Opening Note:
Well, yesterday was the short covering rally that I was concerned about on Tuesday, but failed to predict in yesterday's letter after the rejection of Tuesday's similar attempt left me more comfortable entering short positions. Buying came into the market starting at 7:30 CT and continued throughout the morning and again in the afternoon. Watching my quote board and a number of trading ladders from different sectors I can also tell you that from 9:30 - 10 am CT that large money came into nearly every Commodity market across every sector to literally buy a piece of nearly every supportive market (including the recently less correlated Grain and Soft markets).
Yesterday's rally has now negated the large bearish top on the Equity markets for the time being and, as I warned earlier in the week, could become a rocket shot higher for the market. Especially when they are blatantly obvious as this one was, head and shoulders patterns have a tendency to reject their pattern by creating a short term base below the breakout level and propelling higher with momentum on short covering. I believe there is a good chance that the short covering continues over the next week as opportunistic Bulls take advantage of what now looks like a temporarily over-crowded short the market trade.
However, I am in no way ready to call these lows from last week the bottom of the market decline or a long term base to purchase off of. For right now I believe that we will see some sideways trade with continued short covering, but until the S&P 500 is able to hold a close above the 1130 (50% retracement level) and 1150 (roughly 61.8% retracement level) I am not too excited about pushing the bullish side. For most of yesterday the risk aversion markets continued to hold their value well in comparison to the large move higher in the riskier assets and still are only slightly lower today.
I still strongly believe that this rally is another sidenote in a large bearish move that is in motion for the macro market that will lead Equities and Commodities lower likely over the rest of the fiscal year. However, I no longer recommend only entering short positions in the supportive markets for the time being and actually feel that this rally has good continuation prospects over the next week. In the Radar section today I describe in greater depth a few markets to keep your eye on as indicators for the duration of this current rally, but for right now I do not have many market patterns or trades on my radar. I continue to encourage trading smaller size, especially now that the market is back in the No Man's Land Trading Range.
Buys to Watch:
August Soybean Meal- The Soy Meal has been a strength among the Grain Sector throughout the last couple months as Corn, Wheat, and Soybean Oil have lagged until recently. But, with renewed strength in the Grain Sector since the June 30th Stocks and Acreage Reports and Soybeans garnering a decent rally yesterday the Soy Meal is beginning to look like an attractive buy that finally has some upside momentum possibilities. The front month spreads have traded at a premium over the back months for the majority of the year making the less liquid August contract the better buy than December for Meal. Yesterday's strong rally and continuation this morning established a breakout above the $293.9 high trade from April 22nd and established a new high close above this same date, marking a the highest close since early January for the contract. The market now has a projection of $324.7 for the August contract. For current entry I will be holding off on entering a full position for the time being, but will structure my purchase this morning based around higher volume support between $289.2 and $290.4 with a stop just below this level. Please be aware that there is a crop production and supply/demand report for the Grain complex tomorrow that can severely effect the market. For this reason I am only looking to enter a minimal initial position and will not be carrying it through the report unless some profit cushion is established prior to tomorrow.
Sells to Watch:
Put on the Radar:
Risk Aversion Markets- Throughout most of the macro rally yesterday the Bonds, Ten Year Notes, and Japanese Yen all held their prices very well relative to the rally in Equities in Commodities. In contrast though, they are all moderately weaker this morning, and more so than one would predict in comparison to the slight rally in the macro market thus far. I removed Bonds from my Buys column late last week under concerns that they were tiring on their rally and today I am removing the Yen from the Buys as well, but the lack of downside movement in these markets still makes me believe that we are not out of the woods on this bearish move. We shall see how the market rally progresses today and the rest of the week, but unless the risk aversion trade unwinds alongside the rally I would proceed with caution when buying.
Australian Dollar- The Aussie Dollar has moved in a tighter correlation to Equities and Commodities than the other Currencies over the last few months and is a good barometer market to keep an eye on as well. The Australian market received some positive upgrades on growth and unemployment recently which has propelled the Currency higher on its own, but the rally over the last three days has been strong and actually preceded that of the market yesterday. The swing high for the Aussie had a high trade of .8772 with a high close of .8675 that is now being tested today. These highs correlated time-wise to the 1130 level in the S&P 500 and if the Australian Dollar is able to hold a rally above .8772 it projects a move back to the highs for the year and would be a good indication that U.S. Equities could follow this path.
Notes:
Yesterday's Trades- Every trade that I suggested yesterday was negated by mid-morning as strong buying sent the market above all of my stop levels. Even the less correlated Cotton and Coffee markets found buying enter the market around 9:30 that continued throughout the rest of the day. The Yen was able to hold on until the afternoon, but also fell in price as my only Buy suggestion for yesterday. I am not interested in looking for bearish macro trades for the time being as the rally is likely to continue, so I no longer recommend executing any of the directional trades from yesterday's letter.
Thursday, July 8, 2010
Thursday 7/8/10 Commodity Ideas
Mike Mondi
Mondimc@gmail.com
http://mikescommodityperspective.blogspot.com/
Disclaimer:
The information contained in this e-mail is intended only for the person or entity to which it is addressed and may contain confidential and / or privileged material. If you are not the intended recipient of this e-mail, the use of this information or any disclosure, copying or distribution is prohibited and may be unlawful. If you received this in error, please contact the sender and delete the material from any computer. Unless specifically indicated, the information contained herein does not constitute an offer to buy or sell any product. Investors should be aware that prices may fall as well as rise and that the income derived can go down as well as up. When buying or selling any investment that fluctuates in price or value you may get back less than you invested. Past performance is not necessarily a guide to future performance.
Mondimc@gmail.com
http://mikescommodityperspective.blogspot.com/
Disclaimer:
The information contained in this e-mail is intended only for the person or entity to which it is addressed and may contain confidential and / or privileged material. If you are not the intended recipient of this e-mail, the use of this information or any disclosure, copying or distribution is prohibited and may be unlawful. If you received this in error, please contact the sender and delete the material from any computer. Unless specifically indicated, the information contained herein does not constitute an offer to buy or sell any product. Investors should be aware that prices may fall as well as rise and that the income derived can go down as well as up. When buying or selling any investment that fluctuates in price or value you may get back less than you invested. Past performance is not necessarily a guide to future performance.
Wednesday, July 7, 2010
Wednesday 7/7/10 Commodity Ideas
Opening Note:
Despite the S&P 500 trading over 26 points higher yesterday morning shortly after the open the market fell apart after reaching higher volume resistance to trade back to nearly unchanged and close only moderately higher on the day. The tell tale sign of this collapse after some early morning short covering was not only in the great execution setup for short entry, but the fact that risk aversion markets like the Yen and Bonds began trading higher with momentum, indicating that 26 points up in the S&P was not likely to hold. Meanwhile liquidation continued in the Gold market as the bubble of the last few months begins to deflate, Crude Oil swung from strength to weakness along with Equities, and the Euro continued to rally as shorts exit the market temporarily. Overall, the day was a bit of a jumble again, as most of early July has been, and reinforces for the time being that taking profits when you catch a decent move is not a bad idea for right now. We are seeing the volatility, but continuation on moves on a day to day basis has not followed over the last week.
When I woke up this morning the macro market was sitting on its lows for the overnight session, but had traded back to test its highs by the time I began writing this letter. The story again this morning is continued liquidation in both Gold and Silver and weaker Foreign Currency markets, although it still looks like direction for the day could be up in the air. Yesterday's action however was another prime example of why I believe that rallies in supportive Commodities should continue to be sold. Equities had almost every reason to rally from the start of a new week, technical support, and little fundamental news this week to derail a move higher, but still only managed to close slightly higher. With the S&P 500 and other Equity Indices putting up a resilient fight with some built up support from 1012 to 1018 there could still be some temporary sideways trade, but with risk aversion markets continuing to rally and the Metals indicating further deflationary pressure I believe that it is not long till the volatility turns directionally lower again.
I continue to recommend selling rallies in supportive Commodity markets (other than Grains right now in the growing season) and believe that the S&P 500 with a projection range of 856 - 870 on the head and shoulders pattern should be the indicator market on a macro move lower. For longer term traders I still recommend the Best Buys over the next few months are: Bonds, Japanese Yen, and Gold as a spread against a short position in another market. Also, going forward the Best Sells over the next few months are: Nasdaq, Copper, Silver, Palladium, Crude Oil, and Australian Dollar.
Buys to Watch:
Japanese Yen- The Yen was beginning to look tired, but with a new momentum buy signal possibly emerging for the daily Stochastics and the chart maintaining its climb higher the Yen will remain in the Buys column for a bit longer. The chart still is on the larger bullish head and shoulders pattern with the breakout level near 112 and a projection to near the 119 level. For long entry today I recommend purchasing near the higher volume support range from 114.32 - 114.52 with a stop placement below this range. Take note that the Yen is now encountering the 115 level, which has rejected a rally overnight as well as earlier last week as it is a sticky point. The Japanese Government has protected the 115 level in the past, but as of right now there is no indication that there will be any Currency intervention attempt. If on a market rally the Yen does stall out for a third time near 115 it would be wise to take some profits and possibly wait for re-entry after a breakout above 115 is confirmed.
Sells to Watch:
Silver- Silver is still broken out on the upsloping bearish head and shoulders pattern with a projection to $15.75. Silver has built up a bit of higher volume range trade between $17.74 and $17.84 that is now a good area to target for an initial short position in the market. This morning there appears to actually be some allocation on the open into both the Silver and Gold markets, but despite this allocation, I still believe that both markets are headed for continued liquidation, with some of this continuing to come on both the U.S. Equity market open and the Silver market close. Be aware that there are two support trends for the market near $17.50 and $17.30 that could be a temporary sticking point for the market on a break. However, once Silver breaks below $17.195 a double top/cup and handle pattern will also be set off that has a projection to $14.94.
September Coffee- With a close below 160.10 yesterday Coffee set off a bearish cup and handle reversal pattern that now has a projection to 150.95. The market has been extremely volatile as of late so use caution, but is a bit more calm thus far this morning. For short entry I recommend looking to sell against the beginning of a higher volume trade profile for the market at 159.10 with stop placement above this to the top of the higher volume trade at 160.50.
December Cotton- This trade was destined for the radar this morning, but after the bearish breakout on the open this morning it has been moved to the sell column. While front month July Cotton continues to have short term demand the deferred December contract is falling apart with conviction on a break that has now set off a bearish reversal pattern that resembles a double top (although not really). The move below 74.09 sets off the pattern that I am measuring an objective for using the left side high that points towards a move to 69 cents. For entry today I am using the higher volume trade from overnight and placing my stop above 74.65 for a lower risk shot on this initial entry because if you wanted to really be safe you would have to place a stop nearly a full cent higher yet risking much more. There should be opportunity tomorrow to add to this initial position.
Put on the Radar:
S&P 500 and Nasdaq- The Nasdaq continues to be the best sale of the Equity Indices, but the S&P 500 is the leading indicator and the market that I am using to gauge entry. The S&P 500 has built up a large traded profile right at the 1023.50 level, which is now acting as sort of a mid-range level on this recent sideways trade. The market has rallied above this level as I have written this morning, but this mid-level range does extend up to 1026 as another bit of resistance for the market. The levels that I provided for the Nasdaq (sell zone 1739 - 1755.50 w/ high volume resistance 1756.50 - 1762) and S&P 500 (sell zone 1028.25 - 1032.50 w/ high volume resistance 1033.75 - 1039) acted as a top yesterday for the market rally although they were traded into the upper portions of their resistance. I believe that if Equities are able to mount a rally today into these levels again that they are good sales again with an emphasis on the Nasdaq.
Notes:
Crude Oil- Although Crude Oil never ticked all the way to my $70.96 projection it came very close and as it is acting as a market strength this morning I am suggesting liquidation of short positions in the market for the time being. Although you could have parked a jumbo jet in the large low volume zone I provided for short entry yesterday it did act as a top for the market on a roughly $2 break in the market. There is a bit of fundamental uncertainty surrounding the future for Crude Oil in regards to the Gulf Oil Spill, real supply/demand, and the moratorium on drilling in the Gulf, so there could be some unexpected moves on a day to day basis as investors place future and current bets. I still believe that Crude is on a path towards a second leg lower near $58 - $60, but with some short term support in the market I recommend waiting prior to shorting the market again for the time being.
Despite the S&P 500 trading over 26 points higher yesterday morning shortly after the open the market fell apart after reaching higher volume resistance to trade back to nearly unchanged and close only moderately higher on the day. The tell tale sign of this collapse after some early morning short covering was not only in the great execution setup for short entry, but the fact that risk aversion markets like the Yen and Bonds began trading higher with momentum, indicating that 26 points up in the S&P was not likely to hold. Meanwhile liquidation continued in the Gold market as the bubble of the last few months begins to deflate, Crude Oil swung from strength to weakness along with Equities, and the Euro continued to rally as shorts exit the market temporarily. Overall, the day was a bit of a jumble again, as most of early July has been, and reinforces for the time being that taking profits when you catch a decent move is not a bad idea for right now. We are seeing the volatility, but continuation on moves on a day to day basis has not followed over the last week.
When I woke up this morning the macro market was sitting on its lows for the overnight session, but had traded back to test its highs by the time I began writing this letter. The story again this morning is continued liquidation in both Gold and Silver and weaker Foreign Currency markets, although it still looks like direction for the day could be up in the air. Yesterday's action however was another prime example of why I believe that rallies in supportive Commodities should continue to be sold. Equities had almost every reason to rally from the start of a new week, technical support, and little fundamental news this week to derail a move higher, but still only managed to close slightly higher. With the S&P 500 and other Equity Indices putting up a resilient fight with some built up support from 1012 to 1018 there could still be some temporary sideways trade, but with risk aversion markets continuing to rally and the Metals indicating further deflationary pressure I believe that it is not long till the volatility turns directionally lower again.
I continue to recommend selling rallies in supportive Commodity markets (other than Grains right now in the growing season) and believe that the S&P 500 with a projection range of 856 - 870 on the head and shoulders pattern should be the indicator market on a macro move lower. For longer term traders I still recommend the Best Buys over the next few months are: Bonds, Japanese Yen, and Gold as a spread against a short position in another market. Also, going forward the Best Sells over the next few months are: Nasdaq, Copper, Silver, Palladium, Crude Oil, and Australian Dollar.
Buys to Watch:
Japanese Yen- The Yen was beginning to look tired, but with a new momentum buy signal possibly emerging for the daily Stochastics and the chart maintaining its climb higher the Yen will remain in the Buys column for a bit longer. The chart still is on the larger bullish head and shoulders pattern with the breakout level near 112 and a projection to near the 119 level. For long entry today I recommend purchasing near the higher volume support range from 114.32 - 114.52 with a stop placement below this range. Take note that the Yen is now encountering the 115 level, which has rejected a rally overnight as well as earlier last week as it is a sticky point. The Japanese Government has protected the 115 level in the past, but as of right now there is no indication that there will be any Currency intervention attempt. If on a market rally the Yen does stall out for a third time near 115 it would be wise to take some profits and possibly wait for re-entry after a breakout above 115 is confirmed.
Sells to Watch:
Silver- Silver is still broken out on the upsloping bearish head and shoulders pattern with a projection to $15.75. Silver has built up a bit of higher volume range trade between $17.74 and $17.84 that is now a good area to target for an initial short position in the market. This morning there appears to actually be some allocation on the open into both the Silver and Gold markets, but despite this allocation, I still believe that both markets are headed for continued liquidation, with some of this continuing to come on both the U.S. Equity market open and the Silver market close. Be aware that there are two support trends for the market near $17.50 and $17.30 that could be a temporary sticking point for the market on a break. However, once Silver breaks below $17.195 a double top/cup and handle pattern will also be set off that has a projection to $14.94.
September Coffee- With a close below 160.10 yesterday Coffee set off a bearish cup and handle reversal pattern that now has a projection to 150.95. The market has been extremely volatile as of late so use caution, but is a bit more calm thus far this morning. For short entry I recommend looking to sell against the beginning of a higher volume trade profile for the market at 159.10 with stop placement above this to the top of the higher volume trade at 160.50.
December Cotton- This trade was destined for the radar this morning, but after the bearish breakout on the open this morning it has been moved to the sell column. While front month July Cotton continues to have short term demand the deferred December contract is falling apart with conviction on a break that has now set off a bearish reversal pattern that resembles a double top (although not really). The move below 74.09 sets off the pattern that I am measuring an objective for using the left side high that points towards a move to 69 cents. For entry today I am using the higher volume trade from overnight and placing my stop above 74.65 for a lower risk shot on this initial entry because if you wanted to really be safe you would have to place a stop nearly a full cent higher yet risking much more. There should be opportunity tomorrow to add to this initial position.
Put on the Radar:
S&P 500 and Nasdaq- The Nasdaq continues to be the best sale of the Equity Indices, but the S&P 500 is the leading indicator and the market that I am using to gauge entry. The S&P 500 has built up a large traded profile right at the 1023.50 level, which is now acting as sort of a mid-range level on this recent sideways trade. The market has rallied above this level as I have written this morning, but this mid-level range does extend up to 1026 as another bit of resistance for the market. The levels that I provided for the Nasdaq (sell zone 1739 - 1755.50 w/ high volume resistance 1756.50 - 1762) and S&P 500 (sell zone 1028.25 - 1032.50 w/ high volume resistance 1033.75 - 1039) acted as a top yesterday for the market rally although they were traded into the upper portions of their resistance. I believe that if Equities are able to mount a rally today into these levels again that they are good sales again with an emphasis on the Nasdaq.
Notes:
Crude Oil- Although Crude Oil never ticked all the way to my $70.96 projection it came very close and as it is acting as a market strength this morning I am suggesting liquidation of short positions in the market for the time being. Although you could have parked a jumbo jet in the large low volume zone I provided for short entry yesterday it did act as a top for the market on a roughly $2 break in the market. There is a bit of fundamental uncertainty surrounding the future for Crude Oil in regards to the Gulf Oil Spill, real supply/demand, and the moratorium on drilling in the Gulf, so there could be some unexpected moves on a day to day basis as investors place future and current bets. I still believe that Crude is on a path towards a second leg lower near $58 - $60, but with some short term support in the market I recommend waiting prior to shorting the market again for the time being.
Tuesday, July 6, 2010
Tuesday 7/6/10 Commodity Ideas
Opening Note:
On a low volume day Friday that included another poor Unemployment number there were swings higher and lower with the conclusion being a weekly close confirming the bearish head and shoulders pattern for the S&P 500, yet some base support building over the short term for the market. The only real positive cases that I can make for the macro picture right now are that there is some short term support, Copper is not leading the way lower for the time being with it's sideways trade, and the majority right now is bearish (this really is not a bullish point other than if you blindly assume the majority is wrong). This support is being built between 1012 and 1018 in the S&P 500 generally during the overnight lower volume session, but now has rejected two attempts at moves lower over the last four days of trade that has also consisted of low volume. Last evening the Equity markets dipped lower on one of these rejections, but since the Asian market open have moved on nearly a straight shot upward on little fundamental news other than an upgrade on Australia's economy.
The most interesting notes on the market right now are in some of the correlations and relationships across Commodities. We have seen several days over the last couple weeks where both the Equities and Dollar Index have moved lower in conjunction. This could be an initial indicator of a shift in opinion on the U.S. Economy, with U.S. spending and debt raising more concern and encouraging a flight from the Dollar. However, I see this move more as a short covering rally in the European Currencies for the time being that is moving the Dollar lower. If the U.S. was really raising concern about it's spending then we would likely see some of these "bond vigilantes" also entering the market and pushing interest rates higher on greater speculation of default, so this feels more like a move out of some short Euro positions for the time being on a relief rally. Although Commodities have also come under some pressure lately in the Metal and Energy Sectors, Copper is clearly in more of a sideways range and as a good leading indicator is not pointing towards lower trade for the time being. Lastly, both Bonds and the Japanese Yen both look like they may be nearing exhaustion on their recent rallies and ready for a relief break in price over the short term.
Still, while the Equity markets maintain their bearish head and shoulders patterns and both the weekly and daily charts for supportive Commodities are pointing towards lower trade I remain Bearish and maintain that only short positions should be entered in supportive macro markets. Because I have been mostly Bearish in my dialogue lately I wanted to provide some devil's advocate opinion above on the potential that the macro market has a short term bullish move, but with higher volume resistance and good low volume levels for entry on short positions I believe that this rally today is another good opportunity to sell. Going forward the Best Buys are: Bonds, Japanese Yen, and Gold as a spread against a short position in another market. Going forward the Best Sells are: Nasdaq, Copper, Silver, Palladium, Crude Oil, and Australian Dollar.
Buys to Watch:
Japanese Yen- The Japanese Yen has been moving mostly in conjunction with Bond prices lately, but has outperformed the Fixed Income market over the last week in my opinion making it the current better buy. The Yen is still on it's bullish head and shoulders pattern with a breakout level near 112 and a projection now to around 119. For entry today I still recommend the lower volume zone between 113.70 and 114.02 with moderate volume support near 113.54 and higher volume support near 113.26 for stop placement. For long entry on the Yen I still recommend using a smaller position size than normal though as the daily chart is beginning to show signs of slowing with Stochastics now potentially producing a momentum sell signal in overbought territory. However, this low volume zone has provided support thus far again this morning.
Sells to Watch:
Nasdaq and S&P 500- I still believe that the Nasdaq is the better sale of the two markets, but with the leader/laggard for the Equity markets swinging on a daily basis I will provide levels for both markets. Both markets are broken out on large daily head and shoulders patterns with the Nasdaq having a projection to 1479 now and the the S&P 500 projecting to 856 -870. For the Nasdaq today there is a low volume zone between 1739 and 1755.50 with higher volume resistance from 1756.60 to 1762 for stop placement. For the S&P 500 there is a low volume zone between 1028.25 and 1032.50 with higher volume resistance ranging from 1033.75 up to 1039. As both markets have already entered their respective sell zones this morning I am currently waiting until the U.S. open this morning prior to entry to see if there is more short covering to follow early. As a note of caution, both markets are also near producing buy signals on their daily Stochastics indicators, but still maintain a bearish trend for the time being.
Crude Oil- Crude Oil has a projection to $70.96 on it's bearish cup and handle reversal that has yet to reach it's objective. There is a large low volume zone ranging from $73.30 to $74.18 for short entry again with a range of higher volume resistance above the market from $74.39 to $74.59 for stop loss placement. Crude has been one of the poorest performers among the Commodity Sector over the last few days and is again one of the laggards on a day when the macro market is much firmer, so it is still a good short at the above levels.
Silver- This morning Gold is the weaker market as Silver tends to travel more with Equities, but I still believe that with the large bearish cup and handle pattern in place that Silver is still the better sale. The Silver market still has a large amount of open interest that it can liquidate and with a projection to $15.75 now and a busted uptrend the market is one of my favorite shorts for the time being. If the market is able to rally to the low volume zone left between $18.12 to $18.365 this is a good level for short entry with resistance above between $18.44 and $18.54. However, I believe it is less likely that Silver does rally to this level so using a 15 or 60 minute chart for an approximate top is probably the better option for short entry. Liquidation among Silver in Gold has tended to come both near the market's open as well as the Equity open and prior to the market's close at 12:30 CT over the month of July, so these are good times to focus on front running for short entry. Drawing some weaker trendlines among the spiky lows for the market provides some support levels that could temporarily stall the market at $17.50 and $17.30 for today.
Put on the Radar:
Soft Sector Trades- September Coffee, October Sugar, and December Cotton all have potential trades on their radar right now, with the Coffee trade currently looking the most promising. For the September Coffee there is a bearish reversal pattern that has been temporarily set-off and negated this morning with a move below 160.10 projecting a move to 150.95 on the daily chart. October Sugar has a bullish continuation pattern with a move above 16.68 providing an objective of 18.24. The Sugar market has basically traded above this breakout level for all of the trade this morning and overnight, but be aware that Bullish moves in the market have not come easily lately with a number of them rejected over the last couple months. Finally, while Cotton's front month has acted bullish on nearby demand, the December contract has had a more recent bearish move that could set off a reversal pattern with momentum below 74.08 projecting a move back to the 69 cent level. Overall, I like the Coffee trade here the best, but use caution as the market has been volatile lately.
Notes:
Euro- The Euro has a confirmed bullish head and shoulders pattern that has a projected move of 130.89. As I stated in my opening note, I believe that much of the bearish move in the Dollar Index is tied strictly to the rally in the heavily weighted Euro among the Index, which looks like it may have continuation higher still. I am completely uninterested in trying to Buy the Euro for the time being as I would love the opportunity to get short at around this 131 projection rather than try to catch any rally, but I am keeping this rally objective on my mind.
On a low volume day Friday that included another poor Unemployment number there were swings higher and lower with the conclusion being a weekly close confirming the bearish head and shoulders pattern for the S&P 500, yet some base support building over the short term for the market. The only real positive cases that I can make for the macro picture right now are that there is some short term support, Copper is not leading the way lower for the time being with it's sideways trade, and the majority right now is bearish (this really is not a bullish point other than if you blindly assume the majority is wrong). This support is being built between 1012 and 1018 in the S&P 500 generally during the overnight lower volume session, but now has rejected two attempts at moves lower over the last four days of trade that has also consisted of low volume. Last evening the Equity markets dipped lower on one of these rejections, but since the Asian market open have moved on nearly a straight shot upward on little fundamental news other than an upgrade on Australia's economy.
The most interesting notes on the market right now are in some of the correlations and relationships across Commodities. We have seen several days over the last couple weeks where both the Equities and Dollar Index have moved lower in conjunction. This could be an initial indicator of a shift in opinion on the U.S. Economy, with U.S. spending and debt raising more concern and encouraging a flight from the Dollar. However, I see this move more as a short covering rally in the European Currencies for the time being that is moving the Dollar lower. If the U.S. was really raising concern about it's spending then we would likely see some of these "bond vigilantes" also entering the market and pushing interest rates higher on greater speculation of default, so this feels more like a move out of some short Euro positions for the time being on a relief rally. Although Commodities have also come under some pressure lately in the Metal and Energy Sectors, Copper is clearly in more of a sideways range and as a good leading indicator is not pointing towards lower trade for the time being. Lastly, both Bonds and the Japanese Yen both look like they may be nearing exhaustion on their recent rallies and ready for a relief break in price over the short term.
Still, while the Equity markets maintain their bearish head and shoulders patterns and both the weekly and daily charts for supportive Commodities are pointing towards lower trade I remain Bearish and maintain that only short positions should be entered in supportive macro markets. Because I have been mostly Bearish in my dialogue lately I wanted to provide some devil's advocate opinion above on the potential that the macro market has a short term bullish move, but with higher volume resistance and good low volume levels for entry on short positions I believe that this rally today is another good opportunity to sell. Going forward the Best Buys are: Bonds, Japanese Yen, and Gold as a spread against a short position in another market. Going forward the Best Sells are: Nasdaq, Copper, Silver, Palladium, Crude Oil, and Australian Dollar.
Buys to Watch:
Japanese Yen- The Japanese Yen has been moving mostly in conjunction with Bond prices lately, but has outperformed the Fixed Income market over the last week in my opinion making it the current better buy. The Yen is still on it's bullish head and shoulders pattern with a breakout level near 112 and a projection now to around 119. For entry today I still recommend the lower volume zone between 113.70 and 114.02 with moderate volume support near 113.54 and higher volume support near 113.26 for stop placement. For long entry on the Yen I still recommend using a smaller position size than normal though as the daily chart is beginning to show signs of slowing with Stochastics now potentially producing a momentum sell signal in overbought territory. However, this low volume zone has provided support thus far again this morning.
Sells to Watch:
Nasdaq and S&P 500- I still believe that the Nasdaq is the better sale of the two markets, but with the leader/laggard for the Equity markets swinging on a daily basis I will provide levels for both markets. Both markets are broken out on large daily head and shoulders patterns with the Nasdaq having a projection to 1479 now and the the S&P 500 projecting to 856 -870. For the Nasdaq today there is a low volume zone between 1739 and 1755.50 with higher volume resistance from 1756.60 to 1762 for stop placement. For the S&P 500 there is a low volume zone between 1028.25 and 1032.50 with higher volume resistance ranging from 1033.75 up to 1039. As both markets have already entered their respective sell zones this morning I am currently waiting until the U.S. open this morning prior to entry to see if there is more short covering to follow early. As a note of caution, both markets are also near producing buy signals on their daily Stochastics indicators, but still maintain a bearish trend for the time being.
Crude Oil- Crude Oil has a projection to $70.96 on it's bearish cup and handle reversal that has yet to reach it's objective. There is a large low volume zone ranging from $73.30 to $74.18 for short entry again with a range of higher volume resistance above the market from $74.39 to $74.59 for stop loss placement. Crude has been one of the poorest performers among the Commodity Sector over the last few days and is again one of the laggards on a day when the macro market is much firmer, so it is still a good short at the above levels.
Silver- This morning Gold is the weaker market as Silver tends to travel more with Equities, but I still believe that with the large bearish cup and handle pattern in place that Silver is still the better sale. The Silver market still has a large amount of open interest that it can liquidate and with a projection to $15.75 now and a busted uptrend the market is one of my favorite shorts for the time being. If the market is able to rally to the low volume zone left between $18.12 to $18.365 this is a good level for short entry with resistance above between $18.44 and $18.54. However, I believe it is less likely that Silver does rally to this level so using a 15 or 60 minute chart for an approximate top is probably the better option for short entry. Liquidation among Silver in Gold has tended to come both near the market's open as well as the Equity open and prior to the market's close at 12:30 CT over the month of July, so these are good times to focus on front running for short entry. Drawing some weaker trendlines among the spiky lows for the market provides some support levels that could temporarily stall the market at $17.50 and $17.30 for today.
Put on the Radar:
Soft Sector Trades- September Coffee, October Sugar, and December Cotton all have potential trades on their radar right now, with the Coffee trade currently looking the most promising. For the September Coffee there is a bearish reversal pattern that has been temporarily set-off and negated this morning with a move below 160.10 projecting a move to 150.95 on the daily chart. October Sugar has a bullish continuation pattern with a move above 16.68 providing an objective of 18.24. The Sugar market has basically traded above this breakout level for all of the trade this morning and overnight, but be aware that Bullish moves in the market have not come easily lately with a number of them rejected over the last couple months. Finally, while Cotton's front month has acted bullish on nearby demand, the December contract has had a more recent bearish move that could set off a reversal pattern with momentum below 74.08 projecting a move back to the 69 cent level. Overall, I like the Coffee trade here the best, but use caution as the market has been volatile lately.
Notes:
Euro- The Euro has a confirmed bullish head and shoulders pattern that has a projected move of 130.89. As I stated in my opening note, I believe that much of the bearish move in the Dollar Index is tied strictly to the rally in the heavily weighted Euro among the Index, which looks like it may have continuation higher still. I am completely uninterested in trying to Buy the Euro for the time being as I would love the opportunity to get short at around this 131 projection rather than try to catch any rally, but I am keeping this rally objective on my mind.
Friday, July 2, 2010
Friday 7/2/10 Commodity Ideas
*Extra Early Pre-Unemployment Edition: Why do I wake up an extra hour earlier than my normally ridiculous wake-up time? So I don't look like an idiot spending 2 1/2 Hours working to have the number make my observations obsolete. So enjoy and Happy 4th of July!
Opening Note:
From a macro trader's perspective let me tell you that yesterday was one of the oddest allocation and realignment days at the start of a quarter that I have ever seen. The Dow dipped into triple digit losses to recover to nearly even by early afternoon, Gold and Silver finally began their puke like I have been expecting for months, the U.S. Dollar got pounded while European Currencies rallied, Energies fell apart, and huge short covering continued to rally Corn and Wheat post-report. What does this all mean? It means that there is a lot of uncertainty out there right now and the general theme for yesterday was unwinding of both short and long positions all over. What this did was swing many of the correlations within the market, with the large Dollar Index break in conjunction with large Metal and Energy price breaks seemingly the oddest move. Much of this was caused by the large unwind of the popular Long Gold vs. Short Euro Gartman trade that was liquidated in mass yesterday.
While many traders have been short the Grain Complex (specifically corn and wheat), European Currencies, and Equities it appears that while much of the market has become bearish the money is even fleeing the short positions prior to today's Unemployment Report and possibly for this Quarter. Meanwhile, the long liquidation of some of the popular investment Commodities in the Metal and Energy markets was apparent right on the stock market open. About a week ago I predicted that this Gold trade has become so overloaded (and seemingly manipulated on the close to barely maintain the Bullish trend) that there would be an initial $60 drop on the day the bubble burst. Well Gold fell over $45 by late afternoon yesterday as the Silver market also burst on an over-allocated and arguably uncharacteristic trade for the fundamentals of the market.
Today nearly all of the market is expecting a Bearish Unemployment Report, but the question is if it does come out Bearish is this a Bullish sign on an overloaded short the market trade? The jury is still out and this morning and I am coming in nearly flat as yesterday's action left me saying "Thank you I picked the right markets, but get me out of here". I still maintain a Bearish stance on the macro market with the S&P 500 maintaining its head and shoulders pattern below 1033, but when these patterns fail it is usually on a 2 - 4 day dip below the breakout where the market finds a base and then shoots back out the top. Yesterday the Equities set up the "trendline of death" to slowly tick the shorts out of the market and rally from it's lows back near the open, which could be a sign of a temporary base and subsequent failure on the pattern. Also, why is Copper not following or leading the market lower? For right now I recommend continuing to trade with smaller size and only initiating short positions on supportive Commodity markets. Markets will be thinner today due to the long holiday and there is no harm in waiting till the dust clears Tuesday to enter positions.
Going forward the Best Buys are: Bonds, Japanese Yen, and Gold as a spread against a short position in another market. Going forward the Best Sells are: Nasdaq, Copper, Silver, Palladium, Crude Oil, and Australian Dollar.
Buys to Watch:
Japanese Yen- The Japanese Yen still maintains it's bullish breakout above 112 on the large head and shoulders pattern with a projection that ranges right around the 119 level. The Yen was an early strength yesterday and while it did manage to close well it did so after falling 80+ ticks off its high. For entry today there is a low volume zone between 113.70 to 114.02 with some minor higher volume support near 113.54 and better high volume support near 113.26 for stop placement. This low volume zone was traded into overnight and found support already on the minor support level thus far, but would still be a good spot for long initiation today if it is pulled back into. The Yen daily chart is becoming slightly overextended though with Stochastics close to producing a sell signal for the daily chart and RSI also reaching higher into overbought territory. Furthermore, the Yen has struggled near the 114 and 115 levels when it has reached them as the Japanese Government likes this level to intervene and devalue its Currency (I think they are setting up to get run over if they are trying it again this time). So, I suggest using a smaller size than normal for the new purchase of Yen.
Long Term Spread Trades- As yesterday was extremely busy for me trading-wise I did not have the time to work out the execution ratios for these spreads, but this may be a good thing as Gold liquidation may continue with volatility over the short term. Although Gold did have an initial strong liquidation yesterday, these trades are based on a deflationary weakening economy that should work for a number of months where Gold should hold its value better than the weaker markets. Keep these on your radar as a weekly chart and we can explore them again on Tuesday to decide if it is the right environment for entry.
Gold/Crude Oil
Gold/Silver
Gold/Copper
Sells to Watch:
Nasdaq (with S&P 500 indicator)- Below 1781 the Nasdaq has a confirmed breakout on the bearish head and shoulders pattern with a projection to 1479. The S&P 500 also still has this same pattern as well that is now confirmed with another close below 1033 with a projection range from 856 -870. In the Opening Note I expressed concern about the possible negation of this pattern with a short term base possibly setting up and leading to a short covering rally. Another note of temporary concern is the "death cross" that is approaching where the 50 day moving average crosses the 200 day moving average showing one of the most recognizable Bearish patterns. It is very possible that the market finds some temporary support as the Bulls have a last gasp at saving the market meaning some gains in Equities for the time being. However, while these patterns are still broken out on Bearish patterns I am still willing to step in at good spots to short the market with a smaller than normal position. The Nasdaq should continue to be the weakest Equity Index and the low volume zone between 1739 and 1755.50 with higher volume resistance near 1762 for stop placement is the level to get short at today.
Silver- Silver finally set off the bearish head and shoulders pattern with a close below $18.30 that has a projection to $15.75 on the large move. Today this neckline is sitting at $18.32 with a close below this level confirming the pattern. Today there is some volume resistance at $18.115 that has provided a top on the market overnight, but a good low volume zone from $18.13 to $18.24 with higher volume resistance at $18.25 for initiation of a short position. I know that Gold also has had strong liquidation, but Silver should be the better longer term short trade as the Fundamental story for the Commodity is one that falls harder with deflation and a weaker economy. This move lower in Silver is likely to be extremely fast, so I recommend getting on it when you have the opportunity.
Crude Oil- Crude Oil has a projection to $70.96 with the confirmed reversal below $75.17. It is also likely that the market is now in the midst of a second leg lower on the large bearish move that projects to $58 - $60. For short entry today there is a low volume zone from $73.30 to $73.92 with higher volume resistance near $74.52. This low volume zone was barely breached overnight and as it is rather large I suggest waiting until the market nears the top of it before entering a short position on a rally.
Put on the Radar:
Palladium- There is a VERY large topping pattern in Palladium that is on the verge of breaking out. Because Palladium is such a thin market and I'm not sure if anyone that reads this letter actually trades it I will lay off of a description today as I am running out of time and come back to it on Tuesday.
Notes:
Bonds- Bonds found another rally yesterday morning, but the market now feels like it is on it's last breath for the current rally prior to the pullback. The bullish cup and handle pattern has been reached at 127.17 and the 129 triangle projection was also nearly reached yesterday afternoon. I recommend liquidating longs for the time being. On the weekly chart I project the Bonds to rally near 133, so this will likely be a long position to revisit in the future.
Opening Note:
From a macro trader's perspective let me tell you that yesterday was one of the oddest allocation and realignment days at the start of a quarter that I have ever seen. The Dow dipped into triple digit losses to recover to nearly even by early afternoon, Gold and Silver finally began their puke like I have been expecting for months, the U.S. Dollar got pounded while European Currencies rallied, Energies fell apart, and huge short covering continued to rally Corn and Wheat post-report. What does this all mean? It means that there is a lot of uncertainty out there right now and the general theme for yesterday was unwinding of both short and long positions all over. What this did was swing many of the correlations within the market, with the large Dollar Index break in conjunction with large Metal and Energy price breaks seemingly the oddest move. Much of this was caused by the large unwind of the popular Long Gold vs. Short Euro Gartman trade that was liquidated in mass yesterday.
While many traders have been short the Grain Complex (specifically corn and wheat), European Currencies, and Equities it appears that while much of the market has become bearish the money is even fleeing the short positions prior to today's Unemployment Report and possibly for this Quarter. Meanwhile, the long liquidation of some of the popular investment Commodities in the Metal and Energy markets was apparent right on the stock market open. About a week ago I predicted that this Gold trade has become so overloaded (and seemingly manipulated on the close to barely maintain the Bullish trend) that there would be an initial $60 drop on the day the bubble burst. Well Gold fell over $45 by late afternoon yesterday as the Silver market also burst on an over-allocated and arguably uncharacteristic trade for the fundamentals of the market.
Today nearly all of the market is expecting a Bearish Unemployment Report, but the question is if it does come out Bearish is this a Bullish sign on an overloaded short the market trade? The jury is still out and this morning and I am coming in nearly flat as yesterday's action left me saying "Thank you I picked the right markets, but get me out of here". I still maintain a Bearish stance on the macro market with the S&P 500 maintaining its head and shoulders pattern below 1033, but when these patterns fail it is usually on a 2 - 4 day dip below the breakout where the market finds a base and then shoots back out the top. Yesterday the Equities set up the "trendline of death" to slowly tick the shorts out of the market and rally from it's lows back near the open, which could be a sign of a temporary base and subsequent failure on the pattern. Also, why is Copper not following or leading the market lower? For right now I recommend continuing to trade with smaller size and only initiating short positions on supportive Commodity markets. Markets will be thinner today due to the long holiday and there is no harm in waiting till the dust clears Tuesday to enter positions.
Going forward the Best Buys are: Bonds, Japanese Yen, and Gold as a spread against a short position in another market. Going forward the Best Sells are: Nasdaq, Copper, Silver, Palladium, Crude Oil, and Australian Dollar.
Buys to Watch:
Japanese Yen- The Japanese Yen still maintains it's bullish breakout above 112 on the large head and shoulders pattern with a projection that ranges right around the 119 level. The Yen was an early strength yesterday and while it did manage to close well it did so after falling 80+ ticks off its high. For entry today there is a low volume zone between 113.70 to 114.02 with some minor higher volume support near 113.54 and better high volume support near 113.26 for stop placement. This low volume zone was traded into overnight and found support already on the minor support level thus far, but would still be a good spot for long initiation today if it is pulled back into. The Yen daily chart is becoming slightly overextended though with Stochastics close to producing a sell signal for the daily chart and RSI also reaching higher into overbought territory. Furthermore, the Yen has struggled near the 114 and 115 levels when it has reached them as the Japanese Government likes this level to intervene and devalue its Currency (I think they are setting up to get run over if they are trying it again this time). So, I suggest using a smaller size than normal for the new purchase of Yen.
Long Term Spread Trades- As yesterday was extremely busy for me trading-wise I did not have the time to work out the execution ratios for these spreads, but this may be a good thing as Gold liquidation may continue with volatility over the short term. Although Gold did have an initial strong liquidation yesterday, these trades are based on a deflationary weakening economy that should work for a number of months where Gold should hold its value better than the weaker markets. Keep these on your radar as a weekly chart and we can explore them again on Tuesday to decide if it is the right environment for entry.
Gold/Crude Oil
Gold/Silver
Gold/Copper
Sells to Watch:
Nasdaq (with S&P 500 indicator)- Below 1781 the Nasdaq has a confirmed breakout on the bearish head and shoulders pattern with a projection to 1479. The S&P 500 also still has this same pattern as well that is now confirmed with another close below 1033 with a projection range from 856 -870. In the Opening Note I expressed concern about the possible negation of this pattern with a short term base possibly setting up and leading to a short covering rally. Another note of temporary concern is the "death cross" that is approaching where the 50 day moving average crosses the 200 day moving average showing one of the most recognizable Bearish patterns. It is very possible that the market finds some temporary support as the Bulls have a last gasp at saving the market meaning some gains in Equities for the time being. However, while these patterns are still broken out on Bearish patterns I am still willing to step in at good spots to short the market with a smaller than normal position. The Nasdaq should continue to be the weakest Equity Index and the low volume zone between 1739 and 1755.50 with higher volume resistance near 1762 for stop placement is the level to get short at today.
Silver- Silver finally set off the bearish head and shoulders pattern with a close below $18.30 that has a projection to $15.75 on the large move. Today this neckline is sitting at $18.32 with a close below this level confirming the pattern. Today there is some volume resistance at $18.115 that has provided a top on the market overnight, but a good low volume zone from $18.13 to $18.24 with higher volume resistance at $18.25 for initiation of a short position. I know that Gold also has had strong liquidation, but Silver should be the better longer term short trade as the Fundamental story for the Commodity is one that falls harder with deflation and a weaker economy. This move lower in Silver is likely to be extremely fast, so I recommend getting on it when you have the opportunity.
Crude Oil- Crude Oil has a projection to $70.96 with the confirmed reversal below $75.17. It is also likely that the market is now in the midst of a second leg lower on the large bearish move that projects to $58 - $60. For short entry today there is a low volume zone from $73.30 to $73.92 with higher volume resistance near $74.52. This low volume zone was barely breached overnight and as it is rather large I suggest waiting until the market nears the top of it before entering a short position on a rally.
Put on the Radar:
Palladium- There is a VERY large topping pattern in Palladium that is on the verge of breaking out. Because Palladium is such a thin market and I'm not sure if anyone that reads this letter actually trades it I will lay off of a description today as I am running out of time and come back to it on Tuesday.
Notes:
Bonds- Bonds found another rally yesterday morning, but the market now feels like it is on it's last breath for the current rally prior to the pullback. The bullish cup and handle pattern has been reached at 127.17 and the 129 triangle projection was also nearly reached yesterday afternoon. I recommend liquidating longs for the time being. On the weekly chart I project the Bonds to rally near 133, so this will likely be a long position to revisit in the future.
Thursday, July 1, 2010
Thursday 7/1/10 Commodity Ideas
Opening Note:
Although yesterday's market action started off slow (except in Corn) if you stuck around till the stock market close you witnessed a fireworks display as the Equity markets were efficiently dismantled, in almost a calm matter, setting off the large bearish head and shoulders pattern in the S&P 500. This pattern paints an extremely bearish outlook on the entire macro market for the rest of the summer as it points towards another round of global liquidation and de-leveraging that will look similar to the break in late '08. With another lower confirmation close today in the S&P 500 I feel confident that the deal is pretty much sealed as Currencies and Fixed Income have pointed towards this move for months and the risk indicator markets like the Euro/Yen have slid below their old bases from the crash in '08.
Now this is not a stock investors or wealth management newsletter, but rather a letter for Commodity traders that have much more ease in going short a market and when trading should leave emotion at the door in regards to sentiment about a higher stock market. I apologize in advance if I come off at times like an eternal pessimist that wants to plunder Main Streets 401 K's and the Economy to collapse, but this is not my personal beliefs. Believe me I want nothing but the most sincere prosperity for the economy and I personally know how hard it is to find a job right now (who knew the supply of waiters was way beyond demand).
That being said, the entire macro market is starting to look very similar to the garbage it was in the second half of 2008. The difference this time is that as traders we have a clearly laid out blueprint of the general order of market liquidation among the individual markets and sectors. Those that have read my letter for a while have likely noted that my track record definitely dips at times when there is sideways trade or a lack of a real story, but when I get on a roll it keeps coming and makes up for the chop. With a directional move with volatility on the horizon I think it is more likely that this could be on of the makeup times.
I have had a difficult time fundamentally sitting on the Bullish side of the trade even over the last year and a half that saw a decent market rally. Since the dip in the market in early January I have thought long and hard about the game plan for another liquidation scenario and here is a general synopsis of what I am looking at for the next month or two from the Buys and the Sells Sides. Going forward the Best Buys are: Bonds, Japanese Yen, Dollar Index and Gold as a spread against a short position in another market. Going forward the Best Sells are: Nasdaq, Copper, Silver, Palladium, Crude Oil, and Australian Dollar. My trade ideas over the coming months will likely trend around these ideas.
This morning the Jobless Claims number was weaker than expectations and led the market lower, but notable to me is that Commodity markets like Copper, Crude Oil, Gold and Silver all found bounces along with Equities after the initial fall after the report. Use caution with these markets this morning. Today is the start of the 3rd Quarter and there is the possibility that there is some new allocation in the market (don't know if I'd be doing that now). I also believe that there have been traders front running this potential allocation and have been propping up some of these Commodity markets in advance. We could see some new inflows around 8:30 CT, but this could also be a setup for a puke by the front runners as the markets continue to liquidate.
Going forward for the rest of the summer I recommend only holding short positions in the supportive macro markets. Now that the S&P 500 has set off the bearish head and shoulders pattern we need to wait for confirmation on the move, which would likely best be met by a weekly close on Friday after Unemployment below this breakout level.
Buys to Watch:
Long Term Trade Ideas- I need to work out the execution ratios for these trades, but for long term traders I recommend buying Gold as a spread against some of the Commodities that I believe will be the weakest performers going forward. In times of deflation and a weaker macro market Gold acts as a store of value away from the riskier assets. I believe that Gold will likely experience a decline in it's own outright price as well, but will hold it's price much better than these other assets. Look at a weekly chart of these relationships as they are advancing on what I believe could be another large spike similar to the one in late '08 and I will work on the execution parameters.
Gold/Crude Oil
Gold/Silver
Gold/Copper
Japanese Yen- The Japanese Yen is on a bullish head and shoulders pattern that had a breakout level of 112.00 and has a projection to the a range around the 119 level. This morning the Yen is on a tear higher as a risk aversion asset that really broke out just before the Jobless Claims number. For entry today I am looking at buying a pullback into the low volume zone left from this early rally between 113.64 and 113.96 with higher volume support for stop placement ranging between 113.14 and 113.56.
Sells to Watch:
Crude Oil- I am still keeping this trade in the sell section, but proceed with caution this morning as the market continues to rebound on large buying as there could be some allocation this morning. However, Crude Oil has a confirmed reversal below $75.17 that has a projection to $70.96. There is a small low volume zone for short entry between $75.06 and $75.10 with some smaller higher volume trade from $75.14 and 75.38. But, the larger high volume resistance level is from 75.38 to 75.88. Both Stochatics and RSI for the daily chart remain in a bear market range and show a continuing decline in momentum and price.
Nasdaq (with S&P 500 indicator)- The Nasdaq has a large bearish head and shoulders pattern similar to the S&P 500 that actually was set off a day prior with two consecutive close below 1781 now projecting a move to 1479. As noted in the Opening Note, the S&P 500 has set off it's own bearish head and shoulders pattern below 1033 yesterday that projects to 856 - 870. For entry today there is a large low volume zone in the Nasdaq left from yesterday's break on the close between 1739 - 1755.50 with high volume resistance near 1762 for stop placement. The Nasdaq should be the weakest performer among the Equity Indices going forward, as it was the biggest gainer on the way up, and I believe is the best short. A close above 1033 today in the S&P 500 would make me reconsider holding this short position however even if it was working.
Put on the Radar:
Metal Sector- Gold has now violated it's nearby upsloping trendline with 3 consecutive closes meaning that liquidation is now on the horizon for the Metal markets. Below $1232 today Gold sets off a small bearish head and shoulders pattern that will likely take the market below the $1225 level, which would confirm a bearish reversal. However, I am still more interested in shorting the Silver market as it is more of an industrial metal that is uncharacteristically being propped up on buying in the market as a precious metal. Silver continues to post (what I believe are manipulated) closes just above it's own individual nearby uptrend, which lies at $18.60 today. Below $18.295 today Silver sets off a bearish head and shoulders pattern that projects to $15.75. With still large open interest in the Metal Sector I believe that once Silver sets off this pattern that the move lower will be extremely fast, so be ready to hop on it.
Notes:
Bonds- I no longer recommend a strong entry into the Bond market from the long side, but purchasing a half or quarter position should still be a good trade going forward. The Bond market has met it's 127.17 bullish cup and handle projection and is looking a bit over-extended on the daily chart. But, there still is a triangle projection for the market to 129 and as long as the Equities continue to weaken we should see gains in bond prices. This morning there is a high volume support level from 127.11 - 127.12 for small long entry and stop placement below if you are still holding a longer term position.
Although yesterday's market action started off slow (except in Corn) if you stuck around till the stock market close you witnessed a fireworks display as the Equity markets were efficiently dismantled, in almost a calm matter, setting off the large bearish head and shoulders pattern in the S&P 500. This pattern paints an extremely bearish outlook on the entire macro market for the rest of the summer as it points towards another round of global liquidation and de-leveraging that will look similar to the break in late '08. With another lower confirmation close today in the S&P 500 I feel confident that the deal is pretty much sealed as Currencies and Fixed Income have pointed towards this move for months and the risk indicator markets like the Euro/Yen have slid below their old bases from the crash in '08.
Now this is not a stock investors or wealth management newsletter, but rather a letter for Commodity traders that have much more ease in going short a market and when trading should leave emotion at the door in regards to sentiment about a higher stock market. I apologize in advance if I come off at times like an eternal pessimist that wants to plunder Main Streets 401 K's and the Economy to collapse, but this is not my personal beliefs. Believe me I want nothing but the most sincere prosperity for the economy and I personally know how hard it is to find a job right now (who knew the supply of waiters was way beyond demand).
That being said, the entire macro market is starting to look very similar to the garbage it was in the second half of 2008. The difference this time is that as traders we have a clearly laid out blueprint of the general order of market liquidation among the individual markets and sectors. Those that have read my letter for a while have likely noted that my track record definitely dips at times when there is sideways trade or a lack of a real story, but when I get on a roll it keeps coming and makes up for the chop. With a directional move with volatility on the horizon I think it is more likely that this could be on of the makeup times.
I have had a difficult time fundamentally sitting on the Bullish side of the trade even over the last year and a half that saw a decent market rally. Since the dip in the market in early January I have thought long and hard about the game plan for another liquidation scenario and here is a general synopsis of what I am looking at for the next month or two from the Buys and the Sells Sides. Going forward the Best Buys are: Bonds, Japanese Yen, Dollar Index and Gold as a spread against a short position in another market. Going forward the Best Sells are: Nasdaq, Copper, Silver, Palladium, Crude Oil, and Australian Dollar. My trade ideas over the coming months will likely trend around these ideas.
This morning the Jobless Claims number was weaker than expectations and led the market lower, but notable to me is that Commodity markets like Copper, Crude Oil, Gold and Silver all found bounces along with Equities after the initial fall after the report. Use caution with these markets this morning. Today is the start of the 3rd Quarter and there is the possibility that there is some new allocation in the market (don't know if I'd be doing that now). I also believe that there have been traders front running this potential allocation and have been propping up some of these Commodity markets in advance. We could see some new inflows around 8:30 CT, but this could also be a setup for a puke by the front runners as the markets continue to liquidate.
Going forward for the rest of the summer I recommend only holding short positions in the supportive macro markets. Now that the S&P 500 has set off the bearish head and shoulders pattern we need to wait for confirmation on the move, which would likely best be met by a weekly close on Friday after Unemployment below this breakout level.
Buys to Watch:
Long Term Trade Ideas- I need to work out the execution ratios for these trades, but for long term traders I recommend buying Gold as a spread against some of the Commodities that I believe will be the weakest performers going forward. In times of deflation and a weaker macro market Gold acts as a store of value away from the riskier assets. I believe that Gold will likely experience a decline in it's own outright price as well, but will hold it's price much better than these other assets. Look at a weekly chart of these relationships as they are advancing on what I believe could be another large spike similar to the one in late '08 and I will work on the execution parameters.
Gold/Crude Oil
Gold/Silver
Gold/Copper
Japanese Yen- The Japanese Yen is on a bullish head and shoulders pattern that had a breakout level of 112.00 and has a projection to the a range around the 119 level. This morning the Yen is on a tear higher as a risk aversion asset that really broke out just before the Jobless Claims number. For entry today I am looking at buying a pullback into the low volume zone left from this early rally between 113.64 and 113.96 with higher volume support for stop placement ranging between 113.14 and 113.56.
Sells to Watch:
Crude Oil- I am still keeping this trade in the sell section, but proceed with caution this morning as the market continues to rebound on large buying as there could be some allocation this morning. However, Crude Oil has a confirmed reversal below $75.17 that has a projection to $70.96. There is a small low volume zone for short entry between $75.06 and $75.10 with some smaller higher volume trade from $75.14 and 75.38. But, the larger high volume resistance level is from 75.38 to 75.88. Both Stochatics and RSI for the daily chart remain in a bear market range and show a continuing decline in momentum and price.
Nasdaq (with S&P 500 indicator)- The Nasdaq has a large bearish head and shoulders pattern similar to the S&P 500 that actually was set off a day prior with two consecutive close below 1781 now projecting a move to 1479. As noted in the Opening Note, the S&P 500 has set off it's own bearish head and shoulders pattern below 1033 yesterday that projects to 856 - 870. For entry today there is a large low volume zone in the Nasdaq left from yesterday's break on the close between 1739 - 1755.50 with high volume resistance near 1762 for stop placement. The Nasdaq should be the weakest performer among the Equity Indices going forward, as it was the biggest gainer on the way up, and I believe is the best short. A close above 1033 today in the S&P 500 would make me reconsider holding this short position however even if it was working.
Put on the Radar:
Metal Sector- Gold has now violated it's nearby upsloping trendline with 3 consecutive closes meaning that liquidation is now on the horizon for the Metal markets. Below $1232 today Gold sets off a small bearish head and shoulders pattern that will likely take the market below the $1225 level, which would confirm a bearish reversal. However, I am still more interested in shorting the Silver market as it is more of an industrial metal that is uncharacteristically being propped up on buying in the market as a precious metal. Silver continues to post (what I believe are manipulated) closes just above it's own individual nearby uptrend, which lies at $18.60 today. Below $18.295 today Silver sets off a bearish head and shoulders pattern that projects to $15.75. With still large open interest in the Metal Sector I believe that once Silver sets off this pattern that the move lower will be extremely fast, so be ready to hop on it.
Notes:
Bonds- I no longer recommend a strong entry into the Bond market from the long side, but purchasing a half or quarter position should still be a good trade going forward. The Bond market has met it's 127.17 bullish cup and handle projection and is looking a bit over-extended on the daily chart. But, there still is a triangle projection for the market to 129 and as long as the Equities continue to weaken we should see gains in bond prices. This morning there is a high volume support level from 127.11 - 127.12 for small long entry and stop placement below if you are still holding a longer term position.
Wednesday, June 30, 2010
Wednesday 6/30/10 Commodity Ideas
Opening Note:
Following global concerns out of both Europe and China overnight, an extremely weak Consumer Confidence number added insult to injury as U.S. markets tumbled from the open to the close. It is odd to me how easily analysts just this morning are able to shrug off another 250+ point down day for the Dow, but a lot of people are still talking pretty chipper on the TV this morning. A lot more in the media seem to be choking on their words lately though as their cries for a V shaped recovery and then a 10% correction have changed to the canned answer "we are seeing signs of growth and improvement" and "there are value buys out there now because things have become cheap based on our valuations". For right now I recommend plugging your ears if you hear the words "valuation" or "cheap" because what some of these narrow-scoped analysts are missing is that this is a WorldWide de-leveraging, de-risking, and over spending story led by Currencies and Interest Rates that is in the process of completely warping the future earnings and economic data as we speak. Going forward I expect the numbers to continue to disappoint, as they have over the last few months, making the fundamental and technical picture continually bearish.
When I came into the office this morning the market was moderately higher, but after a poor ADP number the market is chasing it's lows from overnight again. Today is Wednesday and the last day of the 2nd Quarter, which means that there are 24 hours until we can celebrate LeBron coming to Chicago and until there is potentially a new batch of allocation in the market. Money has flowed out of the market over the last couple months so I expect more of a realignment of positions than any sort of rash of new money, but still be on the lookout for it, especially in the popular Metal Sector. There also is Unemployment on Friday, which along with the start of the quarter could stall the market until it is released.
Right now the Equity markets are sitting right on top of their last support base prior to setting off a large bearish top that will lead to a wave of declines across the macro market. As I stated yesterday, I only recommend entering short positions in the supportive Commodity markets as correlations will tighten leading all of the Commodity Sectors lower as we go forward. We are not out of the woods on the sideways, choppy trade, so I also still recommend trading with smaller size until a move below 1033 in the S&P 500 is confirmed.
*Roll Copper and Silver to September contracts. Also be aware of the Grain reports released this morning at 7:30 CT
Buys to Watch:
Japanese Yen- The Yen now has a confirmed bullish breakout on it's head and shoulders pattern with the close yesterday above 112.00. The move projects to a range near 119 for the Currency. Yesterday I provided the low volume zone between 112.14 and 112.54 with higher volume support between 111.95 and 112.12, but this zone was not entered despite coming close. These levels still stand today as a good opportunity for long entry, but before entering the market do take notice of the daily chart momentum indicators. Both RSI and Stochastics are sitting in overbought territory for the time being, but without a significant sell signal provided yet. This is not a death signal to the trade (I mean the stock market sat in overbought territory for months on the rally), but be aware if they do in fact show signs of a sell off.
Sells to Watch:
Australian Dollar- Yesterday I only had a brief entry in this sell section that included the Canadian and Euro as well, but after some more research I have come to the conclusion that the Aussie Dollar is the best supportive Currency sale going forward. On top of the Fundamental story of Government tax hikes that should lead to liquidation of the Currency the Aussie Dollar is also highly correlated to Commodities, which should also see a decline in price going forward in this deflationary environment. The Aussie set off a bearish reversal pattern yesterday below .8517 that now has a projection to .8334. For entry today there is a minuscule low volume zone from .8474 - .8476 with some higher volume resistance above from .8480 to .8496. This entry level has already worked and provided the high for the day and with a weak ADP number the Currency is much lower now. If this entry level provides another opportunity though it is a good low risk play.
As a side note I also recommend looking at a chart of the Aussie Dollar and Yen (Aussie/Yen to chart) as this chart looks like it is in the process of another bearish leg down. If you are able to enter both a long position in the Yen and a short position in the Aussie while simultaneously holding them this is a good spread position manufactured from the two individual trades.
Put on the Radar:
S&P 500 and Nasdaq- The S&P 500 found a support bounce yesterday off of my 1033 head and shoulders breakout level to close slightly above it. Overnight this level also provided support and again this morning after the ADP number. A move confirmed move below 1033 projects a move between 856 - 870 on the pattern. Although the S&P 500 has acted the weakest over the last couple months it was the Nasdaq that led the way lower yesterday. The Nasdaq was the best performing index on the 14 month rally and as it has the larger magnitude projection on the break I believe that it is the best sale in the Equity Sector going forward. I have the Nasdaq now working on confirmation on it's breakout on it's own head and shoulders pattern below 1781 yesterday that has a 302 point break projection to 1479. I will wait for confirmation from the S&P 500 indicator, but the Nasdaq will be the focus for short entry over the next month.
Notes:
Bonds- Bonds have now completed their cup and handle pattern projection of 127.17 overnight. I recommend at least taking half of your profits, but I believe that they could still be a good long position going forward as the less reliable triangle projection of 129 is still in play. There is higher volume support for the market at 126.27 for stop placement that has supported the market thus far today.
Following global concerns out of both Europe and China overnight, an extremely weak Consumer Confidence number added insult to injury as U.S. markets tumbled from the open to the close. It is odd to me how easily analysts just this morning are able to shrug off another 250+ point down day for the Dow, but a lot of people are still talking pretty chipper on the TV this morning. A lot more in the media seem to be choking on their words lately though as their cries for a V shaped recovery and then a 10% correction have changed to the canned answer "we are seeing signs of growth and improvement" and "there are value buys out there now because things have become cheap based on our valuations". For right now I recommend plugging your ears if you hear the words "valuation" or "cheap" because what some of these narrow-scoped analysts are missing is that this is a WorldWide de-leveraging, de-risking, and over spending story led by Currencies and Interest Rates that is in the process of completely warping the future earnings and economic data as we speak. Going forward I expect the numbers to continue to disappoint, as they have over the last few months, making the fundamental and technical picture continually bearish.
When I came into the office this morning the market was moderately higher, but after a poor ADP number the market is chasing it's lows from overnight again. Today is Wednesday and the last day of the 2nd Quarter, which means that there are 24 hours until we can celebrate LeBron coming to Chicago and until there is potentially a new batch of allocation in the market. Money has flowed out of the market over the last couple months so I expect more of a realignment of positions than any sort of rash of new money, but still be on the lookout for it, especially in the popular Metal Sector. There also is Unemployment on Friday, which along with the start of the quarter could stall the market until it is released.
Right now the Equity markets are sitting right on top of their last support base prior to setting off a large bearish top that will lead to a wave of declines across the macro market. As I stated yesterday, I only recommend entering short positions in the supportive Commodity markets as correlations will tighten leading all of the Commodity Sectors lower as we go forward. We are not out of the woods on the sideways, choppy trade, so I also still recommend trading with smaller size until a move below 1033 in the S&P 500 is confirmed.
*Roll Copper and Silver to September contracts. Also be aware of the Grain reports released this morning at 7:30 CT
Buys to Watch:
Japanese Yen- The Yen now has a confirmed bullish breakout on it's head and shoulders pattern with the close yesterday above 112.00. The move projects to a range near 119 for the Currency. Yesterday I provided the low volume zone between 112.14 and 112.54 with higher volume support between 111.95 and 112.12, but this zone was not entered despite coming close. These levels still stand today as a good opportunity for long entry, but before entering the market do take notice of the daily chart momentum indicators. Both RSI and Stochastics are sitting in overbought territory for the time being, but without a significant sell signal provided yet. This is not a death signal to the trade (I mean the stock market sat in overbought territory for months on the rally), but be aware if they do in fact show signs of a sell off.
Sells to Watch:
Australian Dollar- Yesterday I only had a brief entry in this sell section that included the Canadian and Euro as well, but after some more research I have come to the conclusion that the Aussie Dollar is the best supportive Currency sale going forward. On top of the Fundamental story of Government tax hikes that should lead to liquidation of the Currency the Aussie Dollar is also highly correlated to Commodities, which should also see a decline in price going forward in this deflationary environment. The Aussie set off a bearish reversal pattern yesterday below .8517 that now has a projection to .8334. For entry today there is a minuscule low volume zone from .8474 - .8476 with some higher volume resistance above from .8480 to .8496. This entry level has already worked and provided the high for the day and with a weak ADP number the Currency is much lower now. If this entry level provides another opportunity though it is a good low risk play.
As a side note I also recommend looking at a chart of the Aussie Dollar and Yen (Aussie/Yen to chart) as this chart looks like it is in the process of another bearish leg down. If you are able to enter both a long position in the Yen and a short position in the Aussie while simultaneously holding them this is a good spread position manufactured from the two individual trades.
Put on the Radar:
S&P 500 and Nasdaq- The S&P 500 found a support bounce yesterday off of my 1033 head and shoulders breakout level to close slightly above it. Overnight this level also provided support and again this morning after the ADP number. A move confirmed move below 1033 projects a move between 856 - 870 on the pattern. Although the S&P 500 has acted the weakest over the last couple months it was the Nasdaq that led the way lower yesterday. The Nasdaq was the best performing index on the 14 month rally and as it has the larger magnitude projection on the break I believe that it is the best sale in the Equity Sector going forward. I have the Nasdaq now working on confirmation on it's breakout on it's own head and shoulders pattern below 1781 yesterday that has a 302 point break projection to 1479. I will wait for confirmation from the S&P 500 indicator, but the Nasdaq will be the focus for short entry over the next month.
Notes:
Bonds- Bonds have now completed their cup and handle pattern projection of 127.17 overnight. I recommend at least taking half of your profits, but I believe that they could still be a good long position going forward as the less reliable triangle projection of 129 is still in play. There is higher volume support for the market at 126.27 for stop placement that has supported the market thus far today.
Tuesday, June 29, 2010
Tuesday 6/29/10 Commodity Ideas
Opening Note:
After a less than spectacular rally attempt yesterday (that I thought could have some legs) the S&P 500 failed near the moderate 1180 resistance level to fall back and close lower for the fifth day of the last six. This morning the U.S. market is well lower on weaker markets across the globe and some European banking fears as repayment of loans and concerns about Spain added fear to the markets. As we close up the 2nd Quarter and head into potential 3rd Quarter allocation and Unemployment on Friday it is now technical concerns that may rule the market in spite of Fundamental news regardless of whether it meets or beats expectations.
Think of the break in the market in May as the shrimp cocktail to what will occur in the markets once the S&P 500 sets off its large bearish head and shoulders reversal. I will go into further detail in the Radar, but below 1033 the S&P 500 has a projection range from 856 - 870 on what is likely only the initial wave on subsequent moves lower. With Currency and Fixed Income markets leading the way, Equity and Commodity markets have traded weaker for the last couple months. But, with large open interest still residing in the market on inflation and correction buying, many markets are now primed for large moves lower fueled by liquidation, deflation, and an overall weaker economy. Namely Silver, Copper, and the rest of the Metal Sector are sitting on large sums of open interest on a store of wealth trade (run to safety) and inflation trade that is on the verge of bursting and will likely see the swiftest move lower in the short term. However, as we have seen in the past, once the liquidation ball gets rolling no market is safe as the correlations tighten and fear rules.
Going forward I recommend only positioning yourself for short positions in supportive Commodities, meaning only being long Fixed Income, Dollar Index, Japanese Yen, and Gold vs. Another short position as a spread. It is possible that the market finds a bit of support over the rest of this week and possibly into next as some last ditch buying enters, but it could now be any day that the move lower begins and I do not wish to be caught on the wrong end once it starts. I still recommend using a smaller than normal position size when trading for the time being, but once the S&P 500 confirms a move below 1033 I encourage ramping up bearish market trades.
**Grain Stocks and Planted Acreage Report tomorrow so use caution and reduce Grain positions
Buys to Watch:
Bonds- Bonds still have a projection to 127.17 on the bullish cup and handle pattern that was nearly reached this morning with a high of 127.08. The market also has a bullish continuation triangle projection to the 129 handle, but this one is less reliable because the chart nearly reached the apex of the triangle prior to initiating the pattern. Bonds have weakened over the last couple hours and are heading towards a lower volume zone for initiation of a new long position. This low volume zone sits between 126.15 to 126.24 with higher volume support falling from 126.05 to 126.13. If you are already long I recommend using this higher volume support as your stop area now as well or taking profits for the time being if you are unwilling to risk this much. On a daily chart the momentum indicators are beginning to look a bit overextended as they head into overbought territory, but are not near producing a sell signal making the market a good buy still.
Japanese Yen- The Japanese Yen is now broken out on a large bullish head and shoulders pattern above 112.00 that projects to around the 119 price level. There are a number of different necklines that you can use for this pattern, but with the magnitude of the move today the market is now trading above all of these breakout values. Although the two confirmation closes over the last two days for the Yen were a bit sketchy, settling right near 112.00, I believe that you can now enter a smaller initial position on a pullback in the market. There is a low volume zone stretching between 112.12 and 112.54 with higher volume support between 112.12 and 111.95 for stop placement on the trade. For the time being I will only be entering 1/2 or less of a normal position for myself as the move is larger and longer in duration and wait for another higher entry level to initiate the rest of my full position. As a note of caution, the Japanese Government has a pattern of intervening to deflate it's Currency near the 114 -115 level, which may repeat and cause difficulty for the long position.
Sells to Watch:
Australian Dollar, Canadian Dollar, or Euro- I do not encourage going out full force and shorting all of these Currencies today, but each individual one has an unconfirmed bearish reversal that has set off today. In my opinion the Aussie Dollar is the best short going forward as it has more volatility on average than the Canadian and a weaker fundamental story due to Government tax hikes. The Australian and Canadian Dollars also have a stronger correlation to Commodity markets and with a liquidation and deflationary move on the horizon for Commodities these may have the better short term move. I do not have time today to list all of the entry levels or projections, but I recommend treading lighter in them today and taking another look tomorrow.
Put on the Radar:
S&P 500 (the leading market indicator)- First off, looking at a weekly chart for the S&P 500 draw a trendline on the chart from the low the week of Feb. 1st to the low the week of May 24th. This produces a breakout value on the bearish head and shoulders pattern of 1035.50 today. Now keeping this same neckline turn the chart into a daily and see that this same line has a value today of roughly 1033. This is the main line that I am using for confirmation on my bearish pattern, but there are still a number of different values that you can receive by connecting different levels. The main support band falls between 1033 and 1045, which could provide support over the short term, but with a convergence of bearish indicators, fundamental news, and technicals I believe that it is only a short time until the pattern is initiated. The head and shoulders pattern has a projection of 856 and to complete the range of expectations I am using 870 as a move based on the higher necklines. The S&P 500 is the weakest Equity Index chart and the leader on the downside for the time being among the sector. It is also the main indicator for the macro market.
Gold- With a third failure on a rally attempt above the $1250 high from Mid-May the Gold market again violated it's nearby upsloping trendline yesterday with a value of $1244.8. Today this same line has a trend value of $1247.1, which the market will again likely try to close above to maintain the trend. However, I think that after this third failure that Bulls have to now be concerned with holding long positions. There are a number of topping patterns that one can draw on the market now, but a move below $1230 and $1225 would confirm a reversal in the market and likely lead to sizable liquidation in the market from the current all time highs in open interest. While the Gold market likely will move lower as an outright position I am more interested in shorting the overbought Silver market once a Gold reversal is confirmed. Silver has a trendline of $18.49 that has provided the lows thus far today and still has a bearish head and shoulders pattern neckline at $18.15 that projects a nearly $3 move lower. Wait for confirmation on the Gold reversal before entering any short position in these markets.
Notes:
Crude Oil- The low volume entry zone I provided yesterday between $77.60 and $78.00 held throughout the day yesterday, but failed yesterday evening as global market weakness sank Energy prices. Crude Oil is no longer a good buy and is actually nearing a reversal confirmation below $75.17 that projects to $70.96. I believe that the Energy markets will suffer a significant price decrease over the coming months, so I recommend only looking for entry on short positions going forward.
Copper- Like the Crude Oil, Copper held it's support level throughout the day yesterday, but gave up last evening below the $3.0450 level. Copper is now on my radar as a longer term short position with large open interest providing strong liquidation potential.
After a less than spectacular rally attempt yesterday (that I thought could have some legs) the S&P 500 failed near the moderate 1180 resistance level to fall back and close lower for the fifth day of the last six. This morning the U.S. market is well lower on weaker markets across the globe and some European banking fears as repayment of loans and concerns about Spain added fear to the markets. As we close up the 2nd Quarter and head into potential 3rd Quarter allocation and Unemployment on Friday it is now technical concerns that may rule the market in spite of Fundamental news regardless of whether it meets or beats expectations.
Think of the break in the market in May as the shrimp cocktail to what will occur in the markets once the S&P 500 sets off its large bearish head and shoulders reversal. I will go into further detail in the Radar, but below 1033 the S&P 500 has a projection range from 856 - 870 on what is likely only the initial wave on subsequent moves lower. With Currency and Fixed Income markets leading the way, Equity and Commodity markets have traded weaker for the last couple months. But, with large open interest still residing in the market on inflation and correction buying, many markets are now primed for large moves lower fueled by liquidation, deflation, and an overall weaker economy. Namely Silver, Copper, and the rest of the Metal Sector are sitting on large sums of open interest on a store of wealth trade (run to safety) and inflation trade that is on the verge of bursting and will likely see the swiftest move lower in the short term. However, as we have seen in the past, once the liquidation ball gets rolling no market is safe as the correlations tighten and fear rules.
Going forward I recommend only positioning yourself for short positions in supportive Commodities, meaning only being long Fixed Income, Dollar Index, Japanese Yen, and Gold vs. Another short position as a spread. It is possible that the market finds a bit of support over the rest of this week and possibly into next as some last ditch buying enters, but it could now be any day that the move lower begins and I do not wish to be caught on the wrong end once it starts. I still recommend using a smaller than normal position size when trading for the time being, but once the S&P 500 confirms a move below 1033 I encourage ramping up bearish market trades.
**Grain Stocks and Planted Acreage Report tomorrow so use caution and reduce Grain positions
Buys to Watch:
Bonds- Bonds still have a projection to 127.17 on the bullish cup and handle pattern that was nearly reached this morning with a high of 127.08. The market also has a bullish continuation triangle projection to the 129 handle, but this one is less reliable because the chart nearly reached the apex of the triangle prior to initiating the pattern. Bonds have weakened over the last couple hours and are heading towards a lower volume zone for initiation of a new long position. This low volume zone sits between 126.15 to 126.24 with higher volume support falling from 126.05 to 126.13. If you are already long I recommend using this higher volume support as your stop area now as well or taking profits for the time being if you are unwilling to risk this much. On a daily chart the momentum indicators are beginning to look a bit overextended as they head into overbought territory, but are not near producing a sell signal making the market a good buy still.
Japanese Yen- The Japanese Yen is now broken out on a large bullish head and shoulders pattern above 112.00 that projects to around the 119 price level. There are a number of different necklines that you can use for this pattern, but with the magnitude of the move today the market is now trading above all of these breakout values. Although the two confirmation closes over the last two days for the Yen were a bit sketchy, settling right near 112.00, I believe that you can now enter a smaller initial position on a pullback in the market. There is a low volume zone stretching between 112.12 and 112.54 with higher volume support between 112.12 and 111.95 for stop placement on the trade. For the time being I will only be entering 1/2 or less of a normal position for myself as the move is larger and longer in duration and wait for another higher entry level to initiate the rest of my full position. As a note of caution, the Japanese Government has a pattern of intervening to deflate it's Currency near the 114 -115 level, which may repeat and cause difficulty for the long position.
Sells to Watch:
Australian Dollar, Canadian Dollar, or Euro- I do not encourage going out full force and shorting all of these Currencies today, but each individual one has an unconfirmed bearish reversal that has set off today. In my opinion the Aussie Dollar is the best short going forward as it has more volatility on average than the Canadian and a weaker fundamental story due to Government tax hikes. The Australian and Canadian Dollars also have a stronger correlation to Commodity markets and with a liquidation and deflationary move on the horizon for Commodities these may have the better short term move. I do not have time today to list all of the entry levels or projections, but I recommend treading lighter in them today and taking another look tomorrow.
Put on the Radar:
S&P 500 (the leading market indicator)- First off, looking at a weekly chart for the S&P 500 draw a trendline on the chart from the low the week of Feb. 1st to the low the week of May 24th. This produces a breakout value on the bearish head and shoulders pattern of 1035.50 today. Now keeping this same neckline turn the chart into a daily and see that this same line has a value today of roughly 1033. This is the main line that I am using for confirmation on my bearish pattern, but there are still a number of different values that you can receive by connecting different levels. The main support band falls between 1033 and 1045, which could provide support over the short term, but with a convergence of bearish indicators, fundamental news, and technicals I believe that it is only a short time until the pattern is initiated. The head and shoulders pattern has a projection of 856 and to complete the range of expectations I am using 870 as a move based on the higher necklines. The S&P 500 is the weakest Equity Index chart and the leader on the downside for the time being among the sector. It is also the main indicator for the macro market.
Gold- With a third failure on a rally attempt above the $1250 high from Mid-May the Gold market again violated it's nearby upsloping trendline yesterday with a value of $1244.8. Today this same line has a trend value of $1247.1, which the market will again likely try to close above to maintain the trend. However, I think that after this third failure that Bulls have to now be concerned with holding long positions. There are a number of topping patterns that one can draw on the market now, but a move below $1230 and $1225 would confirm a reversal in the market and likely lead to sizable liquidation in the market from the current all time highs in open interest. While the Gold market likely will move lower as an outright position I am more interested in shorting the overbought Silver market once a Gold reversal is confirmed. Silver has a trendline of $18.49 that has provided the lows thus far today and still has a bearish head and shoulders pattern neckline at $18.15 that projects a nearly $3 move lower. Wait for confirmation on the Gold reversal before entering any short position in these markets.
Notes:
Crude Oil- The low volume entry zone I provided yesterday between $77.60 and $78.00 held throughout the day yesterday, but failed yesterday evening as global market weakness sank Energy prices. Crude Oil is no longer a good buy and is actually nearing a reversal confirmation below $75.17 that projects to $70.96. I believe that the Energy markets will suffer a significant price decrease over the coming months, so I recommend only looking for entry on short positions going forward.
Copper- Like the Crude Oil, Copper held it's support level throughout the day yesterday, but gave up last evening below the $3.0450 level. Copper is now on my radar as a longer term short position with large open interest providing strong liquidation potential.
Monday, June 28, 2010
Monday 6/28/10 Commodity Ideas
Opening Note:
After my first vacation on Friday in over 4 months I am back this week and ready to go, but the markets do not look like they have the same vigor. This morning there is a mixed bag of firmer and weaker markets with low volatility overnight that leaves the macro market pretty much at a wash. On Friday the story was higher Commodity markets, which looks like it should have some carryover into this week. Both the Metal, Energy, and some of the Currency Sector now project continuations on their short term rallies, which could give the rest of the macro market a boost as well in some of the laggard markets.
While Equities lagged last week, Crude Oil, Copper, and the rest of the Metal Sector found strength on what could be front running prior to third quarter allocation. While my patience has been tested in the Gold and Silver markets on the "buy the trendline" trade that happens nearly everyday, it does appear that this rally may be extended in preparation for new money flow into these markets. Even some of the Soft Sector like Cocoa and Sugar have begun their own individual rallies on what could be a similar front-run.
The real story this week is Friday's Unemployment Report and I expect the market to be calmer yet still treacherous in advance over the next four days. Wednesday marks the close of the second quarter and with bookkeeping done over the next three days there could be some odd market action as Funds realign their positions. Thursday also starts allocation for the 3rd Quarter, which will be an interesting indicator to see the magnitude of new money that enters the market with more concern among investors lately. With strong support in the S&P 500 nearby at 1040 it is unlikely that there is a catalyst to set off the large bearish move right now so I believe we will see more sideways action and less predictability for a while longer. However, if Unemployment surprises to the downside and 2nd Quarter earnings disappoint the Bearish move could be only weeks away that will set off a string of macro waves lower and liquidation in the market. I still suggest trading with smaller size for the time being and waiting for the larger bearish breakout before stepping on the gas. The choppiness in the market has been high in this sideways range and there is no reason to depreciate your account value on some of these false moves.
Buys to Watch:
Copper- With a close Friday above $3.0490 the Copper market now has a bullish cup and handle pattern that projects to $3.2535. Copper has acted as one of the market strengths over the last week as some bullish fundamentals abroad have counteracted the bearish home building data in the U.S. Some of this rally may also be tied to front running the potential allocation coming for the 3rd Quarter in the market. For initial entry today I believe that you can purchase against some higher volume support from the breakout level with a stop loss place near the $3.0450 level. The market had an explosive day on Friday that left a large range of low volume trade that extends all the way back to $3.01, so if this $3.045 level does not hold as it has overnight then their will likely be a test of $3. As a note of caution, Stochastics for the daily chart is extending near overbought territory, but is not in danger of producing a sell signal for the time being. The $3.25 projection is also on the high end of some of the technical projections, with a second leg advance for the market providing projections ranging from $3.17 - $3.20 as a level to also look to take profits if the market gives signals that momentum is slowing. Still, Copper is my best buy for the time being and has a good risk/reward on entry today.
Bonds- Bond prices experienced a temporary decline over Thursday, but the market closes have maintained the cup and handle pattern breakout above 125.00 with a projection to 127.17 and a triangle breakout with a less reliable projection to the 129 handle. The market has struggled with some of the higher volume resistance from it's earlier spike high on the rally near the 126 level, but will likely now have the rally momentum to continue higher above these levels. For entry today the higher volume support near 125.09 has provided the lower range on prices, with this being a good level to place a stop below on a purchase on a pullback. Bonds have continued to rally overall despite macro rallies or declines, but has been a little more choppy lately, so I rate this Bond trade as only the second best for the time being.
Crude Oil- This trade is strictly for today on a further price dip because the technical setup is spectacular on the market profile and other technicals. There is a low volume range from Friday's trade ranging from $77.60 to $78.40 with higher volume support from $77.48 to $77.60. If prices dip below $78.00 then I believe that this is a good buy today against this support as the market is unlikely to have enough momentum to trade lower for the time being. The potential hurricane's path has now been projected more towards Texas and is unlikely to affect much of the cleanup in the Gulf, which is why Crude has declined overnight. However, the technicals on the daily chart remain bullish with a move to $82 still on the radar. This is a good lower risk trade though that should be held for about 1 1/2 days as it is likely to rally off of this support.
Sells to Watch:
Put on the Radar:
Japanese Yen- I mentioned this trade on Thursday as well, but on Friday the market finally made a close above the 112.00 breakout level on the large bullish head and shoulders pattern. Using a continuous daily chart with rollover at expiration draw necklines from the close March 3rd and High May 5th to the May 20th high and May 21st open to receive a range of breakout values with the high at 112.00. This pattern projects to the 119 price level, but when dealing with a bullish stance on the Yen you need to take into account that the Japanese Government has repeatedly intervened near the 114 and 115 levels to deflate there currency to keep exports competitive globally. Because the pattern is large I am waiting for a second close above 112 today and looking for entry on the trade tomorrow.
Notes:
Gold and Silver- On Thursday I listed Silver in my Sells to Watch section, but after an early morning attempt at violating it's bullish support line the market found a strong short covering rally that continued Friday. This rally coincided with a rally in Gold that carried the market back above it's own support line. In my opinion the Gold and Silver markets are bordering on a large manipulation game along their support trends, which before you laugh I suggest looking up the February 5th whistle blower on Silver market manipulation by major trading firms. It appears that there may be some front running on 3rd Quarter allocation in these markets and with the Metal Sector performing well this year there could be some more allocation coming up in these markets. However, Gold continues to reject any rally legs higher along with Silver, so I continue to believe that neither is a good outright long position to hold. With open interest in the markets still near all time highs I will be keeping a large liquidation on my radar, but will wait for a confirmation on a bearish breakout prior to attempting a short position going forward.
After my first vacation on Friday in over 4 months I am back this week and ready to go, but the markets do not look like they have the same vigor. This morning there is a mixed bag of firmer and weaker markets with low volatility overnight that leaves the macro market pretty much at a wash. On Friday the story was higher Commodity markets, which looks like it should have some carryover into this week. Both the Metal, Energy, and some of the Currency Sector now project continuations on their short term rallies, which could give the rest of the macro market a boost as well in some of the laggard markets.
While Equities lagged last week, Crude Oil, Copper, and the rest of the Metal Sector found strength on what could be front running prior to third quarter allocation. While my patience has been tested in the Gold and Silver markets on the "buy the trendline" trade that happens nearly everyday, it does appear that this rally may be extended in preparation for new money flow into these markets. Even some of the Soft Sector like Cocoa and Sugar have begun their own individual rallies on what could be a similar front-run.
The real story this week is Friday's Unemployment Report and I expect the market to be calmer yet still treacherous in advance over the next four days. Wednesday marks the close of the second quarter and with bookkeeping done over the next three days there could be some odd market action as Funds realign their positions. Thursday also starts allocation for the 3rd Quarter, which will be an interesting indicator to see the magnitude of new money that enters the market with more concern among investors lately. With strong support in the S&P 500 nearby at 1040 it is unlikely that there is a catalyst to set off the large bearish move right now so I believe we will see more sideways action and less predictability for a while longer. However, if Unemployment surprises to the downside and 2nd Quarter earnings disappoint the Bearish move could be only weeks away that will set off a string of macro waves lower and liquidation in the market. I still suggest trading with smaller size for the time being and waiting for the larger bearish breakout before stepping on the gas. The choppiness in the market has been high in this sideways range and there is no reason to depreciate your account value on some of these false moves.
Buys to Watch:
Copper- With a close Friday above $3.0490 the Copper market now has a bullish cup and handle pattern that projects to $3.2535. Copper has acted as one of the market strengths over the last week as some bullish fundamentals abroad have counteracted the bearish home building data in the U.S. Some of this rally may also be tied to front running the potential allocation coming for the 3rd Quarter in the market. For initial entry today I believe that you can purchase against some higher volume support from the breakout level with a stop loss place near the $3.0450 level. The market had an explosive day on Friday that left a large range of low volume trade that extends all the way back to $3.01, so if this $3.045 level does not hold as it has overnight then their will likely be a test of $3. As a note of caution, Stochastics for the daily chart is extending near overbought territory, but is not in danger of producing a sell signal for the time being. The $3.25 projection is also on the high end of some of the technical projections, with a second leg advance for the market providing projections ranging from $3.17 - $3.20 as a level to also look to take profits if the market gives signals that momentum is slowing. Still, Copper is my best buy for the time being and has a good risk/reward on entry today.
Bonds- Bond prices experienced a temporary decline over Thursday, but the market closes have maintained the cup and handle pattern breakout above 125.00 with a projection to 127.17 and a triangle breakout with a less reliable projection to the 129 handle. The market has struggled with some of the higher volume resistance from it's earlier spike high on the rally near the 126 level, but will likely now have the rally momentum to continue higher above these levels. For entry today the higher volume support near 125.09 has provided the lower range on prices, with this being a good level to place a stop below on a purchase on a pullback. Bonds have continued to rally overall despite macro rallies or declines, but has been a little more choppy lately, so I rate this Bond trade as only the second best for the time being.
Crude Oil- This trade is strictly for today on a further price dip because the technical setup is spectacular on the market profile and other technicals. There is a low volume range from Friday's trade ranging from $77.60 to $78.40 with higher volume support from $77.48 to $77.60. If prices dip below $78.00 then I believe that this is a good buy today against this support as the market is unlikely to have enough momentum to trade lower for the time being. The potential hurricane's path has now been projected more towards Texas and is unlikely to affect much of the cleanup in the Gulf, which is why Crude has declined overnight. However, the technicals on the daily chart remain bullish with a move to $82 still on the radar. This is a good lower risk trade though that should be held for about 1 1/2 days as it is likely to rally off of this support.
Sells to Watch:
Put on the Radar:
Japanese Yen- I mentioned this trade on Thursday as well, but on Friday the market finally made a close above the 112.00 breakout level on the large bullish head and shoulders pattern. Using a continuous daily chart with rollover at expiration draw necklines from the close March 3rd and High May 5th to the May 20th high and May 21st open to receive a range of breakout values with the high at 112.00. This pattern projects to the 119 price level, but when dealing with a bullish stance on the Yen you need to take into account that the Japanese Government has repeatedly intervened near the 114 and 115 levels to deflate there currency to keep exports competitive globally. Because the pattern is large I am waiting for a second close above 112 today and looking for entry on the trade tomorrow.
Notes:
Gold and Silver- On Thursday I listed Silver in my Sells to Watch section, but after an early morning attempt at violating it's bullish support line the market found a strong short covering rally that continued Friday. This rally coincided with a rally in Gold that carried the market back above it's own support line. In my opinion the Gold and Silver markets are bordering on a large manipulation game along their support trends, which before you laugh I suggest looking up the February 5th whistle blower on Silver market manipulation by major trading firms. It appears that there may be some front running on 3rd Quarter allocation in these markets and with the Metal Sector performing well this year there could be some more allocation coming up in these markets. However, Gold continues to reject any rally legs higher along with Silver, so I continue to believe that neither is a good outright long position to hold. With open interest in the markets still near all time highs I will be keeping a large liquidation on my radar, but will wait for a confirmation on a bearish breakout prior to attempting a short position going forward.
Thursday, June 24, 2010
Thursday 6/24/10 Commodity Ideas
Opening Note:
On the heels of the worst new home sales data since records were kept the stock market suffered an early decline, but even after a downgrade on economic conditions from the FOMC Equities were able to find support and close just slightly lower on the day. Although the Equity markets found support from the higher volume price trade from 1077.50 to 1080.50, other correlated Commodity markets showed further signs of weakness. Crude Oil suffered a $2 drop in prices as the overbought market declined and the market leader Gold had a close that violated it's support trend yesterday of $1237.7. It now looks likely that the 1130 trade on Monday in the S&P 500 near it's 50% retracement level is the top on the right shoulder of the market's massive bearish head and shoulders pattern. With the Metal Sector set to suffer liquidation with another close below Gold's support today, Foreign Currency markets and other supportive Commodity markets providing overbought sell signals, and the Fixed Income markets advancing in price all indicators are pointing towards the market falling below the major support level. Below 1040 in the S&P 500 projects a move between 865 - 900 in what should be a swift decline and likely only the second in what could be multiple waves lower.
This morning the macro market is weaker mostly across the board with Equities, Australian Dollar, and Silver leading the decline. Furthermore, risk aversion assets in the Fixed Income markets and the Japanese Yen are all higher and advancing on what appear to be large advances projected from their weekly charts. The day to day moves within the market, and especially Equities, continues to be less predictable with the leader/laggard in each sector shifting nearly indiscriminately. Still, there are now a number of directional trades that are in play in some of the individual markets. I believe it is now time to begin stepping into some of these trades with more confidence and once the larger decline emerges you can dive in full force. For right now remain picky with smaller than normal size until the S&P 500 confirms a move below 1040.
Buys to Watch:
Bonds- Bonds have outperformed in their inverse relationship with the stock market as they continue to rally in price despite Equity rallies. Again yesterday the Bonds rallied throughout the day even though the stock market closed just below it's lows on the day. With a close above 125.00 the Bond market now has a bullish cup and handle pattern as well as a confirmed breakout above it's triangle consolidation. The cup and handle projection is 127.17 while the triangle pattern produces an objective near the 129 handle. For entry today there is a lower volume zone between 125.16 and 125.20 with higher volume support below from 125.15 to 125.09. This level has been tested twice this morning, most recently after the Jobless Claims report and has held thus far. However, if this support does not hold then there is also a lower volume zone between 124.30 and 125.00 as another spot for long entry.
Japanese Yen- The Yen is a risk aversion Currency that performs well as a run to safety asset in the face of a weaker macro market. To view the large bullish head and shoulders pattern on the daily chart you must use a chart that uses a rollover of the contract at expiration (a continuous chart). Using the Close March 3rd or the High May 5th and connecting the neckline to either the May 20th high or May 21st Open you receive a range of breakout values from 111.59 - 112.00 today. Using these variable breakouts you therefore have a projection range from 118.5 to 119.4. This morning the market has rallied above the lower neckline, but has struggled near the 112.00 level. Because this is such a large pattern with plenty of opportunity for entry I recommend waiting for at least one if not two consecutive closes above the 112.00 level. As a note of caution, the Stochastics indicator for the daily chart is near overbought territory and close to producing a sell signal that could stall the market temporarily on an advance.
Sells to Watch:
Silver (with Gold Indicator)- Using the trendlines detailed in yesterday's letter the Silver market has a "buy the trend" value today of $18.40 and a bearish head and shoulders neckline breakout at $18.07 As I have noted in the past, the Silver market looks primed for a strong liquidation move from an over-saturated long position that will are near being net losers on their position. On the move below $18.07 the market has a projection to $15.47, which I speculate may not necessarily be the end of the break in the market, but rather the first leg. This morning on the open the market had a flow of liquidation, but on the heels of some supportive reports at 7:30 and buying in the Gold market Silver found a way to rally 25 cents back. Silver is a tough and frustrating short to hold right now as the Gold market artificially leads Silver higher at times and there appears to be protective buying and further allocation in the Metals right now. A small initial attempt at a short near the $18.40 level with a tighter stop would be okay for today, but it may be prudent to wait for a move below $18.07 and a confirmation lower close in Gold that violates it's own trendline. You may also buy 1 Gold for each Silver short as a hedge if the market looks like it could rally off of a Gold move, as this spread trade on it's own is likely to work as well going forward.
Put on the Radar:
S&P 500- Yesterday afternoon and again this morning the S&P 500 has found support at the high volume support level from 1077.50 to 1080.50. If the market continues to hang near this level I believe it is unlikely to hold for much longer with a move and test to the next support level at 1063.50 as the next stop for the market today.
Gold- Gold managed to close below the "buy the trend" support line at $1237.7 yesterday. Today this same line has a level of $1240.0, with a close below this level signaling to me that the uptrend for the Gold market is now over. Gold has the largest Open Interest in it's history at the time being, with a number of governments and huge market players severely long the Commodity. Watching the trade ladder over the last month I have repeatedly witnessed what appears to be a protective buying program for the market on this trendline and each time that it dips below. This morning there was again a significant inflow near the open using "scare buying" tactics to run the market higher, so I expect there to be a battle today over the close. If Gold is unable to recover this trendline I expect the Metal Sector to experience a wave of long liquidation and lower prices over the coming month.
Notes:
On the heels of the worst new home sales data since records were kept the stock market suffered an early decline, but even after a downgrade on economic conditions from the FOMC Equities were able to find support and close just slightly lower on the day. Although the Equity markets found support from the higher volume price trade from 1077.50 to 1080.50, other correlated Commodity markets showed further signs of weakness. Crude Oil suffered a $2 drop in prices as the overbought market declined and the market leader Gold had a close that violated it's support trend yesterday of $1237.7. It now looks likely that the 1130 trade on Monday in the S&P 500 near it's 50% retracement level is the top on the right shoulder of the market's massive bearish head and shoulders pattern. With the Metal Sector set to suffer liquidation with another close below Gold's support today, Foreign Currency markets and other supportive Commodity markets providing overbought sell signals, and the Fixed Income markets advancing in price all indicators are pointing towards the market falling below the major support level. Below 1040 in the S&P 500 projects a move between 865 - 900 in what should be a swift decline and likely only the second in what could be multiple waves lower.
This morning the macro market is weaker mostly across the board with Equities, Australian Dollar, and Silver leading the decline. Furthermore, risk aversion assets in the Fixed Income markets and the Japanese Yen are all higher and advancing on what appear to be large advances projected from their weekly charts. The day to day moves within the market, and especially Equities, continues to be less predictable with the leader/laggard in each sector shifting nearly indiscriminately. Still, there are now a number of directional trades that are in play in some of the individual markets. I believe it is now time to begin stepping into some of these trades with more confidence and once the larger decline emerges you can dive in full force. For right now remain picky with smaller than normal size until the S&P 500 confirms a move below 1040.
Buys to Watch:
Bonds- Bonds have outperformed in their inverse relationship with the stock market as they continue to rally in price despite Equity rallies. Again yesterday the Bonds rallied throughout the day even though the stock market closed just below it's lows on the day. With a close above 125.00 the Bond market now has a bullish cup and handle pattern as well as a confirmed breakout above it's triangle consolidation. The cup and handle projection is 127.17 while the triangle pattern produces an objective near the 129 handle. For entry today there is a lower volume zone between 125.16 and 125.20 with higher volume support below from 125.15 to 125.09. This level has been tested twice this morning, most recently after the Jobless Claims report and has held thus far. However, if this support does not hold then there is also a lower volume zone between 124.30 and 125.00 as another spot for long entry.
Japanese Yen- The Yen is a risk aversion Currency that performs well as a run to safety asset in the face of a weaker macro market. To view the large bullish head and shoulders pattern on the daily chart you must use a chart that uses a rollover of the contract at expiration (a continuous chart). Using the Close March 3rd or the High May 5th and connecting the neckline to either the May 20th high or May 21st Open you receive a range of breakout values from 111.59 - 112.00 today. Using these variable breakouts you therefore have a projection range from 118.5 to 119.4. This morning the market has rallied above the lower neckline, but has struggled near the 112.00 level. Because this is such a large pattern with plenty of opportunity for entry I recommend waiting for at least one if not two consecutive closes above the 112.00 level. As a note of caution, the Stochastics indicator for the daily chart is near overbought territory and close to producing a sell signal that could stall the market temporarily on an advance.
Sells to Watch:
Silver (with Gold Indicator)- Using the trendlines detailed in yesterday's letter the Silver market has a "buy the trend" value today of $18.40 and a bearish head and shoulders neckline breakout at $18.07 As I have noted in the past, the Silver market looks primed for a strong liquidation move from an over-saturated long position that will are near being net losers on their position. On the move below $18.07 the market has a projection to $15.47, which I speculate may not necessarily be the end of the break in the market, but rather the first leg. This morning on the open the market had a flow of liquidation, but on the heels of some supportive reports at 7:30 and buying in the Gold market Silver found a way to rally 25 cents back. Silver is a tough and frustrating short to hold right now as the Gold market artificially leads Silver higher at times and there appears to be protective buying and further allocation in the Metals right now. A small initial attempt at a short near the $18.40 level with a tighter stop would be okay for today, but it may be prudent to wait for a move below $18.07 and a confirmation lower close in Gold that violates it's own trendline. You may also buy 1 Gold for each Silver short as a hedge if the market looks like it could rally off of a Gold move, as this spread trade on it's own is likely to work as well going forward.
Put on the Radar:
S&P 500- Yesterday afternoon and again this morning the S&P 500 has found support at the high volume support level from 1077.50 to 1080.50. If the market continues to hang near this level I believe it is unlikely to hold for much longer with a move and test to the next support level at 1063.50 as the next stop for the market today.
Gold- Gold managed to close below the "buy the trend" support line at $1237.7 yesterday. Today this same line has a level of $1240.0, with a close below this level signaling to me that the uptrend for the Gold market is now over. Gold has the largest Open Interest in it's history at the time being, with a number of governments and huge market players severely long the Commodity. Watching the trade ladder over the last month I have repeatedly witnessed what appears to be a protective buying program for the market on this trendline and each time that it dips below. This morning there was again a significant inflow near the open using "scare buying" tactics to run the market higher, so I expect there to be a battle today over the close. If Gold is unable to recover this trendline I expect the Metal Sector to experience a wave of long liquidation and lower prices over the coming month.
Notes:
Wednesday, June 23, 2010
Wednesday 6/23/10 Commodity Ideas
Opening Note:
After buying on Commodity and Equity opens yesterday and a resilient effort at a rally continuation, despite a poor Existing Home Sales number, the market collapsed in the early afternoon to close on it's lows for the day. Equity markets have bought weak economic numbers for the last few weeks, but yesterday marked what could be a shift in market sentiment as the U.S. fundamental data has failed to meet expectations for the last two months. Many analysts that have held an overwhelmingly bullish opinion over this calendar year are now beginning to second guess some of their previous statements as much of the Bullish case was linked to signs of recovery in the U.S. What we are seeing now is that with stimulus running dry, a scary economic picture overseas, and only a pipe dream of a recovery in Unemployment and the Housing Market that the Fundamental story is beginning to fit the Bearish technical picture that has emerged throughout 2010. It is now possible that we have put in the top on the right shoulder of the large bearish head and shoulders pattern that should create a top on the macro market and lead to some severe legs down over the rest of the year.
Looking forward to today there is the important New Home Sales number at 9 am (CT) and the less important FOMC announcement around 1:15 pm (CT). With the home purchase tax credit now ended we will begin to see what the "real" housing picture looks like without the veil of stimulus. Although the numbers have been poor this month, I believe that we are seeing more of the tip of the iceberg in what could be another dip in the all important housing market. The market should be relatively quiet today ahead of the FOMC announcement this afternoon, but nearly 100% of market participants are expecting The Fed to keep rates locked near zero "for an extended period of time". Many will focus on the language surrounding the economic recovery, which could see a downgrade and have an effect on the market. However, The Fed tends to be behind the 8 ball when it comes to their market analysis on economic recovery, whereas I would rather form my own opinion than take Bernacke's word for it.
The macro market is still in a larger sideways range trade that is rather difficult to predict on a day to day basis. Until Gold rejects it's upsloping trendline or the S&P 500 is able to rally out either side of the 1040 to 1130 range I recommend reducing market exposure and limiting expectations on any directional move. I think we could continue to trade in this range until the end of the 2nd quarter, but volatility and directional moves are not far away once the 3rd Quarter begins.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Bonds- On the heels of the break in the Equtiy markets yesterday afternoon the Bond market had a rally breakout from it's consolidation triangle. Bonds and the other Fixed Income markets have held gains extraordinarily well in the face of the Equtiy rally over the last few weeks as they should have experience a much larger price break on the relationship. For the top end of my consolidation triangle I am using a trendline from the high on May 21st to the high on June 8th that had 4 points of contact prior to yesterday's breakout. The triangle formation has a projection to around the 129 handle, but keeping with the theme of limiting expectations I am looking for a move to 127.17 on the cup and handle pattern with a move above 125.00. I was able to enter with a full position yesterday afternoon and after taking off half to lock in profits I am now waiting for a move above 125.00 to re-initiate a the other half of my long position. Today this top-end consolidation trendline has a value of 124.11, which the market has tested already this morning and found support. For stop placement I am not giving much more room below this level. For initiation I believe that you could enter a half position on another test of this 124.11 level, but I recommend waiting for a breakout above 125.00 for a confirmed better move. This is the best buy and trade that I currently have, but it will be withheld from the Buys column until a move above 125.00.
S&P 500- In past newsletters I have focused on the 61.8% Fibonacci Retracement level for the S&P 500 as a potential top, but it is now possible that the market does not even reach this level on this rally leg prior to setting off it's large bearish head and shoulders pattern. Two days ago the market failed on a brief trade to 1130, which coincides with the 50% retracement level at 1125.50 for the market when measured from the high to low close on the bearish move. With the swift manner of the rejection and many other Commodity and Currency markets giving overbought sell signals I believe that we may now be heading towards the large macro leg down. Below 1040 the S&P 500 has a projection range of 865 - 900 on the topping pattern, but this appears to be only the second leg down on a potentially larger move. The Equity trade has been unpredictable for me on a day to day basis, so I am just using the market as an indicator for other trades and will hold off on any initiation until there is a move outside of the 1040 to 1130 range.
Japanese Yen- It may be difficult to see on your daily chart of just the September contract, so make sure you use a chart that rolls over at expiration. Drawing lines from the Close March 3rd or High March 5th to the High May 20th or Open May 21st you receive the neckline on a large bullish head and shoulders pattern that ranges from 111.61 to 112.00. This pattern has about a 7 point projection that ranges near the 119 handle. In the past I have noted that the Japanese Government has intervened near the 114 and 115 levels to deflate their Currency and keep exports competitive globally, so proceed with caution if the market reaches these levels.
Metal Sector Radar and Comments:
Gold- In my technical analysis I have the Gold market completing a 3 leg advance and a bullish head and shoulders pattern on May 12th when it first tested the $1250 level. Since that time the market has slowly traded higher on the upsloping trendline from the lows on March 25th to April 22nd as Open Interest has continued to flood the market. With about 20 bounces off of this trendline now and no meaningful continuation rallies that have held gains I believe that the market is very much on borrowed time for it's bullish continuation. Open Interest recently climbed to new all time highs again, but many of these new entrants have entered at well above $1200 and appear to be really late to the party. The trade in the market has been to buy any test of this trendline and with major players holding substantial positions it appears that the market has been almost "protecting" this level on each test. When a trade works this many times in a row it is usually destined to blow up in the participants faces and in major way.
With a number of clear stop levels ranging around $1230, $1213, and below $1200 it looks like the Open Interest liquidation dominoes are now in place for what could be a one day $60 + move lower as the trade fails. Today the trendline is sitting at $1237.7 after holding yesterday's $1235.3 value and the lower (weaker) trendline sits at $1213.7 as another liquidation/support level. I am sitting on the sidelines in the market waiting for the opportunity to pounce on the short once this potential liquidation commences.
Silver- The Silver market is highly correlated to Gold in it's recent similar uptrend, but this again looks like a bullish trade that is destined to fail as the industrial metal should have a precipitous fall to rebalance with economic demand. I have outlined some of the fundamental differences between Silver and Gold, but one of the more basic things anyone can see is just through the TV commercials. There are a number of companies that are willing to buy your cash for Gold as well as some that are willing to sell you Gold, but the majority want to buy. However, there is now an influx of commercials looking to sell you Silver as a precious metal store of value, with one in particular that has a seemingly nice man with a British accent that looks like he knows how to invest. Do Not Listen To The British Guy! There's a reason nobody is looking to buy your Silver, and that is because it's price does not hold up as a precious metal under economic strain.
21,000 new longs have entered the market since June 8th (out of 143,000 total) and only very few have an entry level any lower than $18.10. This has HUGE puking liquidation written all over it once a break in the uptrend emerges. For the Silver daily chart I have a trendline drawn from the low March 25th to the Close May 25th, which illustrates the flat slope on the "buy the trend trade", as well as a trend from the low May 5th to the low May 21st to show the bearish head and shoulders neckline. The market had a sharp short covering rally the day after the first attempt at the head and shoulders pattern initiation, but with bearish momentum coiling it will not likely fail a second time. The large Silver break will likely coincide with the negation of Gold's trend, but the move in Silver will be much sharper and an overall better short. Keep this trade on your radar because it could be one of the trades of the year.
Copper- Copper continues to under-perform the overall macro market and like the other Metals is setting up a momentous fall as longs liquidate in the market. For today I have trendlines on the large topping pattern ranging from $2.9160 to $2.9625 as the area that will again set off this bearish pattern. Like Silver and Gold, Open Interest has piled back into Copper over the last few weeks, but the market has not even seen the gain in price that the other Metals have. I believe that there is a lot of confusion from investors within this Metal sector and with Copper near all-time highs in open interest still there is plenty of liquidation fuel. A move below $2.9160 projects a move between $2.12 and $2.32.
Gold Relationship Trades- You may be wondering, "Why is he telling me to buy Gold when he thinks it is ready for a strong liquidation move?". Well, Gold is a store of value and in macro moves lower it tends to hold it's price much better in relation to many of the other Commodity markets. Crude, Silver, and Copper are on my radar as the worst performing Commodities in the near future so I am keeping these trades still on the radar until the time is right for entry.
Gold + Dow (Short)
Gold/Silver (Long)
Gold/Copper (Long)
Gold/Crude (Long)
Notes:
After buying on Commodity and Equity opens yesterday and a resilient effort at a rally continuation, despite a poor Existing Home Sales number, the market collapsed in the early afternoon to close on it's lows for the day. Equity markets have bought weak economic numbers for the last few weeks, but yesterday marked what could be a shift in market sentiment as the U.S. fundamental data has failed to meet expectations for the last two months. Many analysts that have held an overwhelmingly bullish opinion over this calendar year are now beginning to second guess some of their previous statements as much of the Bullish case was linked to signs of recovery in the U.S. What we are seeing now is that with stimulus running dry, a scary economic picture overseas, and only a pipe dream of a recovery in Unemployment and the Housing Market that the Fundamental story is beginning to fit the Bearish technical picture that has emerged throughout 2010. It is now possible that we have put in the top on the right shoulder of the large bearish head and shoulders pattern that should create a top on the macro market and lead to some severe legs down over the rest of the year.
Looking forward to today there is the important New Home Sales number at 9 am (CT) and the less important FOMC announcement around 1:15 pm (CT). With the home purchase tax credit now ended we will begin to see what the "real" housing picture looks like without the veil of stimulus. Although the numbers have been poor this month, I believe that we are seeing more of the tip of the iceberg in what could be another dip in the all important housing market. The market should be relatively quiet today ahead of the FOMC announcement this afternoon, but nearly 100% of market participants are expecting The Fed to keep rates locked near zero "for an extended period of time". Many will focus on the language surrounding the economic recovery, which could see a downgrade and have an effect on the market. However, The Fed tends to be behind the 8 ball when it comes to their market analysis on economic recovery, whereas I would rather form my own opinion than take Bernacke's word for it.
The macro market is still in a larger sideways range trade that is rather difficult to predict on a day to day basis. Until Gold rejects it's upsloping trendline or the S&P 500 is able to rally out either side of the 1040 to 1130 range I recommend reducing market exposure and limiting expectations on any directional move. I think we could continue to trade in this range until the end of the 2nd quarter, but volatility and directional moves are not far away once the 3rd Quarter begins.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Buy Bonds- On the heels of the break in the Equtiy markets yesterday afternoon the Bond market had a rally breakout from it's consolidation triangle. Bonds and the other Fixed Income markets have held gains extraordinarily well in the face of the Equtiy rally over the last few weeks as they should have experience a much larger price break on the relationship. For the top end of my consolidation triangle I am using a trendline from the high on May 21st to the high on June 8th that had 4 points of contact prior to yesterday's breakout. The triangle formation has a projection to around the 129 handle, but keeping with the theme of limiting expectations I am looking for a move to 127.17 on the cup and handle pattern with a move above 125.00. I was able to enter with a full position yesterday afternoon and after taking off half to lock in profits I am now waiting for a move above 125.00 to re-initiate a the other half of my long position. Today this top-end consolidation trendline has a value of 124.11, which the market has tested already this morning and found support. For stop placement I am not giving much more room below this level. For initiation I believe that you could enter a half position on another test of this 124.11 level, but I recommend waiting for a breakout above 125.00 for a confirmed better move. This is the best buy and trade that I currently have, but it will be withheld from the Buys column until a move above 125.00.
S&P 500- In past newsletters I have focused on the 61.8% Fibonacci Retracement level for the S&P 500 as a potential top, but it is now possible that the market does not even reach this level on this rally leg prior to setting off it's large bearish head and shoulders pattern. Two days ago the market failed on a brief trade to 1130, which coincides with the 50% retracement level at 1125.50 for the market when measured from the high to low close on the bearish move. With the swift manner of the rejection and many other Commodity and Currency markets giving overbought sell signals I believe that we may now be heading towards the large macro leg down. Below 1040 the S&P 500 has a projection range of 865 - 900 on the topping pattern, but this appears to be only the second leg down on a potentially larger move. The Equity trade has been unpredictable for me on a day to day basis, so I am just using the market as an indicator for other trades and will hold off on any initiation until there is a move outside of the 1040 to 1130 range.
Japanese Yen- It may be difficult to see on your daily chart of just the September contract, so make sure you use a chart that rolls over at expiration. Drawing lines from the Close March 3rd or High March 5th to the High May 20th or Open May 21st you receive the neckline on a large bullish head and shoulders pattern that ranges from 111.61 to 112.00. This pattern has about a 7 point projection that ranges near the 119 handle. In the past I have noted that the Japanese Government has intervened near the 114 and 115 levels to deflate their Currency and keep exports competitive globally, so proceed with caution if the market reaches these levels.
Metal Sector Radar and Comments:
Gold- In my technical analysis I have the Gold market completing a 3 leg advance and a bullish head and shoulders pattern on May 12th when it first tested the $1250 level. Since that time the market has slowly traded higher on the upsloping trendline from the lows on March 25th to April 22nd as Open Interest has continued to flood the market. With about 20 bounces off of this trendline now and no meaningful continuation rallies that have held gains I believe that the market is very much on borrowed time for it's bullish continuation. Open Interest recently climbed to new all time highs again, but many of these new entrants have entered at well above $1200 and appear to be really late to the party. The trade in the market has been to buy any test of this trendline and with major players holding substantial positions it appears that the market has been almost "protecting" this level on each test. When a trade works this many times in a row it is usually destined to blow up in the participants faces and in major way.
With a number of clear stop levels ranging around $1230, $1213, and below $1200 it looks like the Open Interest liquidation dominoes are now in place for what could be a one day $60 + move lower as the trade fails. Today the trendline is sitting at $1237.7 after holding yesterday's $1235.3 value and the lower (weaker) trendline sits at $1213.7 as another liquidation/support level. I am sitting on the sidelines in the market waiting for the opportunity to pounce on the short once this potential liquidation commences.
Silver- The Silver market is highly correlated to Gold in it's recent similar uptrend, but this again looks like a bullish trade that is destined to fail as the industrial metal should have a precipitous fall to rebalance with economic demand. I have outlined some of the fundamental differences between Silver and Gold, but one of the more basic things anyone can see is just through the TV commercials. There are a number of companies that are willing to buy your cash for Gold as well as some that are willing to sell you Gold, but the majority want to buy. However, there is now an influx of commercials looking to sell you Silver as a precious metal store of value, with one in particular that has a seemingly nice man with a British accent that looks like he knows how to invest. Do Not Listen To The British Guy! There's a reason nobody is looking to buy your Silver, and that is because it's price does not hold up as a precious metal under economic strain.
21,000 new longs have entered the market since June 8th (out of 143,000 total) and only very few have an entry level any lower than $18.10. This has HUGE puking liquidation written all over it once a break in the uptrend emerges. For the Silver daily chart I have a trendline drawn from the low March 25th to the Close May 25th, which illustrates the flat slope on the "buy the trend trade", as well as a trend from the low May 5th to the low May 21st to show the bearish head and shoulders neckline. The market had a sharp short covering rally the day after the first attempt at the head and shoulders pattern initiation, but with bearish momentum coiling it will not likely fail a second time. The large Silver break will likely coincide with the negation of Gold's trend, but the move in Silver will be much sharper and an overall better short. Keep this trade on your radar because it could be one of the trades of the year.
Copper- Copper continues to under-perform the overall macro market and like the other Metals is setting up a momentous fall as longs liquidate in the market. For today I have trendlines on the large topping pattern ranging from $2.9160 to $2.9625 as the area that will again set off this bearish pattern. Like Silver and Gold, Open Interest has piled back into Copper over the last few weeks, but the market has not even seen the gain in price that the other Metals have. I believe that there is a lot of confusion from investors within this Metal sector and with Copper near all-time highs in open interest still there is plenty of liquidation fuel. A move below $2.9160 projects a move between $2.12 and $2.32.
Gold Relationship Trades- You may be wondering, "Why is he telling me to buy Gold when he thinks it is ready for a strong liquidation move?". Well, Gold is a store of value and in macro moves lower it tends to hold it's price much better in relation to many of the other Commodity markets. Crude, Silver, and Copper are on my radar as the worst performing Commodities in the near future so I am keeping these trades still on the radar until the time is right for entry.
Gold + Dow (Short)
Gold/Silver (Long)
Gold/Copper (Long)
Gold/Crude (Long)
Notes:
Tuesday, June 22, 2010
Tuesday 6/22/10 Commodity Ideas
Opening Note:
The market started off yesterday morning on a positive note on the back of news that China will use a more "flexible" policy with it's peg of the Yuan, but this exuberance was short lived as the macro market took a down-trending dive throughout the rest of the day. The Equity Indices broke in a clean line while Crude Oil, Gold, and Silver had violent stop-running breaks just before noon (CT). This morning the Chinese Yuan has appreciated another .23% at last check and the market is beginning to look at this "flexible" policy as somewhat of a joke. It is apparent from the last two days that China has no intention of a free-float for the Currency and will control it's movement, on what appears to be more of a concession prior to the G-20 than any sort of market moving change of policy.
This morning the macro market is lower in almost every supportive market, but only to a moderate degree thus far with the Energies and Metals the biggest losers. With the FOMC meeting taking place over the next two days and some housing data over the same time frame the market looks like it will take a wait and see approach. I do not think anyone is actually expecting much change from The Fed, but their individual word choices will be poured over with little consequence to follow in my opinion. The housing data this week and jobs numbers, with Unemployment next week, are now what I am focusing on as "the fundamental recovery" touted by the Bulls is beginning to look like a dying piece of evidence in their market defense.
Right now I find myself being caught up in the chop and randomness of the large sideways market, so I will not be placing any trade ideas in the Buys or Sells category until there is a real trade that I can get on with conviction. Looking at most of the daily charts across the market I am finding either strictly sideways markets or directional moves that are now way over-extended and inadequate to jump on. Furthermore, after analyzing a large sample size of relationship trades I have found only a few to really keep on the radar and none that I can make a strong case for at the time being. I personally struggle with sideways market action as I trade directional moves with volatility best, but give back the profits from my good trades on the false patterns and breakouts. I still believe that the macro market is in the midst of a sizable bearish move that should at least extend over the next four months and would now like to focus more on trades that take advantage of a deflationary move and decline in prices. I suggest dialing down size, making less trades, and focusing on taking profits earlier as directional moves have been rare and short in duration lately.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Equity Indices- All of the Indices gave back early gains on a 15 minute chart down-trend that lasted throughout the day and saw the Nasdaq perform the weakest. Over the last couple days I have noted that the S&P 500 has a bullish consolidation breakout that projects to 1169, but after yesterday's poor action the market is again testing the 1103 high from the same range it looked like it departed from. I still am looking for the S&P 500 to at least have a rally test of the 61.8% correction retracement level falling between 1145 - 1150, but a test of this level is now looking more skeptical. All of the Indices on their daily chart are now very close to producing sell signals on their Stochastics indicators near overbought territory, while all still maintain a range on their RSI within a bearish trend range as well. A close below 1103 for the S&P 500 would likely indicate another move lower through the sideways range and a possible test of the large base as the market is likely overbought at the time being. Remember that for the last couple weeks the market has also been buying with conviction despite some very discouraging Economic numbers and reports. For right now I have no intention of trading the Equity markets, but the S&P 500 is still the leading indicator for the market and should always be on your radar.
Metal Sector- Gold, Silver, Copper, and Palladium to a lesser degree have all had a moderate to substantial increase in Open Interest over the last few weeks. This increase in open interest has come while Gold, Silver, and Palladium have increased in price on a slight uptrend, but Copper has really acted more as a laggard. Yesterday both the Gold and Silver markets had a large stop-running price break as liquidation took over after another failed Gold attempt at a leg higher. Gold is now testing it's long term up-trend from the low March 25th to the low April 22nd that sits at $1235.3 today after about 15 tests of this line. I would take two closes below this line as a signal to exit any Gold longs and also as a sign of weakness for the entire sector on what could be a violent swing lower. This open interest that has entered the Metals appears to be a longer term position allocation, but when the market begins to liquidate and the small winners turn into double digit percent losers you often find a very large move lower. I have had a substantial liquidation in the Metals on my radar for the last 3 months and I believe that the Gold market's rejection of it's up-trend may be the start of this move. I recommend looking for bear strategies in the Metal market going forward and holding off on long entry into these markets.
Crude Oil- Crude Oil was acting as one of the stronger markets on the recent macro rally, but after a weak test of $80 has fallen hard over the last 24 hours. Today the daily chart Stochastics is producing a sell signal near overbought territory, which could signal the end of the rally unless it can make a valiant recovery by the close today. A move and close below $76.86 for the August contract would confirm a reversal for Crude Oil. After having one of the largest price breaks since late April I believe that going forward Crude is one of the better sales on the possible bear move with deflationary pressures, so I will focus on it as a weakness once the Bullish correction is confirmed to be over.
Currency Markets- With the exception of the Japanese Yen (which is a different animal) all of the Foreign Currency markets have or are on the verge of producing sell signals on their daily Stochastics indicators. The British Pound and Canadian dollar already have produced their own, with the rest of the markets now looking like they are only a day or two away as well. When you add up that the Metal markets look like they may undergo liquidation, the Energy and Equity Sectors are nearing sell signals, and Currencies are now in the process of developing sells as well, you can see a correlated weakening macro story. After examining all of the Currency markets as well as the cross-rates I can not find a trade or market that I am excited about for the time being, but keep an eye on the daily chart Stochastics for these markets as a macro indicator.
Bonds- The Bond market is still in a triangle consolidation pattern after briefly testing and rejecting it's bearish breakout yesterday. Today the lower consolidation line sits at 123.08 with the neckline on the bearish head and shoulders pattern at 122.31 with a projection to 117.02. Meanwhile the upper range line is at 124.12 with a move above 125.00 yielding a projection to 127.17. The market is nearing the apex of the triangle consolidation that hits on June 29th, so any breakout should now be discounted with a move to the projection less likely as the coiled momentum in the market is now being lost. It is possible that this could be just a sideways market that extends beyond the triangle range, but a breakout within the next two days could still prove to be decent move. With the macro market looking like it could continue to fall over the next few days with so many sell signals provided I am leaning towards a move higher in Bond Prices.
Gold Relationship Trades- I actually did do the homework I discussed earlier by examining a breadth of inter-commodity relationship charts. After looking over everything these are the charts and markets that I came up with that have the best future potential. As I am looking for a bearish market move with deflation, buying Gold against weakness is a great spread that should provide the best risk reward going forward. Most of these ideas show up better on the weekly charts as longer term moves, but some have better daily chart stories. I only suggest looking at these charts for the time being and waiting for execution at a later date:
Gold/Copper- Best seen on the weekly chart this ratio chart could be forming a significant spike that rivals the spike formed in late '08. This has been a longer term trade idea that I have provided in the past and the time for re-entry is now nearing again.
Gold/Crude- This has been a favorite of some guy whose name begins with a "G" that also writes a daily letter and I have to agree with him that it is soon time to put this ratio spread back on. Earlier I noted that Crude will likely be a future market weakness and this spread takes advantage of this opinion with a hedge.
Gold/Silver- The daily chart is in a larger triangle consolidation, but I believe that the breakout of this chart will likely be to the upside fueled by liquidation in the Silver market. I have long felt that the Silver market is abnormally extended for the time being and that the industrial metal story for the Commodity will take over at some point causing liquidation among the community that is buying it as a precious metal.
Gold+Dow- This is a contrary-relationship trade, in that Gold is usually a store of value away from Equities, that could be forming a head and shoulders pattern. The fundamental move that would be derived from the initiation of this bearish pattern on the weekly chart would be exactly a large bearish move in Equities with a deflationary move in the Gold market as a hedge. As money out of the stock market would likely flow into Gold it is actually a short in Gold that would act as a hedge for this relationship as Buying Gold and Selling Equities would be a "double exposed" position.
Notes:
Yesterday's Trades- Both the long Gold and long Nasdaq trade suggestions failed yesterday as the market declined throughout the day. Gold no longer has a bullish pattern projection and with the market now failing at a higher rally for the third time I do not like the idea of staying long Gold. The Nasdaq long entry level between 1915 and 1921.50 with support to 1908 held strong for a number of hours until the early afternoon yesterday. After failure at this level I also no longer like holding a long Nasdaq position and will be staying out of this market for the foreseeable future as it remains a choppy trade.
The market started off yesterday morning on a positive note on the back of news that China will use a more "flexible" policy with it's peg of the Yuan, but this exuberance was short lived as the macro market took a down-trending dive throughout the rest of the day. The Equity Indices broke in a clean line while Crude Oil, Gold, and Silver had violent stop-running breaks just before noon (CT). This morning the Chinese Yuan has appreciated another .23% at last check and the market is beginning to look at this "flexible" policy as somewhat of a joke. It is apparent from the last two days that China has no intention of a free-float for the Currency and will control it's movement, on what appears to be more of a concession prior to the G-20 than any sort of market moving change of policy.
This morning the macro market is lower in almost every supportive market, but only to a moderate degree thus far with the Energies and Metals the biggest losers. With the FOMC meeting taking place over the next two days and some housing data over the same time frame the market looks like it will take a wait and see approach. I do not think anyone is actually expecting much change from The Fed, but their individual word choices will be poured over with little consequence to follow in my opinion. The housing data this week and jobs numbers, with Unemployment next week, are now what I am focusing on as "the fundamental recovery" touted by the Bulls is beginning to look like a dying piece of evidence in their market defense.
Right now I find myself being caught up in the chop and randomness of the large sideways market, so I will not be placing any trade ideas in the Buys or Sells category until there is a real trade that I can get on with conviction. Looking at most of the daily charts across the market I am finding either strictly sideways markets or directional moves that are now way over-extended and inadequate to jump on. Furthermore, after analyzing a large sample size of relationship trades I have found only a few to really keep on the radar and none that I can make a strong case for at the time being. I personally struggle with sideways market action as I trade directional moves with volatility best, but give back the profits from my good trades on the false patterns and breakouts. I still believe that the macro market is in the midst of a sizable bearish move that should at least extend over the next four months and would now like to focus more on trades that take advantage of a deflationary move and decline in prices. I suggest dialing down size, making less trades, and focusing on taking profits earlier as directional moves have been rare and short in duration lately.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Equity Indices- All of the Indices gave back early gains on a 15 minute chart down-trend that lasted throughout the day and saw the Nasdaq perform the weakest. Over the last couple days I have noted that the S&P 500 has a bullish consolidation breakout that projects to 1169, but after yesterday's poor action the market is again testing the 1103 high from the same range it looked like it departed from. I still am looking for the S&P 500 to at least have a rally test of the 61.8% correction retracement level falling between 1145 - 1150, but a test of this level is now looking more skeptical. All of the Indices on their daily chart are now very close to producing sell signals on their Stochastics indicators near overbought territory, while all still maintain a range on their RSI within a bearish trend range as well. A close below 1103 for the S&P 500 would likely indicate another move lower through the sideways range and a possible test of the large base as the market is likely overbought at the time being. Remember that for the last couple weeks the market has also been buying with conviction despite some very discouraging Economic numbers and reports. For right now I have no intention of trading the Equity markets, but the S&P 500 is still the leading indicator for the market and should always be on your radar.
Metal Sector- Gold, Silver, Copper, and Palladium to a lesser degree have all had a moderate to substantial increase in Open Interest over the last few weeks. This increase in open interest has come while Gold, Silver, and Palladium have increased in price on a slight uptrend, but Copper has really acted more as a laggard. Yesterday both the Gold and Silver markets had a large stop-running price break as liquidation took over after another failed Gold attempt at a leg higher. Gold is now testing it's long term up-trend from the low March 25th to the low April 22nd that sits at $1235.3 today after about 15 tests of this line. I would take two closes below this line as a signal to exit any Gold longs and also as a sign of weakness for the entire sector on what could be a violent swing lower. This open interest that has entered the Metals appears to be a longer term position allocation, but when the market begins to liquidate and the small winners turn into double digit percent losers you often find a very large move lower. I have had a substantial liquidation in the Metals on my radar for the last 3 months and I believe that the Gold market's rejection of it's up-trend may be the start of this move. I recommend looking for bear strategies in the Metal market going forward and holding off on long entry into these markets.
Crude Oil- Crude Oil was acting as one of the stronger markets on the recent macro rally, but after a weak test of $80 has fallen hard over the last 24 hours. Today the daily chart Stochastics is producing a sell signal near overbought territory, which could signal the end of the rally unless it can make a valiant recovery by the close today. A move and close below $76.86 for the August contract would confirm a reversal for Crude Oil. After having one of the largest price breaks since late April I believe that going forward Crude is one of the better sales on the possible bear move with deflationary pressures, so I will focus on it as a weakness once the Bullish correction is confirmed to be over.
Currency Markets- With the exception of the Japanese Yen (which is a different animal) all of the Foreign Currency markets have or are on the verge of producing sell signals on their daily Stochastics indicators. The British Pound and Canadian dollar already have produced their own, with the rest of the markets now looking like they are only a day or two away as well. When you add up that the Metal markets look like they may undergo liquidation, the Energy and Equity Sectors are nearing sell signals, and Currencies are now in the process of developing sells as well, you can see a correlated weakening macro story. After examining all of the Currency markets as well as the cross-rates I can not find a trade or market that I am excited about for the time being, but keep an eye on the daily chart Stochastics for these markets as a macro indicator.
Bonds- The Bond market is still in a triangle consolidation pattern after briefly testing and rejecting it's bearish breakout yesterday. Today the lower consolidation line sits at 123.08 with the neckline on the bearish head and shoulders pattern at 122.31 with a projection to 117.02. Meanwhile the upper range line is at 124.12 with a move above 125.00 yielding a projection to 127.17. The market is nearing the apex of the triangle consolidation that hits on June 29th, so any breakout should now be discounted with a move to the projection less likely as the coiled momentum in the market is now being lost. It is possible that this could be just a sideways market that extends beyond the triangle range, but a breakout within the next two days could still prove to be decent move. With the macro market looking like it could continue to fall over the next few days with so many sell signals provided I am leaning towards a move higher in Bond Prices.
Gold Relationship Trades- I actually did do the homework I discussed earlier by examining a breadth of inter-commodity relationship charts. After looking over everything these are the charts and markets that I came up with that have the best future potential. As I am looking for a bearish market move with deflation, buying Gold against weakness is a great spread that should provide the best risk reward going forward. Most of these ideas show up better on the weekly charts as longer term moves, but some have better daily chart stories. I only suggest looking at these charts for the time being and waiting for execution at a later date:
Gold/Copper- Best seen on the weekly chart this ratio chart could be forming a significant spike that rivals the spike formed in late '08. This has been a longer term trade idea that I have provided in the past and the time for re-entry is now nearing again.
Gold/Crude- This has been a favorite of some guy whose name begins with a "G" that also writes a daily letter and I have to agree with him that it is soon time to put this ratio spread back on. Earlier I noted that Crude will likely be a future market weakness and this spread takes advantage of this opinion with a hedge.
Gold/Silver- The daily chart is in a larger triangle consolidation, but I believe that the breakout of this chart will likely be to the upside fueled by liquidation in the Silver market. I have long felt that the Silver market is abnormally extended for the time being and that the industrial metal story for the Commodity will take over at some point causing liquidation among the community that is buying it as a precious metal.
Gold+Dow- This is a contrary-relationship trade, in that Gold is usually a store of value away from Equities, that could be forming a head and shoulders pattern. The fundamental move that would be derived from the initiation of this bearish pattern on the weekly chart would be exactly a large bearish move in Equities with a deflationary move in the Gold market as a hedge. As money out of the stock market would likely flow into Gold it is actually a short in Gold that would act as a hedge for this relationship as Buying Gold and Selling Equities would be a "double exposed" position.
Notes:
Yesterday's Trades- Both the long Gold and long Nasdaq trade suggestions failed yesterday as the market declined throughout the day. Gold no longer has a bullish pattern projection and with the market now failing at a higher rally for the third time I do not like the idea of staying long Gold. The Nasdaq long entry level between 1915 and 1921.50 with support to 1908 held strong for a number of hours until the early afternoon yesterday. After failure at this level I also no longer like holding a long Nasdaq position and will be staying out of this market for the foreseeable future as it remains a choppy trade.
Monday, June 21, 2010
Monday 6/21/10 Commodity Ideas
Opening Note:
Friday proved to be a day of odd market action as some early morning allocation led the way higher, but options expiration pressure stalled out the market to see it close nearly even on the day for Equities, but stronger for Commodities. At 8:30 on Friday there was a sizable inflow of new money across the broad market that started the ball rolling as the Metal and Energy Sectors saw the biggest jump in prices. Heading into this morning the big story is that China has eased their Currency policy allowing the Yuan to appreciate slightly against the Dollar. The Macro market is significantly higher this morning based on this news, but I still believe that the jury is out on whether this is a real news item to buy off of long term. With global pressure on China to adjust it's artificially low Currency peg, the country has made this concession heading into the G-20 meeting where they were likely to receive a great deal of further pressure. While some take this Currency move as a vote of confidence from China on the global recovery, it can also be viewed strictly as a move to relieve some of the trade tension. I think China's economists have been the most accurate in policy decisions over the last few years, so I would take a vote of confidence from them as a reliable indicator, but we shall see if this is merely just a concession.
This week there are a number of important economic numbers and the FOMC meeting announcement on Wednesday. I believe there is about a 0.3% chance that the Fed raises rates, so the meeting is likely to be uneventful, but the existing and new home sales numbers Tuesday and Wednesday should be interesting as the housing starts number last Wednesday was way below expectations.
Right now the momentum of the market is up and entry right now should be on the long side for the macro market. The S&P 500 is likely to at least advance to test the 1145 - 1150 range on the 61.8% retracement on the move earlier in the quarter from the top. The daily chart for the S&P also has a projection to 1169 as well on it's bullish cup and handle pattern and supportive Commodity markets like Crude Oil, Australian Dollar, and Silver are maintaining a move higher. I will be using a smaller than normal size for entry right now as the market remains less predictable on a day to day basis right now and I am more interested in setting up for another leg down in the market. Once the S&P 500 meets this 1145 - 1170 range is the time to begin shifting the focus back to the larger bear trend, but for right now I do not recommend fighting the allocation and momentum.
Buys to Watch:
Gold- The fundamental story for Gold right now is very tangled, but technically the market now has a bullish breakout with a new high close and a projection to $1292. The close Friday above the old high trade of $1254.5 produced this bullish cup and handle pattern. The Gold market appears to rally right now just because it can no matter what happens with the rest of the market. While the initial move higher in Gold was on an exodus from the Euro Currency and a run to safety from Equities and other Commodities, the Gold market has maintained it's strength in the face of a rally in these markets that it was used as a hedge against. Current CPI data and other macro indicators are also pointing towards a deflationary move that should have a negative effect on the outright price of Gold. While I believe that the market is over-saturated on a trade where most investors do not know what they are getting themselves into Gold still is one of the better buys out there. For entry I recommend purchasing around the higher volume support near $1257 with a stop below this level. Below $1257 there is a large low volume zone that ranges all the way down to the support near $1245, which may be a good level to purchase near the trendline, but would negate the projection higher. So, I believe you have to step in at this higher level with a tighter stop if you are going to buy for right now.
Nasdaq with S&P 500 indicator- The Nasdaq now has a confirmed bullish breakout above it's consolidation range like the S&P 500 and I believe is now the best buy of the Equity Indices. The Nasdaq has acted as the the strength on the macro rallies over the last 16 months, so I will stick with this trend for long entry. The Nasdaq is already much higher on the day, so you need to be patient, but there is a decent lower volume zone just below today's range thus far for long entry. Between 1915 and 1921.50 there is a low volume gap left over the weekend with higher volume support ranging from 1914.5 to 1908 for stop placement. The Nasdaq has an enormous projection on it's daily chart to 2036, but it is important to keep an eye on the S&P 500 as the leading indicator of the sector for guidance on a Nasdaq position. Once the S&P 500 hits the 1145 - 1170 range it will likely lose momentum and reverse, so this is a good zone to look for taking profits on a Nasdaq long.
Sells to Watch:
Put on the Radar:
Bonds- Bonds have been on the radar for both bullish and bearish moves over the last week, but today it is on the verge of setting off a bearish breakout on it's recent triangle consolidation. The lower consolidation line from the low May 13th to the low June 3rd has a value today of 122.26 with a projection to 116.29. This morning the market has already twice toyed with this breakout level, but has been unable to significantly move below it, so I suggest waiting for today's close on a confirmation of the move prior to entry tomorrow. It is still possible that the market will trade back into it's consolidation triangle today. Also, with the market now trading towards the apex of the triangle and the bottom support trend having a steeper upslope it is less likely that the market actually reaches the pattern's projection.
Crude Oil and Australian Dollar (move Crude front month to August)- I am grouping these two markets again as a market indicator package to keep on your radar. They are also still decent buys, but after a sizable rally are likely near overbought territory and due for a bearish move in the near future. Crude Oil for the August contract has a projection to $82.67 and this morning is struggling with the psychological $80 level. For Crude measuring from the high close to the low close I receive a 50 % retracement value of $80.43 and a 61.8% value of $82.87. Meanwhile the Australian Dollar has a daily chart pattern projection to .8896, but a 61.8% retracement level of .8765, which provided resistance on the highs today. Both markets have been highly correlated to the stock market, so they could provide some insight as to whether the 61.8% level for the S&P 500 will provide topping resistance or if the market will trade along it's pattern projection to 1169.
Notes:
RBOB vs. Heating Oil- On Friday I had this trade in the buys column, but the low volume entry zone I provided was traded through on Friday. Today the market is again trading slightly lower, so I believe it is no longer a good buy and recommend liquidation of long positions.
Copper- The band of resistance I provided for the Copper market from $2.9150 to 2.9350 was obviously violated overnight in a big way on the China news. Any time you mention China and Bull in the same sentence the market jumps on Copper, so this was poor timing for a short in regard to fundamental news. However, it was the action on Friday that initially made me concerned with the short position on the trade. If you look back at a 15 minute chart from Friday you can see that between 8:30 and 9:30 there was an increase in volume as allocation entered the market. This was not a notable size of volume in comparison to some other time frames, but it was if you take into consideration the price movement over this same time frame you can reason that this was large traded size for such a small price range. I was watching the actual trading ladder over this period as a number of 100+ lot offers sat above the market and 1 lot icebergs sat below scooping up and buying any sales from nervous short term traders with such offer size sitting above the market. I estimate that a large player scooped up somewhere around 2,000 - 3,000 contracts in a very tight range while psychologically scaring the market into hitting it's bid. This is clearly a winner for today, and with the Chinese news out I do not believe that you can step into a short in the Copper market as it should be less predictable. I recommend sitting flat in the market for the time being and do not recommend stepping into a long position at these levels.
Friday proved to be a day of odd market action as some early morning allocation led the way higher, but options expiration pressure stalled out the market to see it close nearly even on the day for Equities, but stronger for Commodities. At 8:30 on Friday there was a sizable inflow of new money across the broad market that started the ball rolling as the Metal and Energy Sectors saw the biggest jump in prices. Heading into this morning the big story is that China has eased their Currency policy allowing the Yuan to appreciate slightly against the Dollar. The Macro market is significantly higher this morning based on this news, but I still believe that the jury is out on whether this is a real news item to buy off of long term. With global pressure on China to adjust it's artificially low Currency peg, the country has made this concession heading into the G-20 meeting where they were likely to receive a great deal of further pressure. While some take this Currency move as a vote of confidence from China on the global recovery, it can also be viewed strictly as a move to relieve some of the trade tension. I think China's economists have been the most accurate in policy decisions over the last few years, so I would take a vote of confidence from them as a reliable indicator, but we shall see if this is merely just a concession.
This week there are a number of important economic numbers and the FOMC meeting announcement on Wednesday. I believe there is about a 0.3% chance that the Fed raises rates, so the meeting is likely to be uneventful, but the existing and new home sales numbers Tuesday and Wednesday should be interesting as the housing starts number last Wednesday was way below expectations.
Right now the momentum of the market is up and entry right now should be on the long side for the macro market. The S&P 500 is likely to at least advance to test the 1145 - 1150 range on the 61.8% retracement on the move earlier in the quarter from the top. The daily chart for the S&P also has a projection to 1169 as well on it's bullish cup and handle pattern and supportive Commodity markets like Crude Oil, Australian Dollar, and Silver are maintaining a move higher. I will be using a smaller than normal size for entry right now as the market remains less predictable on a day to day basis right now and I am more interested in setting up for another leg down in the market. Once the S&P 500 meets this 1145 - 1170 range is the time to begin shifting the focus back to the larger bear trend, but for right now I do not recommend fighting the allocation and momentum.
Buys to Watch:
Gold- The fundamental story for Gold right now is very tangled, but technically the market now has a bullish breakout with a new high close and a projection to $1292. The close Friday above the old high trade of $1254.5 produced this bullish cup and handle pattern. The Gold market appears to rally right now just because it can no matter what happens with the rest of the market. While the initial move higher in Gold was on an exodus from the Euro Currency and a run to safety from Equities and other Commodities, the Gold market has maintained it's strength in the face of a rally in these markets that it was used as a hedge against. Current CPI data and other macro indicators are also pointing towards a deflationary move that should have a negative effect on the outright price of Gold. While I believe that the market is over-saturated on a trade where most investors do not know what they are getting themselves into Gold still is one of the better buys out there. For entry I recommend purchasing around the higher volume support near $1257 with a stop below this level. Below $1257 there is a large low volume zone that ranges all the way down to the support near $1245, which may be a good level to purchase near the trendline, but would negate the projection higher. So, I believe you have to step in at this higher level with a tighter stop if you are going to buy for right now.
Nasdaq with S&P 500 indicator- The Nasdaq now has a confirmed bullish breakout above it's consolidation range like the S&P 500 and I believe is now the best buy of the Equity Indices. The Nasdaq has acted as the the strength on the macro rallies over the last 16 months, so I will stick with this trend for long entry. The Nasdaq is already much higher on the day, so you need to be patient, but there is a decent lower volume zone just below today's range thus far for long entry. Between 1915 and 1921.50 there is a low volume gap left over the weekend with higher volume support ranging from 1914.5 to 1908 for stop placement. The Nasdaq has an enormous projection on it's daily chart to 2036, but it is important to keep an eye on the S&P 500 as the leading indicator of the sector for guidance on a Nasdaq position. Once the S&P 500 hits the 1145 - 1170 range it will likely lose momentum and reverse, so this is a good zone to look for taking profits on a Nasdaq long.
Sells to Watch:
Put on the Radar:
Bonds- Bonds have been on the radar for both bullish and bearish moves over the last week, but today it is on the verge of setting off a bearish breakout on it's recent triangle consolidation. The lower consolidation line from the low May 13th to the low June 3rd has a value today of 122.26 with a projection to 116.29. This morning the market has already twice toyed with this breakout level, but has been unable to significantly move below it, so I suggest waiting for today's close on a confirmation of the move prior to entry tomorrow. It is still possible that the market will trade back into it's consolidation triangle today. Also, with the market now trading towards the apex of the triangle and the bottom support trend having a steeper upslope it is less likely that the market actually reaches the pattern's projection.
Crude Oil and Australian Dollar (move Crude front month to August)- I am grouping these two markets again as a market indicator package to keep on your radar. They are also still decent buys, but after a sizable rally are likely near overbought territory and due for a bearish move in the near future. Crude Oil for the August contract has a projection to $82.67 and this morning is struggling with the psychological $80 level. For Crude measuring from the high close to the low close I receive a 50 % retracement value of $80.43 and a 61.8% value of $82.87. Meanwhile the Australian Dollar has a daily chart pattern projection to .8896, but a 61.8% retracement level of .8765, which provided resistance on the highs today. Both markets have been highly correlated to the stock market, so they could provide some insight as to whether the 61.8% level for the S&P 500 will provide topping resistance or if the market will trade along it's pattern projection to 1169.
Notes:
RBOB vs. Heating Oil- On Friday I had this trade in the buys column, but the low volume entry zone I provided was traded through on Friday. Today the market is again trading slightly lower, so I believe it is no longer a good buy and recommend liquidation of long positions.
Copper- The band of resistance I provided for the Copper market from $2.9150 to 2.9350 was obviously violated overnight in a big way on the China news. Any time you mention China and Bull in the same sentence the market jumps on Copper, so this was poor timing for a short in regard to fundamental news. However, it was the action on Friday that initially made me concerned with the short position on the trade. If you look back at a 15 minute chart from Friday you can see that between 8:30 and 9:30 there was an increase in volume as allocation entered the market. This was not a notable size of volume in comparison to some other time frames, but it was if you take into consideration the price movement over this same time frame you can reason that this was large traded size for such a small price range. I was watching the actual trading ladder over this period as a number of 100+ lot offers sat above the market and 1 lot icebergs sat below scooping up and buying any sales from nervous short term traders with such offer size sitting above the market. I estimate that a large player scooped up somewhere around 2,000 - 3,000 contracts in a very tight range while psychologically scaring the market into hitting it's bid. This is clearly a winner for today, and with the Chinese news out I do not believe that you can step into a short in the Copper market as it should be less predictable. I recommend sitting flat in the market for the time being and do not recommend stepping into a long position at these levels.
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