would recommend waiting for better entry than jumping in or using short term charts for long entry right now.
Copper- Copper has a small triangle continuation pattern that has a projection from $3.72 to $3.75. On Thursday Copper decisively made a new high close as open interest continued to sharply increase on the bullish breakout. The low volume buy zone that I described Thursday from 3.5740 to 3.5900 with support below to 3.5590 held nicely and provided good long entry. Today I have a small zone from 3.5860 to 3.5900 with support from 3.5670 to 3.5820, but this is not a very strong zone so I would recommend using a smaller position than you would normally use for entry at these levels. Copper continues to be the strength of the Metals and of Commodities, but as a note of caution, both Stochastics and RSI have travelled into overbought territory recently on the daily chart.
Silver- Silver has not performed as strong as I had expected, but the market finally has some open interest creeping back in so I am leaving this as a buy for today. The Gold to Silver ratio (Gold - Silver/2) continues to weaken on its downside breakout from consolidation showing Silver strength over the Gold. I originally had a projection of $18.65 on the breakout above $17.60 for silver, but am adjusting this to a projection range from $18.30 to 18.65 as it is very possible that this just a new leg up rather than a pattern breakout. There is a low volume buy zone for Silver from 17.75 to 17.825 today that was entered briefly overnight with support from 17.68 to 17.72. The support here is not as strong though because there is another low volume zone near the breakout from 17.60 to 17.64 below it. I believe that Copper is the stronger buy of the two, but if you feel strongly about buying Gold right now I would execute this trade in the Silver as it has better short term upside potential.
Sells to Watch:
Japanese Yen- The resistance levels given on Thursday did hold strong as the top of the range for the Yen and were followed by weakness Friday after the Unemployment report. The topping pattern on the Yen had a breakout of 108.60 with a projection to 104.10, which is over 2/3 completed. Above the market trade today I have a low volume sell zone from 106.04 to 106.32 with resistance above from 106.44 to 106.75. As with many of the other patterns I become less aggressive with my sell size as the market nears it's projection so I would lighten up on selling the Yen at this point. Note: Momentum indicators for the Yen are in extremely oversold territory right now after the large break.
Put on the Radar:
Gold- Gold has a large head and shoulders bottom that is forming on the daily chart. The breakout value today is $1136.1 and has a rally projection increase of $109.50 to $1245.6 today. While the gold does have strong momentum indicators currently it has been the laggard of the Metal sector. A move of this magnitude would have strongly bullish implications for the rest of Commodities and I do not have a strong belief that it will occur. I would use the neckline on the head and shoulders pattern as resistance for right now and use any bullish ideas in the Gold to execute in Silver or Copper for the time being.
Euro/Yen Cross- The YR symbol market on CQG has completed over half of the cup and handle breakout pattern from 125.13 to 129.26. The market is slightly weaker this morning, but still has good continuation prospects as the Yen continues to weaken on it's topping pattern. This Currency move has supported Commodities and Equities so take note as it nears it's projection for any loss of momentum that could indicate a shift in the overall bullishness of the market.
Notes:
Corn- May Corn has a bearish head and shoulders pattern on its daily chart with a breakout at $3.59 and a projection to $3.30 1/2. While the Corn is weak and is likely to continue to be a good sale I am not even sure that it is the weakest market in the Grain sector, which is why I have this trade placed in the Notes section. I still have a low volume zone above the market from $3.48 1/2 to 3.52 that was temporarily entered Thursday with resistance above from 3.52 to 3.54. The price value from $3.50 1/2 to $3.52 is the gap from the Wednesday reports bearish open and is a stronger sale.
Thursday, April 1, 2010
Thursday 4/1/10 Commodity Ideas
Opening Note:
While many traders may be checking out mentally with Passover underway, Easter approaching, and Butler fans pumped for the Final Four this weekend, the market is preparing for new money allocation and the Unemployment Report tomorrow as we begin the second quarter. I have believed for the last few months now that the Unemployment Report is less important in the larger recovery picture at this point and is playing second fiddle to the FOMC announcement later this month on April 28th. The last few Unemployment Reports have not impacted the market much based on the number, so unless there is an outlying surprise I believe that the Report should come and go tomorrow. With many of the always long Commodity Funds struggling to turn a profit this year there are reports that money is not flowing into them at the same rate and may begin to exit. Because of this I do not expect the same fury of money to flow into the market over the next few days that we have seen at the beginning of the month over the last year. Despite less new allocation it looks clear that both Energies and Metals are advancing on a moderate leg up with Heating Oil and Copper leading the way and the RBOB and Gold lagging. Equities have had low volatility over the last week in a sideways holding pattern that, for the first time in a long time, does not look strong. The Stock Indexes look primed to come under pressure over the next week if the money flow does not rally them to new highs. The Currency sector is kind of a wash right now and a difficult position trade as the Dollar Index, which a week ago looked bullish, looks like it may be ready to travel sideways for a bit longer. Finally, after a bearish report across the board that caught many longs off guard, the Grain sector looks like it will continue to weaken on a counter-seasonal trend this spring.
*Note: Despite the Unemployment Report tomorrow the Grains and many other markets will not be open because of Good Friday. Most of the high volume markets will be open tomorrow, but check the exchange websites for closings and plan accordingly if you intend to hold positions over the long weekend.
Buys to Watch:
Crude Oil or Heating Oil- Although the Crude is strong and usually on most people's radar the Heating Oil is the leader in the Energy sector right now. I know many people only trade the Crude and not it's products so I will give the Crude trade levels, but if you have not traded Heating Oil I recommend putting the two charts next to each other to compare and strongly consider executing in the Heat. The Crude has a double bottom (or W) pattern in motion right now that had a breakout of $83.36 and a projection to $87.18. I have a low volume zone for long entry in the Crude from acceleration on the European open overnight from 83.58 to 84.10 with support from 83.25 to 83.57. The Crude will encounter stronger resistance on the rally with the previous high contract close of 84.86, the psychological $85 level, and the high contract trade of 85.43. For Heating Oil the breakout on the same pattern was 215.63 cents with a projection to 225.13. If the market catches a break I have a low volume zone that correlates to the Crude levels from 217.45 to 218.70 with a larger support zone that ranges from 215.45 to 217.35. Resistance lies at the old high close of 221.87 and the high trade of 222.68 on it's way to 225 cents. I like the Heating Oil better right now because the Heat Crack spread also has a bullish pattern right now as it gains on the Crude. Also, the Heat has a similar bullish pattern as it continues to gain over the RBOB.
Copper- Copper has finally eclipsed the high trade resistance level at $3.55 and has a small triangle continuation pattern that projects from $3.72 to $3.75. I have a low volume zone to buy on a break from 3.5740 to 3.5900 that has support from 3.5590 to 3.5720. Below this support level there also is a small zone near the 3.55 breakout that could be a good buy opportunity. Open Interest in Copper continues to skyrocket on this breakout move and it continues to be the strength in the Metal sector, making it good buy.
Silver- As I have stated over the last few days, I am looking for a strong breakout rally for the Silver. After a few attempts at a rally above $17.60 the Silver finally has momentum this morning after it's open making it a buy. Both RSI and Stochastics momentum indicators remain positive for the market right now and the Gold to Silver ratio (Gold - Silver/2) is continuing a new leg down showing Silver strength. I am a little concerned however that Open Interest has not risen much lately in Silver like I had expected it to. The breakout for Silver was $17.60 and has a projection to $18.65. I have a low volume buy zone from $17.61 to 17.66 with support from 17.48 to 17.59, but after the strong opening rally this morning it is unlikely that it will reach these levels again. Stay tuned for more entry levels as they become clear.
Sells to Watch:
Japanese Yen- The breakout on the topping projection was 108.60 and has a projection to 104.10. While many of the currencies are sideways or unclear, the Yen is in a strong leg down right now and is the only Currency that I believe is in play. The market has resistance from 107.06 to 107.25 on the high end of it's range today for stop placement if you are already short. I do not have great sell entry points today so enter at your own risk or wait for better entry levels to emerge.
Put on the Radar:
Gold- Gold is the laggard of the Metal sector right now, but it looks to be potentially forming a large bottom head and shoulders pattern. Draw a neckline connecting the highs from January 11th and March 3rd to form the pattern. The breakout level on the pattern today is $1136.6 and will continue to decrease each day. Keep an eye on this pattern because if the Gold starts a strong bullish pattern as the weakest in the sector then Silver and Copper could be headed for all-time highs.
Euro/Yen Cross- I am a big fan of using the Euro/Yen cross as an indicator for Commodity and Equity strength. Right now the cross is in a bullish cup and handle pattern that should continue to support the market. Using the YR symbol CQG chart the breakout level of 125.13 has a projection to 129.26. Keep this on your radar screens as continuation means further support.
Notes:
Cocoa- Although Cocoa managed to close higher somehow yesterday and is slightly stronger today I am taking Cocoa off of my buys list. Yesterday's action was unnecessarily volatile on a downside move. Looking to catch a move of only $100 - $150 does not have a good risk/reward when you need to risk $80 - $100 to capture it, so I do not recommend executing this trade right now.
Corn- I did not put this as a sell today because the Corn break was not as strong as the other Grains and I still believe Wheat is the weakest in the Grain sector. The head and shoulders pattern on the May Corn has a projection to $3.30 1/2. I have a low volume sell zone from 3.48 1/2 to 3.52 with the portion from 3.50 1/2 to 3.52 being the gap from yesterday's 7:15 close to the open. There is stronger resistance above this from 3.52 to 3.54 for stop placement. Corn is not my favorite sale overall right now, but if you are just trading grains I think it is the best with beans in a range and Wheat having nearly met it's initial projection.
Wheat- Be cautious if you are still short Wheat. Yesterday was a smooth transition to lower prices on the day so there is not a good volume traded resistance level until $4.64. The market could have an easy time beginning a short covering rally.
While many traders may be checking out mentally with Passover underway, Easter approaching, and Butler fans pumped for the Final Four this weekend, the market is preparing for new money allocation and the Unemployment Report tomorrow as we begin the second quarter. I have believed for the last few months now that the Unemployment Report is less important in the larger recovery picture at this point and is playing second fiddle to the FOMC announcement later this month on April 28th. The last few Unemployment Reports have not impacted the market much based on the number, so unless there is an outlying surprise I believe that the Report should come and go tomorrow. With many of the always long Commodity Funds struggling to turn a profit this year there are reports that money is not flowing into them at the same rate and may begin to exit. Because of this I do not expect the same fury of money to flow into the market over the next few days that we have seen at the beginning of the month over the last year. Despite less new allocation it looks clear that both Energies and Metals are advancing on a moderate leg up with Heating Oil and Copper leading the way and the RBOB and Gold lagging. Equities have had low volatility over the last week in a sideways holding pattern that, for the first time in a long time, does not look strong. The Stock Indexes look primed to come under pressure over the next week if the money flow does not rally them to new highs. The Currency sector is kind of a wash right now and a difficult position trade as the Dollar Index, which a week ago looked bullish, looks like it may be ready to travel sideways for a bit longer. Finally, after a bearish report across the board that caught many longs off guard, the Grain sector looks like it will continue to weaken on a counter-seasonal trend this spring.
*Note: Despite the Unemployment Report tomorrow the Grains and many other markets will not be open because of Good Friday. Most of the high volume markets will be open tomorrow, but check the exchange websites for closings and plan accordingly if you intend to hold positions over the long weekend.
Buys to Watch:
Crude Oil or Heating Oil- Although the Crude is strong and usually on most people's radar the Heating Oil is the leader in the Energy sector right now. I know many people only trade the Crude and not it's products so I will give the Crude trade levels, but if you have not traded Heating Oil I recommend putting the two charts next to each other to compare and strongly consider executing in the Heat. The Crude has a double bottom (or W) pattern in motion right now that had a breakout of $83.36 and a projection to $87.18. I have a low volume zone for long entry in the Crude from acceleration on the European open overnight from 83.58 to 84.10 with support from 83.25 to 83.57. The Crude will encounter stronger resistance on the rally with the previous high contract close of 84.86, the psychological $85 level, and the high contract trade of 85.43. For Heating Oil the breakout on the same pattern was 215.63 cents with a projection to 225.13. If the market catches a break I have a low volume zone that correlates to the Crude levels from 217.45 to 218.70 with a larger support zone that ranges from 215.45 to 217.35. Resistance lies at the old high close of 221.87 and the high trade of 222.68 on it's way to 225 cents. I like the Heating Oil better right now because the Heat Crack spread also has a bullish pattern right now as it gains on the Crude. Also, the Heat has a similar bullish pattern as it continues to gain over the RBOB.
Copper- Copper has finally eclipsed the high trade resistance level at $3.55 and has a small triangle continuation pattern that projects from $3.72 to $3.75. I have a low volume zone to buy on a break from 3.5740 to 3.5900 that has support from 3.5590 to 3.5720. Below this support level there also is a small zone near the 3.55 breakout that could be a good buy opportunity. Open Interest in Copper continues to skyrocket on this breakout move and it continues to be the strength in the Metal sector, making it good buy.
Silver- As I have stated over the last few days, I am looking for a strong breakout rally for the Silver. After a few attempts at a rally above $17.60 the Silver finally has momentum this morning after it's open making it a buy. Both RSI and Stochastics momentum indicators remain positive for the market right now and the Gold to Silver ratio (Gold - Silver/2) is continuing a new leg down showing Silver strength. I am a little concerned however that Open Interest has not risen much lately in Silver like I had expected it to. The breakout for Silver was $17.60 and has a projection to $18.65. I have a low volume buy zone from $17.61 to 17.66 with support from 17.48 to 17.59, but after the strong opening rally this morning it is unlikely that it will reach these levels again. Stay tuned for more entry levels as they become clear.
Sells to Watch:
Japanese Yen- The breakout on the topping projection was 108.60 and has a projection to 104.10. While many of the currencies are sideways or unclear, the Yen is in a strong leg down right now and is the only Currency that I believe is in play. The market has resistance from 107.06 to 107.25 on the high end of it's range today for stop placement if you are already short. I do not have great sell entry points today so enter at your own risk or wait for better entry levels to emerge.
Put on the Radar:
Gold- Gold is the laggard of the Metal sector right now, but it looks to be potentially forming a large bottom head and shoulders pattern. Draw a neckline connecting the highs from January 11th and March 3rd to form the pattern. The breakout level on the pattern today is $1136.6 and will continue to decrease each day. Keep an eye on this pattern because if the Gold starts a strong bullish pattern as the weakest in the sector then Silver and Copper could be headed for all-time highs.
Euro/Yen Cross- I am a big fan of using the Euro/Yen cross as an indicator for Commodity and Equity strength. Right now the cross is in a bullish cup and handle pattern that should continue to support the market. Using the YR symbol CQG chart the breakout level of 125.13 has a projection to 129.26. Keep this on your radar screens as continuation means further support.
Notes:
Cocoa- Although Cocoa managed to close higher somehow yesterday and is slightly stronger today I am taking Cocoa off of my buys list. Yesterday's action was unnecessarily volatile on a downside move. Looking to catch a move of only $100 - $150 does not have a good risk/reward when you need to risk $80 - $100 to capture it, so I do not recommend executing this trade right now.
Corn- I did not put this as a sell today because the Corn break was not as strong as the other Grains and I still believe Wheat is the weakest in the Grain sector. The head and shoulders pattern on the May Corn has a projection to $3.30 1/2. I have a low volume sell zone from 3.48 1/2 to 3.52 with the portion from 3.50 1/2 to 3.52 being the gap from yesterday's 7:15 close to the open. There is stronger resistance above this from 3.52 to 3.54 for stop placement. Corn is not my favorite sale overall right now, but if you are just trading grains I think it is the best with beans in a range and Wheat having nearly met it's initial projection.
Wheat- Be cautious if you are still short Wheat. Yesterday was a smooth transition to lower prices on the day so there is not a good volume traded resistance level until $4.64. The market could have an easy time beginning a short covering rally.
Wednesday, March 31, 2010
Wednesday 3/31/10 Midday Update
Looking back over the newsletters for the last week I realize that I may not have properly stressed the risk of carrying Grain positions into reports. I apologize if there was any confusion or if you felt you were not properly warned as the report had a significant impact on the Grain market. Also, to clarify, all market suggestions and trade ideas were made this morning prior to analyzing the Grain report as any Grain analysis is likely not valid anymore.
You have most likely already looked at the report, but there obviously was very little bullish news to take from it. The old crop Soybean market was severely caught off guard this morning as bullish sentiment was building in the market going into the report. There was a tri-fecta of long covering on the open as money with long outright positions, beans vs. corn spreads, and old crop vs. new crop spreads scrambled to liquidate. This made for a very attractive short on the open in the May and July contracts if you came into the report flat Soybeans. The May contract already looks like it may have found support for the day, but there is stronger support from $9.23 1/2 to 9.27 near the lows of the range this month.
The July - November Soybean spread completely tanked on the open today as the stocks number was bearish against a prospective planting number that was near the average market prediction. Furthermore, there are rumors today that strides have already been made in resolving the Argentina strike situation. I do not see any reason to be bullish July-Nov anymore and would not recommend buying it because any potential further gains appear limited after the break.
For May Corn I still have a bearish head and shoulders pattern intact that has a projection to $3.30 1/2. I also have a continuation leg down projection for May Wheat to $4.48. Although the May Soybeans look disastrous the biggest story of the day is the break in Soy Meal. The Meal chart looked even better than the Soybeans, so it took most of the downside brunt on the long covering break opposed to the Bean Oil.
On important Grain report days in the future I intend on providing a market update after analyzing the reports prior to the open so any Grain trades and predictions are up to date. I will also give more ample risk warning leading up to the report so that more passive Grain traders are not caught off guard.
You have most likely already looked at the report, but there obviously was very little bullish news to take from it. The old crop Soybean market was severely caught off guard this morning as bullish sentiment was building in the market going into the report. There was a tri-fecta of long covering on the open as money with long outright positions, beans vs. corn spreads, and old crop vs. new crop spreads scrambled to liquidate. This made for a very attractive short on the open in the May and July contracts if you came into the report flat Soybeans. The May contract already looks like it may have found support for the day, but there is stronger support from $9.23 1/2 to 9.27 near the lows of the range this month.
The July - November Soybean spread completely tanked on the open today as the stocks number was bearish against a prospective planting number that was near the average market prediction. Furthermore, there are rumors today that strides have already been made in resolving the Argentina strike situation. I do not see any reason to be bullish July-Nov anymore and would not recommend buying it because any potential further gains appear limited after the break.
For May Corn I still have a bearish head and shoulders pattern intact that has a projection to $3.30 1/2. I also have a continuation leg down projection for May Wheat to $4.48. Although the May Soybeans look disastrous the biggest story of the day is the break in Soy Meal. The Meal chart looked even better than the Soybeans, so it took most of the downside brunt on the long covering break opposed to the Bean Oil.
On important Grain report days in the future I intend on providing a market update after analyzing the reports prior to the open so any Grain trades and predictions are up to date. I will also give more ample risk warning leading up to the report so that more passive Grain traders are not caught off guard.
Wednesday 3/31/10 Commodity Ideas
Opening Note:
Yesterday was a very quiet day volatility wise for the market and other than some Currency jiggles there was not much to report from yesterday. Overnight the market is moderately supportive thus far, with the Dollar Index down and Commodity markets firmer. The stock indexes are weaker than Commodities right now, which is a small emerging trend. After leading the way for much of the last two months Equities have lagged behind the other correlated markets despite supportive macro price movement. Right now I am keeping my eye closely on the Euro/Yen Cross Rate, which is a good indicator of macro market and Commodity direction. Using the YR symbol chart on CQG, the Euro/Yen has a bullish cup and handle pattern that has set off today on a rally above the sideways base from the last two months. The breakout on the pattern was 125.13 with a projection to 129.26. Looking at the individual pieces of this rate it appears that a bearish move in the Yen is the catalyst for this move with the Euro sitting in more uncertain sideways territory. This move is an indicator of strength for the overall market and especially for Commodities as they have a tighter correlation to the Currency market than Equities currently. Because of this move I recommend caution when trying to short the market for the next couple weeks. There are a number of bullish Commodity patterns right now, so I would focus on looking for momentum strength to buy and taking profits on decent moves as continuation is uncertain on the recent moves. The important Grain stocks and prospective plantings report is this morning at 7:30 as well, and the Grains will trade this news, so do not get caught in the dark.
Buys to Watch:
July - November Soybean Spread- Port and trucker strikes in Argentina have begun to spread, as was rumored over the last couple weeks. This fundamental news is very bullish the inter-crop spread at least for the short term and should support the technical double bottom pattern further. With a breakout from 40-45 cents the double bottom pattern has a projection range that has a projection range from 60 to 75 cents. Yesterday the spread settled well above the 50 cent resistance level and old school technicals dictate that a move above 50 leads to 75 cents. However, there is moderate resistance at the 60 cent level, so this is the next level to watch. I have a small low volume zone from 50 to 50 1/4 cents, which was entered as the bottom overnight, with stronger support from 47 to 49 for stop placement. Note: The stocks and prospective plantings report is this morning. A bullish stocks number is obviously supportive of the spread, but a supportive prospective plantings number could also continue the spread rally on its own. May Soybeans are on the cusp of a bullish cup and handle pattern this morning with a breakout of 9.76 1/2 and a projection to 10.11 1/4. Bullish report numbers should rally the outright market as well, leading the spread higher.
Cocoa- Like yesterday I still have two separate bullish cup and handle pattern breakout levels with differing projections. The more modest cup and handle had a breakout level of $2929 with a projection to $3076 and the larger pattern had a breakout of $2963 with a projection to $3144. Yesterday the market broke into the low volume buy zone that I was watching and found support in the overnight gap between 2940 and 2944, closing near the high of it's range yesterday. The market is again stronger this morning and with a higher close will confirm these patterns. I have a lower volume entry level from 2958 to 2966 from yesterday's action with mild support from 2951 to 2957 as well. While open interest has not had a huge spurt during this move it has increased on a trending scale during much of the formation of Cocoa's base over the last month. Stochastics momentum indicator has also confirmed the buy signal from two days ago as well.
Crude Oil (or Heating Oil)- Crude has a bullish double (or triple) bottom technical pattern on it's daily chart that has a breakout of $83.36 and a projection to $87.18. I believe that there are still a number of shorts in the market after last week's "commodity leg down" fake out, which is fueling the rally through short covering. Stochastics produced a buy signal on Monday, which was confirmed yesterday, and Open Interest appears to be increasing and falling with price as a sign of a strong bull market. I would wait for the breakout and possibly confirmation before entering a position. It is likely that if this move is to happen with conviction that it should happen today. The Heating Oil has a similar, and possibly stronger, chart than the Crude right now so this could be the same trade with some added edge as the RBOB looks weaker.
Sells to Watch:
Japanese Yen- The Yen has sat on the radar the last couple days, but is finally ripe for selling. The topping pattern that can most closely be associated with a double top had a breakout level of 108.60 with a projection to 104.10. Yesterday the Yen rallied just above the low volume sell zone from 108.30 to 108.50 into the resistance from 108.50 to 109.00, but topped at 108.60 before closing near it's lows. This morning the Yen again has rallied off of it's lows and I am watching the first low volume sell zone of 107.43 to 107.56 with greater resistance above from 107.60 to 107.82. A rally above this resistance takes the market into another low volume pocket from 107.86 to 107.92 with better resistance from 108.00 to 108.20. As I stated in the Opening Note the Euro/Yen cross is on a bullish pattern move now so the Yen should continue to weaken.
Put on the Radar:
Copper- Despite stronger Commodities this morning Copper is having difficulty holding prices above the old high contract trade of 355. The RSI momentum indicator is approaching overbought territory now showing some potential weakness in the product right now. Although it did settle above this level at 366.35 I would wait for further confirmation to look at buying this strength.
Silver- Although Copper is the strength in the Metal sector I am watching Silver for possible momentum on a short covering rally. Above $17.60 Silver has a projection to $18.65. Overnight the 17.60 breakout level was tested, but failed. Stochastics now has a confirmed buy signal in Silver from two days ago, but the Metals have been a tricky trade as of lat with many false patterns. Another encouraging indicator though is that the Gold versus Silver ration (Gold - Silver/2) has a downside move out of it's consolidation range indicating Silver strength. I am looking for a strong breakout on the pattern to buy the momentum and would hold off on executing a long if the move is not decisive.
Dollar Index- Although the Dollar had a nice rebound out of dangerous territory yesterday it has again given up overnight and sits on the precipice of negating it's third leg bullish continuation. The final support level is from 81.00 to 81.15 with a move below this support negating the 83.48 projection. I believe that if the Euro/Yen cross continues to rally that the Dollar will break into its range from the last two months.
Notes:
Five Year Note- With a rally this morning I am taking the 5 Year Note off of the sell list. It has sat in or just below the low volume zone from 114.215 to 114.245 and has finally rallied into higher resistance over a 4 day span. This no longer is a strong sell despite the bearish head and shoulders pattern as it has sat idle to higher for too long.
Yesterday was a very quiet day volatility wise for the market and other than some Currency jiggles there was not much to report from yesterday. Overnight the market is moderately supportive thus far, with the Dollar Index down and Commodity markets firmer. The stock indexes are weaker than Commodities right now, which is a small emerging trend. After leading the way for much of the last two months Equities have lagged behind the other correlated markets despite supportive macro price movement. Right now I am keeping my eye closely on the Euro/Yen Cross Rate, which is a good indicator of macro market and Commodity direction. Using the YR symbol chart on CQG, the Euro/Yen has a bullish cup and handle pattern that has set off today on a rally above the sideways base from the last two months. The breakout on the pattern was 125.13 with a projection to 129.26. Looking at the individual pieces of this rate it appears that a bearish move in the Yen is the catalyst for this move with the Euro sitting in more uncertain sideways territory. This move is an indicator of strength for the overall market and especially for Commodities as they have a tighter correlation to the Currency market than Equities currently. Because of this move I recommend caution when trying to short the market for the next couple weeks. There are a number of bullish Commodity patterns right now, so I would focus on looking for momentum strength to buy and taking profits on decent moves as continuation is uncertain on the recent moves. The important Grain stocks and prospective plantings report is this morning at 7:30 as well, and the Grains will trade this news, so do not get caught in the dark.
Buys to Watch:
July - November Soybean Spread- Port and trucker strikes in Argentina have begun to spread, as was rumored over the last couple weeks. This fundamental news is very bullish the inter-crop spread at least for the short term and should support the technical double bottom pattern further. With a breakout from 40-45 cents the double bottom pattern has a projection range that has a projection range from 60 to 75 cents. Yesterday the spread settled well above the 50 cent resistance level and old school technicals dictate that a move above 50 leads to 75 cents. However, there is moderate resistance at the 60 cent level, so this is the next level to watch. I have a small low volume zone from 50 to 50 1/4 cents, which was entered as the bottom overnight, with stronger support from 47 to 49 for stop placement. Note: The stocks and prospective plantings report is this morning. A bullish stocks number is obviously supportive of the spread, but a supportive prospective plantings number could also continue the spread rally on its own. May Soybeans are on the cusp of a bullish cup and handle pattern this morning with a breakout of 9.76 1/2 and a projection to 10.11 1/4. Bullish report numbers should rally the outright market as well, leading the spread higher.
Cocoa- Like yesterday I still have two separate bullish cup and handle pattern breakout levels with differing projections. The more modest cup and handle had a breakout level of $2929 with a projection to $3076 and the larger pattern had a breakout of $2963 with a projection to $3144. Yesterday the market broke into the low volume buy zone that I was watching and found support in the overnight gap between 2940 and 2944, closing near the high of it's range yesterday. The market is again stronger this morning and with a higher close will confirm these patterns. I have a lower volume entry level from 2958 to 2966 from yesterday's action with mild support from 2951 to 2957 as well. While open interest has not had a huge spurt during this move it has increased on a trending scale during much of the formation of Cocoa's base over the last month. Stochastics momentum indicator has also confirmed the buy signal from two days ago as well.
Crude Oil (or Heating Oil)- Crude has a bullish double (or triple) bottom technical pattern on it's daily chart that has a breakout of $83.36 and a projection to $87.18. I believe that there are still a number of shorts in the market after last week's "commodity leg down" fake out, which is fueling the rally through short covering. Stochastics produced a buy signal on Monday, which was confirmed yesterday, and Open Interest appears to be increasing and falling with price as a sign of a strong bull market. I would wait for the breakout and possibly confirmation before entering a position. It is likely that if this move is to happen with conviction that it should happen today. The Heating Oil has a similar, and possibly stronger, chart than the Crude right now so this could be the same trade with some added edge as the RBOB looks weaker.
Sells to Watch:
Japanese Yen- The Yen has sat on the radar the last couple days, but is finally ripe for selling. The topping pattern that can most closely be associated with a double top had a breakout level of 108.60 with a projection to 104.10. Yesterday the Yen rallied just above the low volume sell zone from 108.30 to 108.50 into the resistance from 108.50 to 109.00, but topped at 108.60 before closing near it's lows. This morning the Yen again has rallied off of it's lows and I am watching the first low volume sell zone of 107.43 to 107.56 with greater resistance above from 107.60 to 107.82. A rally above this resistance takes the market into another low volume pocket from 107.86 to 107.92 with better resistance from 108.00 to 108.20. As I stated in the Opening Note the Euro/Yen cross is on a bullish pattern move now so the Yen should continue to weaken.
Put on the Radar:
Copper- Despite stronger Commodities this morning Copper is having difficulty holding prices above the old high contract trade of 355. The RSI momentum indicator is approaching overbought territory now showing some potential weakness in the product right now. Although it did settle above this level at 366.35 I would wait for further confirmation to look at buying this strength.
Silver- Although Copper is the strength in the Metal sector I am watching Silver for possible momentum on a short covering rally. Above $17.60 Silver has a projection to $18.65. Overnight the 17.60 breakout level was tested, but failed. Stochastics now has a confirmed buy signal in Silver from two days ago, but the Metals have been a tricky trade as of lat with many false patterns. Another encouraging indicator though is that the Gold versus Silver ration (Gold - Silver/2) has a downside move out of it's consolidation range indicating Silver strength. I am looking for a strong breakout on the pattern to buy the momentum and would hold off on executing a long if the move is not decisive.
Dollar Index- Although the Dollar had a nice rebound out of dangerous territory yesterday it has again given up overnight and sits on the precipice of negating it's third leg bullish continuation. The final support level is from 81.00 to 81.15 with a move below this support negating the 83.48 projection. I believe that if the Euro/Yen cross continues to rally that the Dollar will break into its range from the last two months.
Notes:
Five Year Note- With a rally this morning I am taking the 5 Year Note off of the sell list. It has sat in or just below the low volume zone from 114.215 to 114.245 and has finally rallied into higher resistance over a 4 day span. This no longer is a strong sell despite the bearish head and shoulders pattern as it has sat idle to higher for too long.
Tuesday, March 30, 2010
Tuesday 3/30/10 Commodity Ideas
Opening Note:
Yesterday was an interesting day for the strength of commodities and foreign currencies, but the lack of volatility in Equities and the yield curve stood out as odd with a market that was in motion. Much of the commodity strength was likely based on short covering rallies. Early last week I was on the commodity leg down bandwagon as well, so it is understandable to me that there were still a lot of shorts out there waiting on a Metal or Energy break. The weakness of the Dollar also fed into this rally. However, this Commodity and Currency move should have supported Equity prices more than it did. The stock indexes continue to post small gains on higher closes, but I have been skeptical of the continuation of this trend for a while now as we approach nearly two straight months of the same action. Keep an eye on the Commodity versus Equity sector relationship to see if stronger Commodities than Equities is an emerging trend. This relationship could be an indicator for market direction as the new quarter and allocation begin. The new leg up on the Dollar Index has now come under serious pressure as it needs to have a rally rebound soon if it is to continue. With the European Currencies trading the daily restructuring news and the Aussie and Canadian strength on Commodities I recommend sitting out of the Currency sector for the time being until things become more clear on a Dollar Index leg up. With all of this taken into account I am still expecting sideways to firmer trade across the market. With Copper, Silver, and Crude rejecting bearish patterns and now on the precipice of larger rally breakouts, and old crop Soybeans and other Food products showing bottom reversal strength, I believe Commodities have more short covering rally potential and should show strength for the next few days.
Buys to Watch:
July - November Soybean Spread- The Soybean spread continued to show strength yesterday with a breakout above the 45 cent level and a close of 49 cents that tested the high close since last summer of 49 1/4 cents from December 15th. Fundamental news of South American strike rumors has been quiet lately, but technically the chart is very strong. The double bottom pattern with a projection range from 60 to 75 cents is now in motion with a close above 45 cents yesterday and is looking for confirmation on another higher close today. The 50 cent level now stands as resistance in the face of a rally with the next level of resistance at 60 cents. Old school wisdom usually says July - Nov above 50 cents means 75 cents though, so this is likely the spread's destination if it clears the 60 cent resistance. I have a tiny low volume area at 44 3/4 and 45 cents for a place of entry on a pullback with greater support from 42 to 44 1/2. Note: Keep an eye on the old crop (May and July) Soybean outright charts. They appear to have a potential bottom to rally off of that would support the spread, but likely will not breakout until after tomorrow's report.
Cocoa- After sitting in a sideways range for nearly a month Cocoa finally looks like it has formed a base and is rallying to new highs above it's cup and handle breakout. I have two separate pattern breakouts and projections for the May contract right now based off the high close day of the range and the high trade, so there is a range of projections. The high close cup and handle pattern's breakout is $2929 with a projection to $3076 and the high trade pattern's breakout is $2963 with a projection to $3144. This provides a projection range from $3076 to 3144. Stochastics momentum indicator produced a buy signal yesterday, which is looking for confirmation today on higher trade. Also, similarly to the Copper market that had a rally explosion yesterday, open interest has steadily climbed throughout this month long base indicating a coiling of momentum. I have a low volume pullback buy zone from 2925 to 2945 with a small trade gap between 2940 and 2944 and with support from 2920 to 2890 for stop placement. You can also look at the minor support on the intraday chart today from 2950 to 2960 if you feel that the earlier pullback will not be achieved.
Sells to Watch:
Five Year Note- After establishing it's bearish head and shoulders pattern last week the Five Year has basically been a sleeper since. Entering it's third consolidation day after rejecting lower prices I believe that the market needs to continue lower by tomorrow or I will abandon the trade. The head and shoulders pattern had a breakout level of 115.01 with a projection to 113.21. The market has again entered the low volume sell zone today between 114.215 and 114.245 with stronger resistance above from 114.25 to 114.295. I would be tempted to just place my stop above the 114.25 level to limit the trade to a small loss if it trades above yesterday's action, but still have good reward if the market finally starts to break today.
Put on the Radar:
Buy Copper- Copper is now the obvious leader in the Metal sector and arguably the leader of all Commodities. Yesterday's close of 353.55 is the new high close for the May contract. The bullish cup and handle pattern has now reached it's projection of 355.15 this morning on a stop running rally to new contract highs above 355. I recommend taking profits on this trade now, but keeping it on your radar now as it is possible that market strength continues with more short covering potential. The previous high trade was 355 so I would look at a close above this level as continuation on a new leg and to look for long reentry spots. This is also a good indicator of Commodity direction as the leader.
Buy Silver- Despite Copper being the leader in the Metals I still have my eye on Silver because it could have strong short covering rally potential. Gold had a pretty dull day yesterday with a gain of only $6, but Silver closed with gains of nearly 50 cents. The Gold versus Silver ratio (Gold - Silver/2) had a breakout below consolidation displaying further Silver strength, and therefore Commodity strength in my opinion, as Silver has more volatility on Commodity sector moves. Open interest has also trended upwards on the sideways action with another strong gain yesterday displaying a coiling of momentum. I am weary of the Silver because it has been tricky with a number of bullish and bearish breakout attempts so I would look for a strong breakout on a short covering rally to buy the Silver. I am focusing on the $17.60 level at the top of this month's range, which has a projection to $18.65. This last shoulder is also awkward with a larger dip so the projection level is not as likely to be reached as most cases.
Dollar Index- The Dollar Index has it's final strong support from 81.15 to 81.00. I would take a break in the market below 81.00 as a sign that the Dollar is not continuing on a third leg up and rather heading back into the range that it traded for nearly the last two months. While you could get great value and risk/reward buying against this support I would recommend waiting for some signs of strength before looking to get long. With Commodities showing signs of strength it is fundamentally feasible that the Dollar weakens back into a range trade. The third leg up has a projection to 83.48 if it continues.
Notes:
Sugar and Coffee- Both Sugar and Coffee look like they have rally potential. The Sugar has a reversal cup and handle pattern breakout that it traded above this morning, but has subsequently failed. The small pattern breakout is 17.91 with a projection to 19.40. I do not know how to properly describe the Coffee chart right now, but the new leg on the base looks kind of like a parabola, or a market that creeps up exponentially. I would look to buy these markets rather than sell them now.
Yesterday was an interesting day for the strength of commodities and foreign currencies, but the lack of volatility in Equities and the yield curve stood out as odd with a market that was in motion. Much of the commodity strength was likely based on short covering rallies. Early last week I was on the commodity leg down bandwagon as well, so it is understandable to me that there were still a lot of shorts out there waiting on a Metal or Energy break. The weakness of the Dollar also fed into this rally. However, this Commodity and Currency move should have supported Equity prices more than it did. The stock indexes continue to post small gains on higher closes, but I have been skeptical of the continuation of this trend for a while now as we approach nearly two straight months of the same action. Keep an eye on the Commodity versus Equity sector relationship to see if stronger Commodities than Equities is an emerging trend. This relationship could be an indicator for market direction as the new quarter and allocation begin. The new leg up on the Dollar Index has now come under serious pressure as it needs to have a rally rebound soon if it is to continue. With the European Currencies trading the daily restructuring news and the Aussie and Canadian strength on Commodities I recommend sitting out of the Currency sector for the time being until things become more clear on a Dollar Index leg up. With all of this taken into account I am still expecting sideways to firmer trade across the market. With Copper, Silver, and Crude rejecting bearish patterns and now on the precipice of larger rally breakouts, and old crop Soybeans and other Food products showing bottom reversal strength, I believe Commodities have more short covering rally potential and should show strength for the next few days.
Buys to Watch:
July - November Soybean Spread- The Soybean spread continued to show strength yesterday with a breakout above the 45 cent level and a close of 49 cents that tested the high close since last summer of 49 1/4 cents from December 15th. Fundamental news of South American strike rumors has been quiet lately, but technically the chart is very strong. The double bottom pattern with a projection range from 60 to 75 cents is now in motion with a close above 45 cents yesterday and is looking for confirmation on another higher close today. The 50 cent level now stands as resistance in the face of a rally with the next level of resistance at 60 cents. Old school wisdom usually says July - Nov above 50 cents means 75 cents though, so this is likely the spread's destination if it clears the 60 cent resistance. I have a tiny low volume area at 44 3/4 and 45 cents for a place of entry on a pullback with greater support from 42 to 44 1/2. Note: Keep an eye on the old crop (May and July) Soybean outright charts. They appear to have a potential bottom to rally off of that would support the spread, but likely will not breakout until after tomorrow's report.
Cocoa- After sitting in a sideways range for nearly a month Cocoa finally looks like it has formed a base and is rallying to new highs above it's cup and handle breakout. I have two separate pattern breakouts and projections for the May contract right now based off the high close day of the range and the high trade, so there is a range of projections. The high close cup and handle pattern's breakout is $2929 with a projection to $3076 and the high trade pattern's breakout is $2963 with a projection to $3144. This provides a projection range from $3076 to 3144. Stochastics momentum indicator produced a buy signal yesterday, which is looking for confirmation today on higher trade. Also, similarly to the Copper market that had a rally explosion yesterday, open interest has steadily climbed throughout this month long base indicating a coiling of momentum. I have a low volume pullback buy zone from 2925 to 2945 with a small trade gap between 2940 and 2944 and with support from 2920 to 2890 for stop placement. You can also look at the minor support on the intraday chart today from 2950 to 2960 if you feel that the earlier pullback will not be achieved.
Sells to Watch:
Five Year Note- After establishing it's bearish head and shoulders pattern last week the Five Year has basically been a sleeper since. Entering it's third consolidation day after rejecting lower prices I believe that the market needs to continue lower by tomorrow or I will abandon the trade. The head and shoulders pattern had a breakout level of 115.01 with a projection to 113.21. The market has again entered the low volume sell zone today between 114.215 and 114.245 with stronger resistance above from 114.25 to 114.295. I would be tempted to just place my stop above the 114.25 level to limit the trade to a small loss if it trades above yesterday's action, but still have good reward if the market finally starts to break today.
Put on the Radar:
Buy Copper- Copper is now the obvious leader in the Metal sector and arguably the leader of all Commodities. Yesterday's close of 353.55 is the new high close for the May contract. The bullish cup and handle pattern has now reached it's projection of 355.15 this morning on a stop running rally to new contract highs above 355. I recommend taking profits on this trade now, but keeping it on your radar now as it is possible that market strength continues with more short covering potential. The previous high trade was 355 so I would look at a close above this level as continuation on a new leg and to look for long reentry spots. This is also a good indicator of Commodity direction as the leader.
Buy Silver- Despite Copper being the leader in the Metals I still have my eye on Silver because it could have strong short covering rally potential. Gold had a pretty dull day yesterday with a gain of only $6, but Silver closed with gains of nearly 50 cents. The Gold versus Silver ratio (Gold - Silver/2) had a breakout below consolidation displaying further Silver strength, and therefore Commodity strength in my opinion, as Silver has more volatility on Commodity sector moves. Open interest has also trended upwards on the sideways action with another strong gain yesterday displaying a coiling of momentum. I am weary of the Silver because it has been tricky with a number of bullish and bearish breakout attempts so I would look for a strong breakout on a short covering rally to buy the Silver. I am focusing on the $17.60 level at the top of this month's range, which has a projection to $18.65. This last shoulder is also awkward with a larger dip so the projection level is not as likely to be reached as most cases.
Dollar Index- The Dollar Index has it's final strong support from 81.15 to 81.00. I would take a break in the market below 81.00 as a sign that the Dollar is not continuing on a third leg up and rather heading back into the range that it traded for nearly the last two months. While you could get great value and risk/reward buying against this support I would recommend waiting for some signs of strength before looking to get long. With Commodities showing signs of strength it is fundamentally feasible that the Dollar weakens back into a range trade. The third leg up has a projection to 83.48 if it continues.
Notes:
Sugar and Coffee- Both Sugar and Coffee look like they have rally potential. The Sugar has a reversal cup and handle pattern breakout that it traded above this morning, but has subsequently failed. The small pattern breakout is 17.91 with a projection to 19.40. I do not know how to properly describe the Coffee chart right now, but the new leg on the base looks kind of like a parabola, or a market that creeps up exponentially. I would look to buy these markets rather than sell them now.
Monday, March 29, 2010
Monday 3/29/10 Commodity Ideas
Opening Note:
Following a quiet day on Friday other than the currencies, the market is firmer this morning with a supportive foreign currency rally leading Commodities and Equities higher. One thing that is clear to me is that the broad Commodity sector is not heading towards a correlated leg down right now. While it appeared early last week that bearish patterns in the Metal sector could be the leader down on a weaker market, they have corrected the last 3 days, rallying back into their sideways range for the last month. As the quarter comes to an end over the last three days I suspect that the market will trade sideways to slightly higher as it is unlikely that a strong leg down will begin. Starting Thursday there will likely be some new allocation and position adjustment, which should hopefully shake up this sideways action. Many of the inter-sector correlations throughout the market are not too active, so I do not see a lot of profitable spreads between outright products across the market currently. However, there are some individual outright markets with patterns and pullbacks for entry right now. Repeating what I said Friday, I believe that looking for half day and 1 day trades and taking profits once you catch a decent sized move are the best strategies right now. Much of the market is sitting in a range trade with tomorrow often looking different than today, so do not expect large continuation moves in this environment.
Buys to Watch:
Copper- Copper was in this buy section on Friday, but could not gather the momentum to rally above it's breakout last week. This was a different story overnight though with a strong move after the open setting the market in motion. The bullish cup and handle pattern has a breakout of 343.60 with a projection to 355.15. There is low volume buy zone from 344.30 to 345.40 with mild support below to the breakout level for entry on a pullback. The first level of resistance is 348.70 from the high of the recent range on March 1st, which was eclipsed as I am writing this just prior to 7 am. Technically the market has a number of qualities that make it an attractive buy. Stochastics provided a buy signal on Friday, which should be further confirmed today on the strong action. Furthermore, open interest continues to climb, showing a "coiling of momentum" over the sideways action, with a 3% increase on Friday to just under a total of 140,000 contracts. The projection of the pattern is right to the previous contract highs and after being a strength for much of last year Copper could have the momentum to slingshot above these levels to regain it's Commodity leader qualities.
July - November Soybean Spread- After a strong rejection on the breakout attempt on Thursday the market recovered nicely Friday and is firmer overnight as well. Fundamentally based on South American labor strikes and exporting inefficiency and strong Chinese demand, the spread has a technical double bottom with a breakout between 40 and 45 cents with a projection zone from 60 to 75 cents. Before finding strength on Friday the spread briefly pulled back into the low volume zone I was looking for between 33 1/2 and 35 cents. I look at the brief entry and support at these levels as another sign of continued strength. Sitting around 44 cents currently there is support from 40 1/4 to 42 cents. However, there is a low volume zone from 38 1/2 to 40 cents for an opportunity to buy a dip in the spread. A close above 45 cents is strictly a go with move with the next temporary resistance level at 50 cents on it's rally to the projection.
Dollar Index- After a weak day Friday and a lower open yesterday evening the Dollar Index has pulled back into the low volume zone I have had my eye on for the last several trading sessions. The 3rd leg up has an estimate final projection of 83.48. This current low volume zone sits between 81.49 and 81.63 with medium support below from 81.48 to 81.40, which has supported the market thus far today. Be cautious of this trade though because below 81.37 there is another low volume area that does not have strong support until 81.15. Although it is a strong one this is still just a 2 day pullback for the market and I expect it to continue a rally from these levels towards it's third leg projection.
Sells to Watch:
Five Year Note- The Five Year Note has been quiet the last few days after breaking out on it's bearish head and shoulders pattern, but has finally rallied into the low volume zone I have had my eye on. The head and shoulders pattern had a breakout of 115.01 with a projection to 113.21 with the neckline of the pattern sitting at 115.03 today. The low volume zone between 114.215 and 114.245 with resistance above from 114.25 to 114.295 was briefly entered on this morning's highs. While the 10 Year and Bonds both also have bearish projections presently, the Five Year has been the most consistent with less volatile swings. The Bonds have acted as the tail on a large yield curve swing and is therefore less predictable in my opinion, so I recommend executing a short in the Five Year still.
Put on the Radar:
Euro- I have more confidence in the Dollar Index trade right now, so I am keeping the Euro on the radar for right now. As I warned on Friday, the market rallied all the way back to the 1.35 level after rallying above 1.3430. There is stronger resistance at and just above 1.35 to enter a short position against. The Euro still remains broken out on a bearish leg down that has a rough estimate projection to 1.2750. The Euro is not particularly strong this morning with the Aussie and Canadian having much larger percentage gains so far, so I still believe that it is a decent shot to sell at this previous breakout level with the expectation that the leg down continues.
Japanese Yen- Slightly under the radar compared to the Euro, the Yen may actually be the better sell. It is very quiet thus far today, but has not had the same rally pullback as the other currencies over the last two days and has a bearish pattern intact. The breakout below 108.60 on the double top pattern has a projection to 104.10. There is a good low volume sell zone between 108.30 and 108.50 with resistance above from 108.50 to 109.00 that was entered both Friday and overnight Note: Because the Japanese Yen has an interest rate related carry trade, where you can borrow cheaper in Japan and invest for a higher rate of return elsewhere, I have noticed an interesting correlation that is very strong right now. The Japanese Yen has an artificial boundary top around the 115 level where the government has repeatedly intervened to devalue the currency. Taking this into account put the Japanese Yen and Five Year chart up side by side and compare. They are nearly identical lately. With the Five Year in a bearish head and shoulders pattern you can use it as an indicator right now for Yen movement with a continuation in the 5 likely leading the Yen further down.
Sugar- Sugar looks like it might have found a bottom after the large-scale collapse over the last month and a half. I would hold off on entry for the time being, but keep it on your radar because there are good prospects for a sizable rally correction.
Notes: (We can just call this the grain section today)
Corn- With the stocks and prospective plantings report release on Wednesday and a supportive macro market I am concerned that the Corn will not continue it's bearish head and shoulders pattern. The breakout level was 3.59 and provides a projection to 3.30 1/2 with the neckline sitting at 3.58 1/2 today on the pattern. The Corn does not have a good resistance level until just above 3.60, so I believe that it will likely test these levels and likely will not have the catalyst to break further prior to the report.
Bean Oil- The flag pattern on the daily chart has a projection to 37.63 with the breakout line on the pattern at 39.35 today. Like the Corn I am not to keen on the prospects of continuation in the market prior to the report. There is resistance above the current market from 39.28 to 39.33, which could be a decent short term fade, but I would not position for a long term trade currently prior to the report Wednesday.
Soybeans- After the large down day Thursday the Soybeans have continually strengthened into this morning. The market finally has rallied to the first decent resistance level from 9.60 to 9.64, which could be a decent short term fade against these levels today.
Following a quiet day on Friday other than the currencies, the market is firmer this morning with a supportive foreign currency rally leading Commodities and Equities higher. One thing that is clear to me is that the broad Commodity sector is not heading towards a correlated leg down right now. While it appeared early last week that bearish patterns in the Metal sector could be the leader down on a weaker market, they have corrected the last 3 days, rallying back into their sideways range for the last month. As the quarter comes to an end over the last three days I suspect that the market will trade sideways to slightly higher as it is unlikely that a strong leg down will begin. Starting Thursday there will likely be some new allocation and position adjustment, which should hopefully shake up this sideways action. Many of the inter-sector correlations throughout the market are not too active, so I do not see a lot of profitable spreads between outright products across the market currently. However, there are some individual outright markets with patterns and pullbacks for entry right now. Repeating what I said Friday, I believe that looking for half day and 1 day trades and taking profits once you catch a decent sized move are the best strategies right now. Much of the market is sitting in a range trade with tomorrow often looking different than today, so do not expect large continuation moves in this environment.
Buys to Watch:
Copper- Copper was in this buy section on Friday, but could not gather the momentum to rally above it's breakout last week. This was a different story overnight though with a strong move after the open setting the market in motion. The bullish cup and handle pattern has a breakout of 343.60 with a projection to 355.15. There is low volume buy zone from 344.30 to 345.40 with mild support below to the breakout level for entry on a pullback. The first level of resistance is 348.70 from the high of the recent range on March 1st, which was eclipsed as I am writing this just prior to 7 am. Technically the market has a number of qualities that make it an attractive buy. Stochastics provided a buy signal on Friday, which should be further confirmed today on the strong action. Furthermore, open interest continues to climb, showing a "coiling of momentum" over the sideways action, with a 3% increase on Friday to just under a total of 140,000 contracts. The projection of the pattern is right to the previous contract highs and after being a strength for much of last year Copper could have the momentum to slingshot above these levels to regain it's Commodity leader qualities.
July - November Soybean Spread- After a strong rejection on the breakout attempt on Thursday the market recovered nicely Friday and is firmer overnight as well. Fundamentally based on South American labor strikes and exporting inefficiency and strong Chinese demand, the spread has a technical double bottom with a breakout between 40 and 45 cents with a projection zone from 60 to 75 cents. Before finding strength on Friday the spread briefly pulled back into the low volume zone I was looking for between 33 1/2 and 35 cents. I look at the brief entry and support at these levels as another sign of continued strength. Sitting around 44 cents currently there is support from 40 1/4 to 42 cents. However, there is a low volume zone from 38 1/2 to 40 cents for an opportunity to buy a dip in the spread. A close above 45 cents is strictly a go with move with the next temporary resistance level at 50 cents on it's rally to the projection.
Dollar Index- After a weak day Friday and a lower open yesterday evening the Dollar Index has pulled back into the low volume zone I have had my eye on for the last several trading sessions. The 3rd leg up has an estimate final projection of 83.48. This current low volume zone sits between 81.49 and 81.63 with medium support below from 81.48 to 81.40, which has supported the market thus far today. Be cautious of this trade though because below 81.37 there is another low volume area that does not have strong support until 81.15. Although it is a strong one this is still just a 2 day pullback for the market and I expect it to continue a rally from these levels towards it's third leg projection.
Sells to Watch:
Five Year Note- The Five Year Note has been quiet the last few days after breaking out on it's bearish head and shoulders pattern, but has finally rallied into the low volume zone I have had my eye on. The head and shoulders pattern had a breakout of 115.01 with a projection to 113.21 with the neckline of the pattern sitting at 115.03 today. The low volume zone between 114.215 and 114.245 with resistance above from 114.25 to 114.295 was briefly entered on this morning's highs. While the 10 Year and Bonds both also have bearish projections presently, the Five Year has been the most consistent with less volatile swings. The Bonds have acted as the tail on a large yield curve swing and is therefore less predictable in my opinion, so I recommend executing a short in the Five Year still.
Put on the Radar:
Euro- I have more confidence in the Dollar Index trade right now, so I am keeping the Euro on the radar for right now. As I warned on Friday, the market rallied all the way back to the 1.35 level after rallying above 1.3430. There is stronger resistance at and just above 1.35 to enter a short position against. The Euro still remains broken out on a bearish leg down that has a rough estimate projection to 1.2750. The Euro is not particularly strong this morning with the Aussie and Canadian having much larger percentage gains so far, so I still believe that it is a decent shot to sell at this previous breakout level with the expectation that the leg down continues.
Japanese Yen- Slightly under the radar compared to the Euro, the Yen may actually be the better sell. It is very quiet thus far today, but has not had the same rally pullback as the other currencies over the last two days and has a bearish pattern intact. The breakout below 108.60 on the double top pattern has a projection to 104.10. There is a good low volume sell zone between 108.30 and 108.50 with resistance above from 108.50 to 109.00 that was entered both Friday and overnight Note: Because the Japanese Yen has an interest rate related carry trade, where you can borrow cheaper in Japan and invest for a higher rate of return elsewhere, I have noticed an interesting correlation that is very strong right now. The Japanese Yen has an artificial boundary top around the 115 level where the government has repeatedly intervened to devalue the currency. Taking this into account put the Japanese Yen and Five Year chart up side by side and compare. They are nearly identical lately. With the Five Year in a bearish head and shoulders pattern you can use it as an indicator right now for Yen movement with a continuation in the 5 likely leading the Yen further down.
Sugar- Sugar looks like it might have found a bottom after the large-scale collapse over the last month and a half. I would hold off on entry for the time being, but keep it on your radar because there are good prospects for a sizable rally correction.
Notes: (We can just call this the grain section today)
Corn- With the stocks and prospective plantings report release on Wednesday and a supportive macro market I am concerned that the Corn will not continue it's bearish head and shoulders pattern. The breakout level was 3.59 and provides a projection to 3.30 1/2 with the neckline sitting at 3.58 1/2 today on the pattern. The Corn does not have a good resistance level until just above 3.60, so I believe that it will likely test these levels and likely will not have the catalyst to break further prior to the report.
Bean Oil- The flag pattern on the daily chart has a projection to 37.63 with the breakout line on the pattern at 39.35 today. Like the Corn I am not to keen on the prospects of continuation in the market prior to the report. There is resistance above the current market from 39.28 to 39.33, which could be a decent short term fade, but I would not position for a long term trade currently prior to the report Wednesday.
Soybeans- After the large down day Thursday the Soybeans have continually strengthened into this morning. The market finally has rallied to the first decent resistance level from 9.60 to 9.64, which could be a decent short term fade against these levels today.
Friday, March 26, 2010
Friday 3/26/10 Commodity Ideas
Opening Note:
Following a moderate Commodity and stronger Equity rally coming into yesterday many markets gave up all of their gains later in the day on bearish European rumors. However, this morning after the (not greatly bullish) Greece recovery plan announcement many Commodity markets are already battling with their highs from yesterday. The Euro and Metal sector have already rallied above yesterday's highs today, which leaves me less confident that a broad Commodity leg down is in process. The prospects for this new leg down were led by breakouts in the Dollar Index and Euro. The Metal sector has been more highly correlated to the Currencies over the last week and a half, so I believe that their failure to break in conjunction with the Euro move is an indicator that Commodities are not heading for an overall down move. Fundamentally bearish news appears to have finally caught up with the Grain sector after the European catalyst yesterday, but I am skeptical right now of their lower continuation prospects prior to the report on Tuesday. Despite an ugly looking candlestick yesterday I believe that Equities are still the best sector to buy and should continue to rally, with the prospect of a strong recovery rally today heading into the weekend. This paragraph seems like a bit of a jumble to me because I believe that the market action is a all over right now and we could see some sideways to higher action coming in the next week. I recommend looking for 1 day trades for right now and focusing on taking profits when you catch a decent sized move.
Buys to Watch:
Copper- Technically the Copper has a bullish cup and handle pattern that is approaching it's breakout of 343.60 with a projection to 355.15, but it is the relationship movement and nuances of the market right now that make this trade more attractive. While Gold and Silver both set off bearish patterns this week Copper has resisted, sitting in a sideways (almost coiling) pattern. During this time Open Interest has significantly rallied, increasing almost 9,000 contracts since March 19th to over 138,000 total after yesterday's close. Stochastics has sat in a tight downward channel for the last week and a half, but just on the verge of producing a buy signal with a strong day up. Throughout last year Copper was one of the strongest commodities while it kept pace with Equities and often out-performed them. However, over the last month the Copper has traded mostly sideways to down. I believe that with a strong rally it has explosive potential that could quickly lead it back to the contract highs near 355 as it attempts to reestablish it's relationship with Equities.
Dollar Index- Despite being down overnight on the Euro's knee jerk Greece reaction, the Dollar Index still has a very strong chart withe a new rally leg projection of 83.48. I do not have a good buy entry point right now for the market other than the low volume area from 81.63 to 81.49, but would not recommend buying a break to these levels for today on such a strong move. Instead I would focus on a 15 or 60 minute chart for support and momentum on entry. There is good support near the lows overnight from 81.95 to 81.90 so I would use this area for stop placement and take liquidate below these levels.
Sells to Watch:
5 Year Note: The Head and Shoulders Pattern on the 5 Year has a projection to 113.21, which is nearly 50% complete at the time being. The low volume sell zone I indicated yesterday from 114.215 to 114.245 was just above yesterday's highs, so I believe that a rally to these levels is still a good sale with resistance above from 114.25 to 114.295 for stop placement. The 10 Year and Bonds also have bearish patterns in motion right now, but they have acted much more volatile the last few days so I have the most confidence in the 5 Year right now for continuation.
Euro- The Euro had a strong knee-jerk reaction to the Greece announcement this morning, but I believe that it has likely put in it's high for today and should continue to deflate. I have a low volume zone that was reached this morning from 1.3392 to 1.3400 with resistance above from 1.3410 to 1.3430. Above these levels I would liquidate the trade as it is likely to rally back to the 1.3500 breakout level. The third leg down still has a projection to 1.2750.
Put on the Radar:
Japanese Yen- With all of the talk about the Euro lately the Japanese Yen has flown under the radar despite having a huge break on Wednesday as well. The Yen's chart looking at just the last 3 days is actually the most bearish of any of the Currencies, with little rally recovery. There is a low volume zone form 108.28 to 108.46 that set today's high thus far with greater resistance above it from 108.58 to 109.00. Below the 108.60 breakout level there is an awkward double top-like pattern that has a projection to roughly 104.10. This market is acting the easiest to trade and hold downside moves in right now, so it could potentially be a better sale than the Euro.
Corn- The unexpected 10 cent break in May Corn yesterday set off a bearish head and shoulders pattern below $3.59 that has a projection to $3.30 1/2. I believed that the break would likely come after the stocks and plantings report on the 31st, but overall market pressure aided the break yesterday. Because the breakout was on acceleration into the close there is not great resistance to place a stop behind until $3.60, so I would use caution, especially in initiating for right now. I do not have strong conviction right now that this move will hold or continue prior to this report so that is why it is on the radar.
July - November Soybean Spread- Like Corn the Soybeans also had a strong acceleration break into the close yesterday, causing the July-Nov spread to fall apart under the bearish pressure. I had support levels from 37 1/2 to 38 3/4 cents, but these levels did not hold strong yesterday or overnight. As it is currently sitting below them I believe that the next support rests between 33 1/2 and 35 cents, which is a good spot to look for re-entry into the spread. The breakout is still 40 to 45 cents with a projection from 60 to 75 cents. Be cautious though as we are heading into the report on Tuesday and Beans have the potential to continue to break on the Corn's lead.
Notes:
Gold and Silver- Both markets are resting just below their resistance levels in low volume areas, but I recommend liquidating short positions. The markets could break off of these highs, but I believe that they already had their chance to do damage on their bearish patterns. I am staying flat in them for the time being.
Soybeans- It might be easy to get excited about the large break yesterday, but use caution right now when entering or holding a short. Because yesterday's break was fluid with little to no pullback I do not see good resistance levels from the action for stop placement. I think that the market could just as easily rally back to $9.60.
Bean Oil- With that being said about the Beans, the breakout on the flag pattern look like it is in jeopardy as well. The breakout line sits at 39.29 today with a projection to 37.63. Yesterday I recommended waiting for a break below 39.00 to avoid being chopped up on initiation, but there are not great resistance levels to place your stop above. I have a mild resistance level from 39.10 to 39.15, but a stronger one that is from 39.28 to 39.33. If you are not willing to place your stop above the stronger one I would recommend waiting for the open and taking profits.
Following a moderate Commodity and stronger Equity rally coming into yesterday many markets gave up all of their gains later in the day on bearish European rumors. However, this morning after the (not greatly bullish) Greece recovery plan announcement many Commodity markets are already battling with their highs from yesterday. The Euro and Metal sector have already rallied above yesterday's highs today, which leaves me less confident that a broad Commodity leg down is in process. The prospects for this new leg down were led by breakouts in the Dollar Index and Euro. The Metal sector has been more highly correlated to the Currencies over the last week and a half, so I believe that their failure to break in conjunction with the Euro move is an indicator that Commodities are not heading for an overall down move. Fundamentally bearish news appears to have finally caught up with the Grain sector after the European catalyst yesterday, but I am skeptical right now of their lower continuation prospects prior to the report on Tuesday. Despite an ugly looking candlestick yesterday I believe that Equities are still the best sector to buy and should continue to rally, with the prospect of a strong recovery rally today heading into the weekend. This paragraph seems like a bit of a jumble to me because I believe that the market action is a all over right now and we could see some sideways to higher action coming in the next week. I recommend looking for 1 day trades for right now and focusing on taking profits when you catch a decent sized move.
Buys to Watch:
Copper- Technically the Copper has a bullish cup and handle pattern that is approaching it's breakout of 343.60 with a projection to 355.15, but it is the relationship movement and nuances of the market right now that make this trade more attractive. While Gold and Silver both set off bearish patterns this week Copper has resisted, sitting in a sideways (almost coiling) pattern. During this time Open Interest has significantly rallied, increasing almost 9,000 contracts since March 19th to over 138,000 total after yesterday's close. Stochastics has sat in a tight downward channel for the last week and a half, but just on the verge of producing a buy signal with a strong day up. Throughout last year Copper was one of the strongest commodities while it kept pace with Equities and often out-performed them. However, over the last month the Copper has traded mostly sideways to down. I believe that with a strong rally it has explosive potential that could quickly lead it back to the contract highs near 355 as it attempts to reestablish it's relationship with Equities.
Dollar Index- Despite being down overnight on the Euro's knee jerk Greece reaction, the Dollar Index still has a very strong chart withe a new rally leg projection of 83.48. I do not have a good buy entry point right now for the market other than the low volume area from 81.63 to 81.49, but would not recommend buying a break to these levels for today on such a strong move. Instead I would focus on a 15 or 60 minute chart for support and momentum on entry. There is good support near the lows overnight from 81.95 to 81.90 so I would use this area for stop placement and take liquidate below these levels.
Sells to Watch:
5 Year Note: The Head and Shoulders Pattern on the 5 Year has a projection to 113.21, which is nearly 50% complete at the time being. The low volume sell zone I indicated yesterday from 114.215 to 114.245 was just above yesterday's highs, so I believe that a rally to these levels is still a good sale with resistance above from 114.25 to 114.295 for stop placement. The 10 Year and Bonds also have bearish patterns in motion right now, but they have acted much more volatile the last few days so I have the most confidence in the 5 Year right now for continuation.
Euro- The Euro had a strong knee-jerk reaction to the Greece announcement this morning, but I believe that it has likely put in it's high for today and should continue to deflate. I have a low volume zone that was reached this morning from 1.3392 to 1.3400 with resistance above from 1.3410 to 1.3430. Above these levels I would liquidate the trade as it is likely to rally back to the 1.3500 breakout level. The third leg down still has a projection to 1.2750.
Put on the Radar:
Japanese Yen- With all of the talk about the Euro lately the Japanese Yen has flown under the radar despite having a huge break on Wednesday as well. The Yen's chart looking at just the last 3 days is actually the most bearish of any of the Currencies, with little rally recovery. There is a low volume zone form 108.28 to 108.46 that set today's high thus far with greater resistance above it from 108.58 to 109.00. Below the 108.60 breakout level there is an awkward double top-like pattern that has a projection to roughly 104.10. This market is acting the easiest to trade and hold downside moves in right now, so it could potentially be a better sale than the Euro.
Corn- The unexpected 10 cent break in May Corn yesterday set off a bearish head and shoulders pattern below $3.59 that has a projection to $3.30 1/2. I believed that the break would likely come after the stocks and plantings report on the 31st, but overall market pressure aided the break yesterday. Because the breakout was on acceleration into the close there is not great resistance to place a stop behind until $3.60, so I would use caution, especially in initiating for right now. I do not have strong conviction right now that this move will hold or continue prior to this report so that is why it is on the radar.
July - November Soybean Spread- Like Corn the Soybeans also had a strong acceleration break into the close yesterday, causing the July-Nov spread to fall apart under the bearish pressure. I had support levels from 37 1/2 to 38 3/4 cents, but these levels did not hold strong yesterday or overnight. As it is currently sitting below them I believe that the next support rests between 33 1/2 and 35 cents, which is a good spot to look for re-entry into the spread. The breakout is still 40 to 45 cents with a projection from 60 to 75 cents. Be cautious though as we are heading into the report on Tuesday and Beans have the potential to continue to break on the Corn's lead.
Notes:
Gold and Silver- Both markets are resting just below their resistance levels in low volume areas, but I recommend liquidating short positions. The markets could break off of these highs, but I believe that they already had their chance to do damage on their bearish patterns. I am staying flat in them for the time being.
Soybeans- It might be easy to get excited about the large break yesterday, but use caution right now when entering or holding a short. Because yesterday's break was fluid with little to no pullback I do not see good resistance levels from the action for stop placement. I think that the market could just as easily rally back to $9.60.
Bean Oil- With that being said about the Beans, the breakout on the flag pattern look like it is in jeopardy as well. The breakout line sits at 39.29 today with a projection to 37.63. Yesterday I recommended waiting for a break below 39.00 to avoid being chopped up on initiation, but there are not great resistance levels to place your stop above. I have a mild resistance level from 39.10 to 39.15, but a stronger one that is from 39.28 to 39.33. If you are not willing to place your stop above the stronger one I would recommend waiting for the open and taking profits.
Thursday, March 25, 2010
Thursday 3/25/10 Commodity Ideas
Opening Note:
After an active break for the market on the European session yesterday there was only a slight continuation downwards on the U.S. session followed by uptrending strength overnight today. The break during the European session was based on fundamental news suggesting that Greece would not be bailed out by the EU and would have to go to the IMF for help. This news is obviously bearish the Euro, but should probably be more bearish the rest of the market than it has shown. I thought that the market had an opportunity during U.S. trading hours to break much more than it did. Paired with the straight uptrend overnight I find myself a little confused that there was not a larger fallback, and therefore cautious with my bearish commodity and equity opinion right now. I have the most confidence in the Currency sector moves right now as the Euro and Dollar Index are clearly stating they are beginning another leg. However, Equities again have pretty much thrown out bearish fundamental news from the rest of the world, sitting near their recent highs again, and have pulled the physical commodity markets along with them. Because of this move and deviation from expectations I would recommend lightening your bearish commodity position for the time being and to pick your spots carefully. Barring a low volatility sideways day, direction should become more clear during this session as we head into the end of the quarter. On a side-note, I have heard reports that the always long commodity funds are net losers on the year thus far, and with money beginning to flow out of them, the next wave of allocation in April should be lighter. Contrary to this however is a report that since the 4th Quarter of 2008 the U.S. government has purchased over $1 Trillion in Equities after not holding an Equity position for many years. So, take into consideration these money flow dynamics as we move forward.
Buys to Watch:
July - November Soybean Spread- At the cost of sounding repetitious, the fundamental story behind the spread is South American inefficiencies in managing the export of a historic crop along with labor strikes and continued Chinese demand strength. The Double bottom technical pattern has a breakout from 40 to 45 cents with the 40 to 42 cent portion being more important and a projection that ranges from 60 to 75 cents. Yesterday the spread settled at 40 1/4 cents, but overnight strength has rallied it to a 42 3/4 cent close on the morning session. In recent discussions I have said that I believe that it is a good buy above the 42 cent level and continue to feel the same way. There is good support from 37 1/2 to 38 3/4 cents for stop placement, with a break below this level likely continuing to 33 1/2 to 35 cents. One of the most impressive things about the spread is that on Tuesday when the outright July beans gave up their rally and suffered a significant down day on Wednesday the spread still continued to work. This is atypical action for the spread normally and shows great strength, which is why I feel confident buying it above the 42 cent level.
Dollar Index- Strengthened by the Euro move, the Dollar Index has decisively shown that it is beginning a new leg on the rally. The estimate projection for this rally is to 83.48. If the market provides the opportunity there is a good low volume price zone from 81.49 to 81.63 to buy with support from 81.40 to 81.48 for stop placement. I also encourage looking at June options positions to get a foot in on the rally as I know it is easier for me to hold options than outrights for the duration of a move.
Sells to Watch:
Euro- The Euro has the weakest technical chart of any of the currencies and has confirmed that it is beginning a new leg down. The rough projection estimate for this new leg down is 127.50. There is a good low volume price zone to sell, that correlates well to the Dollar's buy zone, from 1.3992 to 1.3400 with resistance above from 1.3412 to 1.3430. Like the Dollar Index I also recommend looking at bearish June options plays for entry and the ability to absorb more of the move. I feel the most confident in the currency moves right now so this is my favorite trade.
Five Year Note- Yesterdays bearish head and shoulders breakout was at 115.01 and has a projection to 113.21. I have a good low volume price sell zone that was almost achieved this morning from 114.215 to 114.245 with resistance above it from 114.25 to 114.295. This move has some interesting fundamental correlations to the rest of the market as I believe that the lowering of fixed income prices (raising of rates) should weaken the broader market, which is contrary to the usual contrary correlation. I also am taking the Buy Bonds vs. Sell 5 Year Notes trade off of my radar for the time being so this is good as just an outright trade. Note: The Bonds suffered a massive price break yesterday setting off a bearish double top technical pattern with a breakout of 115.27 and a projection to 113.10. I am very suspicious of this move as the breakout was managed on such a large move yesterday. I think that it does not have a great chance of holding this pattern and believe that a rejection should rally to between 116.31 and 117.08.
Silver- This trade is now just barely on the sell list and I would recommend lightening your short position currently if you have one. I thought that with the stronger correlation to the Currencies that the Metals should have had a larger break yesterday than they did and with the overnight uptrend I am worried about the success of this trade. However, the Silver still has a double top pattern with a breakout of $16.835 and a projection to $16.07. This is supported by the Gold topping head and shoulders pattern that remains intact with a projection to $1048.8. Neither of these Metals is a bad trade, but looking at the Gold vs Silver ratio (Gold - Silver/2) I believe that the Silver may weaken against the Gold. The Silver has resistance from $16.92 to $16.96 with a small low volume sell zone from $16.90 to .92. Above the resistance I would completely abandon the silver. Note: Today is option expiration for the Metals, which has a tendency to move towards a high volume traded strike price. If another rally gets going it is possible that the Silver moves to the $17 area. Also, Gold open interest has risen on the recent break...hmm
Put on the Radar:
Crude Oil- I have a low volume area in the Crude from 81.00 to 81.10 today with resistance above from 81.17 to 81.33, which the market has been battling with as I have written this letter. It is possible that this could be the top for the day, but I would take a strong rally above these levels as a sign to watch out on your commodity shorts and possibly liquidate. I do not think that selling this zone is a great trade right now so I would just use it as an indicator for the day as this top has appeared to stall the rest of the market. The farther out sell is the double top pattern with a breakout below 79.41 and a projection to 75.46.
Notes:
Corn- The top head and shoulders pattern has a breakout today of $3.59 with a projection to $3.30 1/2. Yesterday the market found support as it touched this breakout neckline. With the stocks and planting intentions report on Tuesday of next week I think that it is unlikely that this pattern is set in motion, so I would look at this neckline as continued support for May Corn.
Bean Oil- The market close below the bearish flag pattern breakout yesterday, but has rallied back above overnight rejecting the pattern. For purposes of not getting chopped up in this action I would wait for prices below 39.00 to sell Bean Oil on the pattern projection to 37.63.
After an active break for the market on the European session yesterday there was only a slight continuation downwards on the U.S. session followed by uptrending strength overnight today. The break during the European session was based on fundamental news suggesting that Greece would not be bailed out by the EU and would have to go to the IMF for help. This news is obviously bearish the Euro, but should probably be more bearish the rest of the market than it has shown. I thought that the market had an opportunity during U.S. trading hours to break much more than it did. Paired with the straight uptrend overnight I find myself a little confused that there was not a larger fallback, and therefore cautious with my bearish commodity and equity opinion right now. I have the most confidence in the Currency sector moves right now as the Euro and Dollar Index are clearly stating they are beginning another leg. However, Equities again have pretty much thrown out bearish fundamental news from the rest of the world, sitting near their recent highs again, and have pulled the physical commodity markets along with them. Because of this move and deviation from expectations I would recommend lightening your bearish commodity position for the time being and to pick your spots carefully. Barring a low volatility sideways day, direction should become more clear during this session as we head into the end of the quarter. On a side-note, I have heard reports that the always long commodity funds are net losers on the year thus far, and with money beginning to flow out of them, the next wave of allocation in April should be lighter. Contrary to this however is a report that since the 4th Quarter of 2008 the U.S. government has purchased over $1 Trillion in Equities after not holding an Equity position for many years. So, take into consideration these money flow dynamics as we move forward.
Buys to Watch:
July - November Soybean Spread- At the cost of sounding repetitious, the fundamental story behind the spread is South American inefficiencies in managing the export of a historic crop along with labor strikes and continued Chinese demand strength. The Double bottom technical pattern has a breakout from 40 to 45 cents with the 40 to 42 cent portion being more important and a projection that ranges from 60 to 75 cents. Yesterday the spread settled at 40 1/4 cents, but overnight strength has rallied it to a 42 3/4 cent close on the morning session. In recent discussions I have said that I believe that it is a good buy above the 42 cent level and continue to feel the same way. There is good support from 37 1/2 to 38 3/4 cents for stop placement, with a break below this level likely continuing to 33 1/2 to 35 cents. One of the most impressive things about the spread is that on Tuesday when the outright July beans gave up their rally and suffered a significant down day on Wednesday the spread still continued to work. This is atypical action for the spread normally and shows great strength, which is why I feel confident buying it above the 42 cent level.
Dollar Index- Strengthened by the Euro move, the Dollar Index has decisively shown that it is beginning a new leg on the rally. The estimate projection for this rally is to 83.48. If the market provides the opportunity there is a good low volume price zone from 81.49 to 81.63 to buy with support from 81.40 to 81.48 for stop placement. I also encourage looking at June options positions to get a foot in on the rally as I know it is easier for me to hold options than outrights for the duration of a move.
Sells to Watch:
Euro- The Euro has the weakest technical chart of any of the currencies and has confirmed that it is beginning a new leg down. The rough projection estimate for this new leg down is 127.50. There is a good low volume price zone to sell, that correlates well to the Dollar's buy zone, from 1.3992 to 1.3400 with resistance above from 1.3412 to 1.3430. Like the Dollar Index I also recommend looking at bearish June options plays for entry and the ability to absorb more of the move. I feel the most confident in the currency moves right now so this is my favorite trade.
Five Year Note- Yesterdays bearish head and shoulders breakout was at 115.01 and has a projection to 113.21. I have a good low volume price sell zone that was almost achieved this morning from 114.215 to 114.245 with resistance above it from 114.25 to 114.295. This move has some interesting fundamental correlations to the rest of the market as I believe that the lowering of fixed income prices (raising of rates) should weaken the broader market, which is contrary to the usual contrary correlation. I also am taking the Buy Bonds vs. Sell 5 Year Notes trade off of my radar for the time being so this is good as just an outright trade. Note: The Bonds suffered a massive price break yesterday setting off a bearish double top technical pattern with a breakout of 115.27 and a projection to 113.10. I am very suspicious of this move as the breakout was managed on such a large move yesterday. I think that it does not have a great chance of holding this pattern and believe that a rejection should rally to between 116.31 and 117.08.
Silver- This trade is now just barely on the sell list and I would recommend lightening your short position currently if you have one. I thought that with the stronger correlation to the Currencies that the Metals should have had a larger break yesterday than they did and with the overnight uptrend I am worried about the success of this trade. However, the Silver still has a double top pattern with a breakout of $16.835 and a projection to $16.07. This is supported by the Gold topping head and shoulders pattern that remains intact with a projection to $1048.8. Neither of these Metals is a bad trade, but looking at the Gold vs Silver ratio (Gold - Silver/2) I believe that the Silver may weaken against the Gold. The Silver has resistance from $16.92 to $16.96 with a small low volume sell zone from $16.90 to .92. Above the resistance I would completely abandon the silver. Note: Today is option expiration for the Metals, which has a tendency to move towards a high volume traded strike price. If another rally gets going it is possible that the Silver moves to the $17 area. Also, Gold open interest has risen on the recent break...hmm
Put on the Radar:
Crude Oil- I have a low volume area in the Crude from 81.00 to 81.10 today with resistance above from 81.17 to 81.33, which the market has been battling with as I have written this letter. It is possible that this could be the top for the day, but I would take a strong rally above these levels as a sign to watch out on your commodity shorts and possibly liquidate. I do not think that selling this zone is a great trade right now so I would just use it as an indicator for the day as this top has appeared to stall the rest of the market. The farther out sell is the double top pattern with a breakout below 79.41 and a projection to 75.46.
Notes:
Corn- The top head and shoulders pattern has a breakout today of $3.59 with a projection to $3.30 1/2. Yesterday the market found support as it touched this breakout neckline. With the stocks and planting intentions report on Tuesday of next week I think that it is unlikely that this pattern is set in motion, so I would look at this neckline as continued support for May Corn.
Bean Oil- The market close below the bearish flag pattern breakout yesterday, but has rallied back above overnight rejecting the pattern. For purposes of not getting chopped up in this action I would wait for prices below 39.00 to sell Bean Oil on the pattern projection to 37.63.
Wednesday, March 24, 2010
Wednesday 3/24/10 Commodity Ideas
Opening Note:
Yesterday the market was fairly quiet in outright commodity movement with another rejection of bearish metal patterns and more solid equity gains being the highlights to the unscrupulous eye. However, the most notable occurrence to me was a sneaky new low close in the Euro for the first time in a month of sideways consolidation. Thus far overnight the market seems to have taken note of this new low close and has turned my entire screen red other than the Dollar Index (and Sugar?). This new low close in the Euro and continuation today is bearish for commodities and equities as it signals confirmation of a new leg down in the Euro, and likely many of the other foreign currencies. While it is extremely unlikely today, still make sure that the Euro does have another lower close to confirm the leg down as rally attempts have continuously saved the Euro from this fate. The equities are still in continuation mode on an almost unbelievable rally that has lasted for 33 days now with very little pullback. I have noticed that this rally has been curiously saved a number of times, like Monday of this week and towards the end of February, but I believe that a new leg down in the Euro is more bearish news than this rally can handle without a downside correction. What is bearish for the Equities is even more so for commodities. The Equities have clearly been the strength over all other sectors with physical commodities continuing to lag on the rally. Because this move is initiated by currencies I believe that Metals continue to be the best sale (along with foreign currencies) because they have the closest sector correlation to them currently. Right now I see a number of reversal and continuation patterns, and therefore trades, but I hope to pare down these ideas into the best risk/reward moves and executions.
Buys to Watch:
July - November Soybean Spread- More reports of isolated port strikes in South America continue to come in with rumors that these isolated incidents are more likely to spread. South America is dealing with harvesting and exporting the largest Soybean crop they have ever handled, which is highlighting the inefficiencies in their infrastructure in dealing with such a sizable crop. Furthermore, Chinese Soybean demand is beginning to pick up and is believed to be larger than originally estimated. Both of these factors are contributing to more tightness in U.S. old crop stocks and causing the spread to rally. Yesterday the spread traded 40 cents which is the breakout level on the technical double bottom and a price level of significant resistance. The true breakout for the pattern is between 40 and 45 cents, but most of the resistance is between 40 and 42 cents. For preemptive entry on a break in the market I have a lower volume zone from 33 3/4 and 34 3/4 for entry, but I do not feel confident that this pullback will happen. Instead I recommend waiting for confirmation above 42 cents to buy the spread, with the all clear coming above 45 cents. The pattern has an initial projection to between 60 and 75 cents. Note: Be cautious of the resistance at 40 cents. It could be a battle to rally the spread above this level, especially only a week prior to the March 31st report.
Dollar Index- This morning the Dollar Index looks almost like an identical inversion of the Euro chart, meaning that it is above all the trade in the consolidation range and is confirming a new leg up. Unlike the Euro the Dollar Index did not make a new high close yesterday though, with the February 24th close of 81.24 still the highest. However, with the decisiveness of the Euro taken into account I believe that buying the Dollar Index on a leg up is now in play. Based off the previous leg, the projection for the new leg up in the Dollar Index is roughly 83.46. On a pullback today I have a decent low volume area from 81.49 to 81.63 to buy from the overnight acceleration. If you have difficulty staying with outright positions I recommend looking at purchasing outright call options, a call spread, or possibly a more risky combo of selling some 80 puts to fund the purchase of 83's. Note: If you are purchasing Dollar Index options I recommend purchasing the higher volume traded June contract as you likely have to give up a sizable edge on the wider market May options (I learned this the hard way). Also, I recommend putting your order into the ICE options pit as any screen traded market is much wider.
Sells to Watch:
Silver- I have finally decided that Silver is the better sell here than the Gold. On large-scale commodity moves Silver tends to have much higher directional volatility than the Gold because it is not traded as a run to safety. Furthermore, the Gold to Silver ratio (Gold - Silver/2) is showing strong reversal signs today, meaning the Gold should continue to gain on the Silver. The Silver has a bearish double top pattern with a breakout of $16.835 and a projection to $16.07, but I believe that with the gains on Gold and the currency moves that this projection could be modest in the bigger picture. As I noted over the last couple days, the Metals are more correlated to the Currencies than the Equities and Energies, making this the best sector to sell off the Currencies. For comparison's sake the Gold has a head and shoulders breakout of $1103.7 today with a projection to $1049.8. For silver entry today I would look for a pullback to the $16.65 to $16.75 area near this morning's open and look to place a stop above the resistance from $16.92 to $16.95 for today. Note: I had a discussion yesterday around noon about how the silver rallied all the way into the low volume area near $17.15, but that the Gold did not reach it's low volume area above $1110 at the same time. You can get burned on the trade from time to time, but if the setup is right I like to look at a Silver or Gold move to sell the other weakness off of.
Euro- The Pound and the Franc are not as weak as the Euro right now, so I believe the Euro is the best sell of the European Currency group right now. Unless there is a miracle the Euro is now beyond saving so I think that it is in play as a sell on this new leg down. Where the first and second leg begin and end on the Euro chart is highly debatable, but I estimate this third leg down projection to roughly 127.50 for right now. On a pullback today there is a decent low volume area between 133.95 and 134.05 to sell. I think that like the Dollar Index you can also look at using options now to capture more of this leg down.
Put on the Radar:
Buy Bonds vs Sell Five Year Note- I have become more disinterested in this trade with the new currency developments. This trade is still dependent on a bullish head and shoulders breakout in the Bonds or a bearish head and shoulders breakout in the 5 Years. The Bonds are not close today, but the 5 year head and shoulders has a breakout of 115.01 today with a projection to 113.21, which has set off today. Right now the Bonds are having a largely bearish move today so I would wait on this trade and possibly play the 5 year as an outright position.
Crude Oil- The Crude Oil double top pattern that was negated two days ago should come back into play later today or tomorrow. The double top pattern has a breakout of 79.41 with a projection to 75.46. On a side note Heating Oil may look like the worse chart among the energy crack, but a strong downside move in the RBOB vs. Heating Oil spread has the RBOB falling apart in a major way. I think that the RBOB could be the best sell here. Note: If you have been holding the RBOB vs. Heating Oil spread I would liquidate. It has a bearish double top and the fundamental story is not happening so far.
Notes:
Grains- The grains have the report on March 31st so large moves before this are less likely, but with the world down today and possibly continuing I think the grains could fall with it. I am running out of time so I will run down a few projections that I have. Wheat to 4.47 on a new leg down. Corn head and shoulders breakout at 3.59 1/4 today with a projection to 3.30 3/4. Bean Oil flag pattern breakout at 3917 today with a projection to 3763. I like the Bean Oil trade the best because it is based on open interest and long liquidation on the breaks. I also think that Meal looks fishy with this strong bottom rally, but I can not find a way to sell it and would hold off.
Stock Indexes- I would hold off on selling entry for Equities for right now. It looks like they could be forming a reversal volatility top, but the Equities have a way of disregarding anything else that is going on lately.
Yesterday the market was fairly quiet in outright commodity movement with another rejection of bearish metal patterns and more solid equity gains being the highlights to the unscrupulous eye. However, the most notable occurrence to me was a sneaky new low close in the Euro for the first time in a month of sideways consolidation. Thus far overnight the market seems to have taken note of this new low close and has turned my entire screen red other than the Dollar Index (and Sugar?). This new low close in the Euro and continuation today is bearish for commodities and equities as it signals confirmation of a new leg down in the Euro, and likely many of the other foreign currencies. While it is extremely unlikely today, still make sure that the Euro does have another lower close to confirm the leg down as rally attempts have continuously saved the Euro from this fate. The equities are still in continuation mode on an almost unbelievable rally that has lasted for 33 days now with very little pullback. I have noticed that this rally has been curiously saved a number of times, like Monday of this week and towards the end of February, but I believe that a new leg down in the Euro is more bearish news than this rally can handle without a downside correction. What is bearish for the Equities is even more so for commodities. The Equities have clearly been the strength over all other sectors with physical commodities continuing to lag on the rally. Because this move is initiated by currencies I believe that Metals continue to be the best sale (along with foreign currencies) because they have the closest sector correlation to them currently. Right now I see a number of reversal and continuation patterns, and therefore trades, but I hope to pare down these ideas into the best risk/reward moves and executions.
Buys to Watch:
July - November Soybean Spread- More reports of isolated port strikes in South America continue to come in with rumors that these isolated incidents are more likely to spread. South America is dealing with harvesting and exporting the largest Soybean crop they have ever handled, which is highlighting the inefficiencies in their infrastructure in dealing with such a sizable crop. Furthermore, Chinese Soybean demand is beginning to pick up and is believed to be larger than originally estimated. Both of these factors are contributing to more tightness in U.S. old crop stocks and causing the spread to rally. Yesterday the spread traded 40 cents which is the breakout level on the technical double bottom and a price level of significant resistance. The true breakout for the pattern is between 40 and 45 cents, but most of the resistance is between 40 and 42 cents. For preemptive entry on a break in the market I have a lower volume zone from 33 3/4 and 34 3/4 for entry, but I do not feel confident that this pullback will happen. Instead I recommend waiting for confirmation above 42 cents to buy the spread, with the all clear coming above 45 cents. The pattern has an initial projection to between 60 and 75 cents. Note: Be cautious of the resistance at 40 cents. It could be a battle to rally the spread above this level, especially only a week prior to the March 31st report.
Dollar Index- This morning the Dollar Index looks almost like an identical inversion of the Euro chart, meaning that it is above all the trade in the consolidation range and is confirming a new leg up. Unlike the Euro the Dollar Index did not make a new high close yesterday though, with the February 24th close of 81.24 still the highest. However, with the decisiveness of the Euro taken into account I believe that buying the Dollar Index on a leg up is now in play. Based off the previous leg, the projection for the new leg up in the Dollar Index is roughly 83.46. On a pullback today I have a decent low volume area from 81.49 to 81.63 to buy from the overnight acceleration. If you have difficulty staying with outright positions I recommend looking at purchasing outright call options, a call spread, or possibly a more risky combo of selling some 80 puts to fund the purchase of 83's. Note: If you are purchasing Dollar Index options I recommend purchasing the higher volume traded June contract as you likely have to give up a sizable edge on the wider market May options (I learned this the hard way). Also, I recommend putting your order into the ICE options pit as any screen traded market is much wider.
Sells to Watch:
Silver- I have finally decided that Silver is the better sell here than the Gold. On large-scale commodity moves Silver tends to have much higher directional volatility than the Gold because it is not traded as a run to safety. Furthermore, the Gold to Silver ratio (Gold - Silver/2) is showing strong reversal signs today, meaning the Gold should continue to gain on the Silver. The Silver has a bearish double top pattern with a breakout of $16.835 and a projection to $16.07, but I believe that with the gains on Gold and the currency moves that this projection could be modest in the bigger picture. As I noted over the last couple days, the Metals are more correlated to the Currencies than the Equities and Energies, making this the best sector to sell off the Currencies. For comparison's sake the Gold has a head and shoulders breakout of $1103.7 today with a projection to $1049.8. For silver entry today I would look for a pullback to the $16.65 to $16.75 area near this morning's open and look to place a stop above the resistance from $16.92 to $16.95 for today. Note: I had a discussion yesterday around noon about how the silver rallied all the way into the low volume area near $17.15, but that the Gold did not reach it's low volume area above $1110 at the same time. You can get burned on the trade from time to time, but if the setup is right I like to look at a Silver or Gold move to sell the other weakness off of.
Euro- The Pound and the Franc are not as weak as the Euro right now, so I believe the Euro is the best sell of the European Currency group right now. Unless there is a miracle the Euro is now beyond saving so I think that it is in play as a sell on this new leg down. Where the first and second leg begin and end on the Euro chart is highly debatable, but I estimate this third leg down projection to roughly 127.50 for right now. On a pullback today there is a decent low volume area between 133.95 and 134.05 to sell. I think that like the Dollar Index you can also look at using options now to capture more of this leg down.
Put on the Radar:
Buy Bonds vs Sell Five Year Note- I have become more disinterested in this trade with the new currency developments. This trade is still dependent on a bullish head and shoulders breakout in the Bonds or a bearish head and shoulders breakout in the 5 Years. The Bonds are not close today, but the 5 year head and shoulders has a breakout of 115.01 today with a projection to 113.21, which has set off today. Right now the Bonds are having a largely bearish move today so I would wait on this trade and possibly play the 5 year as an outright position.
Crude Oil- The Crude Oil double top pattern that was negated two days ago should come back into play later today or tomorrow. The double top pattern has a breakout of 79.41 with a projection to 75.46. On a side note Heating Oil may look like the worse chart among the energy crack, but a strong downside move in the RBOB vs. Heating Oil spread has the RBOB falling apart in a major way. I think that the RBOB could be the best sell here. Note: If you have been holding the RBOB vs. Heating Oil spread I would liquidate. It has a bearish double top and the fundamental story is not happening so far.
Notes:
Grains- The grains have the report on March 31st so large moves before this are less likely, but with the world down today and possibly continuing I think the grains could fall with it. I am running out of time so I will run down a few projections that I have. Wheat to 4.47 on a new leg down. Corn head and shoulders breakout at 3.59 1/4 today with a projection to 3.30 3/4. Bean Oil flag pattern breakout at 3917 today with a projection to 3763. I like the Bean Oil trade the best because it is based on open interest and long liquidation on the breaks. I also think that Meal looks fishy with this strong bottom rally, but I can not find a way to sell it and would hold off.
Stock Indexes- I would hold off on selling entry for Equities for right now. It looks like they could be forming a reversal volatility top, but the Equities have a way of disregarding anything else that is going on lately.
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