Opening Note:
Yesterday
The market held firmer on Friday with the S&P 500 rallying to close on its highs as it tests the upper end of the summer range. A major pipeline leak and shut down provided the catalyst for Crude Oil to rally above the recent consolidation zone as the nearby spreads also snapped back in to show decreasing over-supply concerns. The Grain market rocked and rolled for the first half hour of trade, but once the markets found their equilibrium it was clear that Corn remains the strength, Beans the weakness, and Wheat the middle man, but with Corn likely the leader among the Sector regardless of direction going forward. Gold made a first close below its 30 day rally trendline, which could be setting up some liquidation in the market. And finally, the risk aversion markets continued to sell off in line with the Equity gains, but Copper was the outlier as it settled 4 cents lower despite nearly every other supportive market closing higher on the day.
Today
The market is strong again with the S&P 500 testing the Bullish head and shoulders pattern breakout of 1120.50 today. Nearly every supportive market is higher this morning with the Aussie and Canadian Dollars and the Euro leading the Foreign Currencies this morning. Copper, the laggard from Friday, is up 7 cents early exemplifying the market choppiness as the laggard one day can easily shift to the leader the next. Crude Oil is higher, but not as much as I would expect under normal circumstances as the supportive Currencies and Equities are a bit stronger in relation.
The Equities seem pretty adamant on a thorough test of the upper end of the summer range, so I expect that we could see a battle around this level that could last at least a couple days. However, the macro market relationships are not saying this Bullish pattern breakout is likely to succeed for the time being (I give a more detailed run down in the Notes). If the S&P 500 is able to successfully rally out of this range then we could see some good trading opportunities over the next month, but until the market makes a clear decision there remains little to do other than take the 12 hour market swings when they setup and wait on the sidelines for right now.
Buys to Watch:
Australian Dollar (Make sure you have December now)- The Aussie is strong this morning with a gap higher open yesterday evening. The market has now reached the head and shoulders base objective of .9198 and is plowing further toward the 3rd leg advance objective of .9416. I now suggest moving the longer term stop on this trade to around .9138, which is just below higher volume support left over the last two sessions. For new long entry the gap left over the weekend from .9170 - .9186 is a lower volume zone with a stop loss on the trade between .9138 - .9148 below higher volume support. The technicals for the market's daily chart remain strong and healthy for continuation despite being in overbought levels for Stochastics, which is not concerning for right now. If you are holding this long position in the Aussie I think it is also important to keep an eye on the S&P 500 for right now as it is sitting at a make or break juncture. If the S&P 500 fails to rally out of the summer range then it could drag the Aussie lower with it.
Sells to Watch:
Put on the Radar:
S&P 500 (and Nasdaq)- Connecting the high June 21st to August 5th for the S&P 500 creates the Bullish head and shoulders pattern neckline with a value of 1120.50 today. Above this breakout level the market has a projection to 1245 above the yearly highs. Using the same days the Nasdaq is actually already trading above its own breakout level of 1899 today with a projection of 2135 if the pattern is confirmed. To set these patterns in motion the markets must make two consecutive closes above the designated breakout, so I recommend waiting on entry either direction until we get some more clarity. If the patterns do initiate then I believe that the Nasdaq would the better buy as allocation has been stronger into technology over the recovery and it has the larger percentage gain on the pattern objective.
Corn- Corn held up very well Friday after the Bullish reduction in yields and establishing a new high close on the rally. There was large buying of Corn as a spread against both Wheat and Beans, with the ratio between the latter moving significantly Friday. Right now all of the short term objectives for the market have been met, so I am still waiting for a pullback in the market prior to looking for long entry. The base on the weekly chart for Corn projects a move to around $5.50, making this the longer term objective. Corn still has the strongest fundamental story among the sector and still looks the best technically meaning that I am only looking for buying opportunities in the market, but for right now I am waiting for a pullback to enter a longer term position.
Crude Oil- The leak in the large pipeline from Canada has now caused a 4 day shut down, which is boosting Crude prices over the last two sessions and has me now in a full crouch waiting to pounce. Open Interest rose again Friday making the new longs in the market nearly 150,000 since August 27th. This increase in positions is extremely high for the slow increase in prices and is looking like a potential liquidation trap with just a couple days of price drops locking this large interest position into a losing position. The short term cup and handle pattern has an objective of $78.25, which is the level that I suggest looking at the options market to enter an initial short position so there is more flexibility and ability to stay in the market than an outright sale. I still put Crude Oil on a 2nd leg lower objective of $61.50 and although the nearby spreads have moved back in I believe that the ample supply of Crude will be the fundamental leader for this move.
Gold- Drawing a trendline form the low July 28th - August 24th displays the base trend for the 30 day Gold rally. The market closed below this line for the first time Friday with a close below $1250.3 today confirming the end of this rally. Holding a short position in the Gold market is not necessarily an easy thing to do right now as you can see by the $15 rally swing Friday morning that had strong momentum. As there is not a clear Bearish objective for the market right now I simply recommend liquidating long positions with a close below the trend today and looking to enter shorter term Bear positions in the market to catch the $10 - $15 swings. If an objective emerges in the market though then Silver could be moved to the Sells.
Notes:
The Macro Relationship Web...Copper Could Hold the Key to an Equity Rally
The reason I do not think that this Bullish head and shoulders pattern will be set off currently has nothing do with the fundamental numbers or the S&P 500 chart, but rather the correlations between the markets. Right now I am using Gold, Copper, Australian Dollar, Bonds, and Crude Oil as my indicator markets to formulate my opinion:
Gold- Possibly setting up top for the market that could turn into a double top pattern to increase liquidation in the market. Gold does not have a strong correlation to Equities right now, but I still view it as a market that should travel more in line with Equities than inverse to them.
Copper- The summer rally has brought the market near the highs for the year, but after meeting the head and shoulders base objective of $3.50 the market has fallen back and could be making a top. Copper is strong this morning on a Chinese Industrial number, but unless it is able to hold a rally above $3.5345 then the trend for the market is will likely turn downward.
Australian Dollar- The Aussie Dollar has made an impressive rally and is nearing the 3rd leg advance objective of .9416. The Australian economy has had impressive numbers as one of the leading global economies as of late and is the leader of the Currencies right now. However, with a strong correlation to U.S. Equity markets it looks like the Aussie is near topping with a 2 leg decline likely following next.
Bonds- The market has fallen since making highs 2 weeks ago, but the Bullish trend is still alive and strong if the market is able to hold above the 128.16 level. I believe that this recent decline has been just a standard 2 leg pullback on the larger rally and that there is still another leg on the rally to follow.
Crude Oil- I have a 2nd leg lower objective for Crude of $61.50. Short term the market projects a rally to $78.25, but the trend still remains lower for the market over the medium term.
When you take all of these into account it looks like there is not a good catalyst among the supportive markets that would support a strong rally in the Equities. The leader among ths correlated Currencies looks to be topping soon, the Energies are a lagging Sector, the Precious Metals may have topped, and the Industrial Metals are not showing they are on course for a larger rally right now. In addition, the risk aversion trade in the Bond market is not dead and the strength in the Japanese Yen also supports this idea. The Equity markets can act independently, but with so many signals saying it is unlikely I am not betting on a successful rally to new yearly highs for the S&P 500.
The one thing that I can see that might change my opinion is Copper. If Copper is able to hold a rally above the recent $3.5345 swing high then the market could be on a 2nd leg rally higher that would mean a move to around $4.00 if it is a 3 leg advance. Copper has a tendency to lead the Equity markets, so I think it is critical to keep an eye on the market over the next few sessions because it could be the best indicator whether Equity continuation is likely or not.
Monday, September 13, 2010
Friday, September 10, 2010
Friday 9/10/10 Commodity Ideas
Opening Note:
*Roll your Equities & Currencies to December
Yesterday
The market ended higher on the day, but after an early morning rally it was mostly a slow grind lower throughout the day. Crude Oil started the day strong and attempted a rally breakout above the recent consolidation zone, but fell nearly $2 from its early highs despite an EIA stocks number that showed a Bullish decrease in inventories. The Grains were one of the more interesting Sectors with Wheat leading the gains with a move that completely retraced Thursday's losses and Corn proving its strength with a settlement above the $3.70 resistance level. It actually was a little surprising to me that more buying entered the market with such strength the day before the report, but at least the market's have confidence. Finally, Gold dropped $15 after an early morning rally attempt at the yearly highs as the market now looks to be topping after the odd looking 30 day rally.
Today
The market's are slightly firmer, but still are sitting below yesterday's highs in most cases. Crude Oil is the clear winner this morning as the nearby spreads have moved back in with strength overnight, providing a Bullish push for the market. The Grain markets have held yesterday's gains into this morning with Cotton actually mounting a decent rally overnight, but today's trade will hang on the 7:30 am number. Other than that the markets are pretty much asleep, but in order this morning.
Volume has remained awful throughout this week making most of the market action choppy and less meaningful in my opinion. There still looks like there are some decent trade setups on the horizon, but for right now pretty much everything remains on the radar as the directional moves in the market still remain choppy at best. With the S&P 500 now battling with the now 1105 - 1121 for the December contract I expect that gains in the market will be tempered today. For my part today I intend to trade the first hour of the post-report Grain markets, but other than that I have my Aussie Dollar position and I am going home early to make sure my fantasy football rosters are in order for the weekend.
Late Grain Note:
At just a brief glance the report looks Bullish Corn, Bearish Wheat, and Bearish Beans, but nothing outrageous. Corn is probably the best buy and Wheat the best sale. I still am on the lookout for an overbought pullback in the Corn market though with open interest sky rocketing with long spec positions, so beware about jumping into new longs with the intention of holding. It is possible that we could see a sell off despite this slightly Bullish report. The technicals are beginning to look very overextended and with the all of the short term objectives on the 3 leg advance now met the market may need consolidation before going after some of the weekly chart objectives.
Buys to Watch:
Australian Dollar- I will now be referring to the December contract rather than September, which is an adjustment of pretty much exactly 100 ticks lower. This makes the 3rd leg rally target .9417 with the head and shoulders bottom objective .9198. Overnight the Aussie Dollar pulled back to just above the low volume zone from .9092 - .9098 (and just above my resting buy order), so it was unlikely that you were able to add at the good setup. I intend on keeping my resting buy order at this same level with a stop below the .9070 higher volume support. Because I still believe this entry level is in play I still recommend using this stop level on the overall trade as well.
Sells to Watch:
Put on the Radar:
Gold- After two rally failures at new yearly highs the Gold market looks like it has a top and is nearly a sale. Both Stochastics and MACD now have confirmed sell signals for the market and drawing the lowest trendline for the 30 day rally from the low July 28th - August 24th you receive a value of $1247.5 today. Gold sold off this morning on its 7:20 am as I imagine most of the longs now have enough negative indicators to take profits. The dip buying and fading programs still look like they are being used in the market for the time being making holding a position difficult, but it appears that there truly is liquidation going on today making the strong dip buying algorithms less successful. If the market settles below $1247.5 today Gold will likely be moved to the Sell list Monday. Also note that Silver remains relatively strong compared to Gold so the suggestion may turn into a hedged ratio of short 2 Gold: Long 1 Silver.
Crude Oil- The Crude Oil nearby spreads have come back in overnight meaning that the short term Bearish supply story is fading for the time being. This propped up the outrights overnight after yesterday's sell off and could finally push the market above the recent consolidation. Above $75.44 the market has an objective of $78.25 on the Bullish cup and handle pattern, but this could be a difficult move to ride through the swings. Instead I am now solely looking for weakness around this objective level to enter a short position in the market. Open Interest rose yet again yesterday despite the mid-day sell off as allocation continues to roll into the market at an astounding rate without much increase in price. This is setting up a strong possibility that the Bulls become trapped with sizable losing positions causing another liquidation run towards the 2nd leg $61.50 target. I suggest sitting on the sidelines for this possible short term Bull move and waiting for the opportunity to sell what looks like the best trade setup on my radar.
Notes:
*Roll your Equities & Currencies to December
Yesterday
The market ended higher on the day, but after an early morning rally it was mostly a slow grind lower throughout the day. Crude Oil started the day strong and attempted a rally breakout above the recent consolidation zone, but fell nearly $2 from its early highs despite an EIA stocks number that showed a Bullish decrease in inventories. The Grains were one of the more interesting Sectors with Wheat leading the gains with a move that completely retraced Thursday's losses and Corn proving its strength with a settlement above the $3.70 resistance level. It actually was a little surprising to me that more buying entered the market with such strength the day before the report, but at least the market's have confidence. Finally, Gold dropped $15 after an early morning rally attempt at the yearly highs as the market now looks to be topping after the odd looking 30 day rally.
Today
The market's are slightly firmer, but still are sitting below yesterday's highs in most cases. Crude Oil is the clear winner this morning as the nearby spreads have moved back in with strength overnight, providing a Bullish push for the market. The Grain markets have held yesterday's gains into this morning with Cotton actually mounting a decent rally overnight, but today's trade will hang on the 7:30 am number. Other than that the markets are pretty much asleep, but in order this morning.
Volume has remained awful throughout this week making most of the market action choppy and less meaningful in my opinion. There still looks like there are some decent trade setups on the horizon, but for right now pretty much everything remains on the radar as the directional moves in the market still remain choppy at best. With the S&P 500 now battling with the now 1105 - 1121 for the December contract I expect that gains in the market will be tempered today. For my part today I intend to trade the first hour of the post-report Grain markets, but other than that I have my Aussie Dollar position and I am going home early to make sure my fantasy football rosters are in order for the weekend.
Late Grain Note:
At just a brief glance the report looks Bullish Corn, Bearish Wheat, and Bearish Beans, but nothing outrageous. Corn is probably the best buy and Wheat the best sale. I still am on the lookout for an overbought pullback in the Corn market though with open interest sky rocketing with long spec positions, so beware about jumping into new longs with the intention of holding. It is possible that we could see a sell off despite this slightly Bullish report. The technicals are beginning to look very overextended and with the all of the short term objectives on the 3 leg advance now met the market may need consolidation before going after some of the weekly chart objectives.
Buys to Watch:
Australian Dollar- I will now be referring to the December contract rather than September, which is an adjustment of pretty much exactly 100 ticks lower. This makes the 3rd leg rally target .9417 with the head and shoulders bottom objective .9198. Overnight the Aussie Dollar pulled back to just above the low volume zone from .9092 - .9098 (and just above my resting buy order), so it was unlikely that you were able to add at the good setup. I intend on keeping my resting buy order at this same level with a stop below the .9070 higher volume support. Because I still believe this entry level is in play I still recommend using this stop level on the overall trade as well.
Sells to Watch:
Put on the Radar:
Gold- After two rally failures at new yearly highs the Gold market looks like it has a top and is nearly a sale. Both Stochastics and MACD now have confirmed sell signals for the market and drawing the lowest trendline for the 30 day rally from the low July 28th - August 24th you receive a value of $1247.5 today. Gold sold off this morning on its 7:20 am as I imagine most of the longs now have enough negative indicators to take profits. The dip buying and fading programs still look like they are being used in the market for the time being making holding a position difficult, but it appears that there truly is liquidation going on today making the strong dip buying algorithms less successful. If the market settles below $1247.5 today Gold will likely be moved to the Sell list Monday. Also note that Silver remains relatively strong compared to Gold so the suggestion may turn into a hedged ratio of short 2 Gold: Long 1 Silver.
Crude Oil- The Crude Oil nearby spreads have come back in overnight meaning that the short term Bearish supply story is fading for the time being. This propped up the outrights overnight after yesterday's sell off and could finally push the market above the recent consolidation. Above $75.44 the market has an objective of $78.25 on the Bullish cup and handle pattern, but this could be a difficult move to ride through the swings. Instead I am now solely looking for weakness around this objective level to enter a short position in the market. Open Interest rose yet again yesterday despite the mid-day sell off as allocation continues to roll into the market at an astounding rate without much increase in price. This is setting up a strong possibility that the Bulls become trapped with sizable losing positions causing another liquidation run towards the 2nd leg $61.50 target. I suggest sitting on the sidelines for this possible short term Bull move and waiting for the opportunity to sell what looks like the best trade setup on my radar.
Notes:
Thursday, September 9, 2010
Thursday 9/9/10 Commodity Ideas
Opening Note:
Yesterday
Although the market started out nearly flat, yesterday proved to actually be a decent day of strength as morning buying propelled the Equities, Foreign Currencies, and Energies higher. The Nasdaq, Australian and Canadian Dollars, and British Pound yielded the most impressive gains while the Fixed Income markets and Wheat led the decliners. Despite an early rally that carried Gold above the yearly high close the market was unable to hold these gains, so prepare for another battle today. However, without much news of impact released or curious market action though I would pretty much just call the action par for the course.
Today
Today the markets are again slightly firmer with the Australian Dollar leading the gainers on a positive Unemployment report overnight, but Copper leading the decliners in a "Whaaa?" relationship move that has my interest peaked this morning. I have to admit though that I do not have a real good feel right now which direction the market is headed today or whether it will just be back and forth, but I will put a 51% stamp of confidence that we will see another day of moderate gains. The currently in-play trade ideas remain solely the Australian Dollar for now with a number of things to watch on the radar. So, I suggest still taking more of a sideline approach to the markets for now until better opportunities emerge.
**Crop Production and Supply/Demand Reports for Grains 7:30 am tomorrow. Read the Radar for thoughts, but know I am not a fan of holding positions through this one.
Late Note:
The Jobless Claims number beat expectations today and I believe it is likely we will see the moderate gains yet again today. The S&P 500 runs into stronger resistance from 1110 - 1126, which should prove very difficult to progress through.
Buys to Watch:
Australian Dollar- The Aussie Dollar got a boost overnight as the Australian Unemployment Report came in better than expectations and has the Currency leading the sector this morning. During the release of this report though there was a large spike lower as well though that traded all the way down to .9119. Yesterday I recommended using .9109 as a stop with .9123 as another option, so it is possible if you used the higher level that you barely got hit on an unpredictable bit of bad luck. The head and shoulders objective of .9298 is now near, but after looking at the chart a bit more I believe that this is most likely a full 3rd leg advance, which is why it remains in the Buys Section today. After plotting my objective of .9517 for this leg I actually took a peek to see what Bill Gary (an analyst I like) was seeing and his similar 3rd leg objective is .9515, but because mine is likely more accurate (haha) the target will remain .9517.
The Aussie is now on a rally breakout above the yearly highs for the September contract above .9230 and is on pace for a new contract high close above .9190. This basically only leaves some weekly chart resistance up to .9330 for the market to get through. I believe that you can now move up stop placement on the trade to around the .9150 level or (I hesitate to say this after last night's spike) just below .9170 if you wish to take more risk off the table. For entry today or tomorrow there actually is a good level if the market provides a pullback with the low volume zone from .9192 - .9198 with higher volume support down to .9170 and through to .9150 for multiple stop placement levels to choose from.
On an interesting quirk I noticed over the last 2 days is the Aussie tends to be the early morning leader, but the Canadian seems to come on later in the day to catch up. The two are highly correlated to each other and the stock market, but with some divergence over this summer. This obviously could just be the mere fact that Australia is going to sleep as we start trading while Canada is up and active at the same time as us.
Sells to Watch:
Put on the Radar:
Grains- The Grains have acted finicky over the early part of this week leaving me even more skittish about carrying a position into the report tomorrow morning. Corn has run into a wall below the $4.70 level despite a number of rally attempts and just today Stochastics has produced a sell signal that could be the first of a number of technical indicators that cause some liquidation. Beans still maintain their bullish cup and handle pattern above $10.34 with a projection of $10.67 and the 3rd leg objective of $10.83, but the market performance over the last 24 hours has been disappointing as the rest of the Grains have not helped the Bullish case. Wheat sold off hard the last two days on the fundamental Russian story and global yield estimate revisions leaving a new rally leg less likely. Finally, Cotton looks like it may have found a top with the spike high left on Tuesday that looks like it may leave the market to melt lower (see recent Wheat daily chart), and fundamental reports say market conditions should not support 90 cents for long.
Last Friday Informa released Bullish yield numbers below previous expectations that sent the market higher, but this could be a case of over-enthusiasm from the Bulls prior to the report. Corn open interest is at huge levels as the summer increase may have stretched the ability of much new long interest to enter the market. I see a decent possibility that there could be a screw job top being set up and the lack of confidence in the market right now points to a possible reversal. I personally do not have an interest in carrying any positions into the Grains because sometimes the best money is made on the open after the report if you come in flat.
Crude Oil- Crude is testing its rally breakout level yet again this morning with a move above $75.44 providing an objective of $78.25. I have detailed my observations on open interest over the last couple days, and the new longs continue to file into the market. If you look back at the market action from April into May of this year I believe that we are setting up a similar situation. The open interest rises with strong conviction despite a lack of sizable price increase and with only a couple days of price breaks you have large positions locked into losing positions and stumbling over each other to get out. It was not only the stock market break that began this May break, but also an over-supply situation, which the spreads are indicating could be underway as we speak.
I have no problem jumping on the long side of the trade because having the algorithms and Funds on your side is an easy way to make money. However, I am really excited about the possibility of a great short position in the next few days, so much so that I have already looked at the setup around the projection level. There is a lower volume zone from $78.10 - $78.35 with higher volume resistance up to $78.88 that looks like it may be a good setup to execute a short position. Obviously though I would like to see the market action prior to just jumping in at this level. I believe that Crude is in the midst of a large 2nd leg lower to $61.50, so looking for opportunities on the short side of the trade should be more appealing and profitable.
Notes:
In the interest of timeliness this morning, I will be sending out a short prediction later today on where I see the market going over the next 3 weeks based on individual market's technicals and extrapolating these to the broader macro relationships.
Yesterday
Although the market started out nearly flat, yesterday proved to actually be a decent day of strength as morning buying propelled the Equities, Foreign Currencies, and Energies higher. The Nasdaq, Australian and Canadian Dollars, and British Pound yielded the most impressive gains while the Fixed Income markets and Wheat led the decliners. Despite an early rally that carried Gold above the yearly high close the market was unable to hold these gains, so prepare for another battle today. However, without much news of impact released or curious market action though I would pretty much just call the action par for the course.
Today
Today the markets are again slightly firmer with the Australian Dollar leading the gainers on a positive Unemployment report overnight, but Copper leading the decliners in a "Whaaa?" relationship move that has my interest peaked this morning. I have to admit though that I do not have a real good feel right now which direction the market is headed today or whether it will just be back and forth, but I will put a 51% stamp of confidence that we will see another day of moderate gains. The currently in-play trade ideas remain solely the Australian Dollar for now with a number of things to watch on the radar. So, I suggest still taking more of a sideline approach to the markets for now until better opportunities emerge.
**Crop Production and Supply/Demand Reports for Grains 7:30 am tomorrow. Read the Radar for thoughts, but know I am not a fan of holding positions through this one.
Late Note:
The Jobless Claims number beat expectations today and I believe it is likely we will see the moderate gains yet again today. The S&P 500 runs into stronger resistance from 1110 - 1126, which should prove very difficult to progress through.
Buys to Watch:
Australian Dollar- The Aussie Dollar got a boost overnight as the Australian Unemployment Report came in better than expectations and has the Currency leading the sector this morning. During the release of this report though there was a large spike lower as well though that traded all the way down to .9119. Yesterday I recommended using .9109 as a stop with .9123 as another option, so it is possible if you used the higher level that you barely got hit on an unpredictable bit of bad luck. The head and shoulders objective of .9298 is now near, but after looking at the chart a bit more I believe that this is most likely a full 3rd leg advance, which is why it remains in the Buys Section today. After plotting my objective of .9517 for this leg I actually took a peek to see what Bill Gary (an analyst I like) was seeing and his similar 3rd leg objective is .9515, but because mine is likely more accurate (haha) the target will remain .9517.
The Aussie is now on a rally breakout above the yearly highs for the September contract above .9230 and is on pace for a new contract high close above .9190. This basically only leaves some weekly chart resistance up to .9330 for the market to get through. I believe that you can now move up stop placement on the trade to around the .9150 level or (I hesitate to say this after last night's spike) just below .9170 if you wish to take more risk off the table. For entry today or tomorrow there actually is a good level if the market provides a pullback with the low volume zone from .9192 - .9198 with higher volume support down to .9170 and through to .9150 for multiple stop placement levels to choose from.
On an interesting quirk I noticed over the last 2 days is the Aussie tends to be the early morning leader, but the Canadian seems to come on later in the day to catch up. The two are highly correlated to each other and the stock market, but with some divergence over this summer. This obviously could just be the mere fact that Australia is going to sleep as we start trading while Canada is up and active at the same time as us.
Sells to Watch:
Put on the Radar:
Grains- The Grains have acted finicky over the early part of this week leaving me even more skittish about carrying a position into the report tomorrow morning. Corn has run into a wall below the $4.70 level despite a number of rally attempts and just today Stochastics has produced a sell signal that could be the first of a number of technical indicators that cause some liquidation. Beans still maintain their bullish cup and handle pattern above $10.34 with a projection of $10.67 and the 3rd leg objective of $10.83, but the market performance over the last 24 hours has been disappointing as the rest of the Grains have not helped the Bullish case. Wheat sold off hard the last two days on the fundamental Russian story and global yield estimate revisions leaving a new rally leg less likely. Finally, Cotton looks like it may have found a top with the spike high left on Tuesday that looks like it may leave the market to melt lower (see recent Wheat daily chart), and fundamental reports say market conditions should not support 90 cents for long.
Last Friday Informa released Bullish yield numbers below previous expectations that sent the market higher, but this could be a case of over-enthusiasm from the Bulls prior to the report. Corn open interest is at huge levels as the summer increase may have stretched the ability of much new long interest to enter the market. I see a decent possibility that there could be a screw job top being set up and the lack of confidence in the market right now points to a possible reversal. I personally do not have an interest in carrying any positions into the Grains because sometimes the best money is made on the open after the report if you come in flat.
Crude Oil- Crude is testing its rally breakout level yet again this morning with a move above $75.44 providing an objective of $78.25. I have detailed my observations on open interest over the last couple days, and the new longs continue to file into the market. If you look back at the market action from April into May of this year I believe that we are setting up a similar situation. The open interest rises with strong conviction despite a lack of sizable price increase and with only a couple days of price breaks you have large positions locked into losing positions and stumbling over each other to get out. It was not only the stock market break that began this May break, but also an over-supply situation, which the spreads are indicating could be underway as we speak.
I have no problem jumping on the long side of the trade because having the algorithms and Funds on your side is an easy way to make money. However, I am really excited about the possibility of a great short position in the next few days, so much so that I have already looked at the setup around the projection level. There is a lower volume zone from $78.10 - $78.35 with higher volume resistance up to $78.88 that looks like it may be a good setup to execute a short position. Obviously though I would like to see the market action prior to just jumping in at this level. I believe that Crude is in the midst of a large 2nd leg lower to $61.50, so looking for opportunities on the short side of the trade should be more appealing and profitable.
Notes:
In the interest of timeliness this morning, I will be sending out a short prediction later today on where I see the market going over the next 3 weeks based on individual market's technicals and extrapolating these to the broader macro relationships.
Wednesday, September 8, 2010
Wednesday 9/8/10 Commodity Ideas
Opening Note:
Yesterday
So much for the return in volume after the holiday weekend. Across most of the markets volume remained paltry on a fairly quiet day other than some sideways swings. The Euro and Pound were the clear losers with Soybeans putting up a nice rally despite an otherwise quiet Grain Sector as the winner. There were some decent sized swings among the daily range with Crude rallying $2 off its low and Silver rallying nearly 50 cents of its own, but much ado for little change in the settlement prices from the previous session. The risk aversion markets of the Fixed Income Sector, Japanese Yen, and U.S. Dollar also had a nice recovery rally, with the Yen making new highs against the U.S. Dollar over the last decade, after they were beat up towards the end of last week.
Today
The markets are very quiet yet again with the Aussie and Pound the leaders and no real notable loser yet. As of 6:45 am the market is the slightest bit firmer, but a sneeze and accidental mouse click from somebody with size could easily change this. There is Consumer Installment Credit this afternoon at 2 pm, but you can pretty much file that under the same category as it is a Full Moon and tomorrow is Rosh Hashannah so sell the stock market and buy it back on Yom Kippur.
All kidding aside though there are a few intriguing setups that I am watching on the radar right now despite the lack of trade ideas in play for the time being. The Grain Sector could become even more interesting with Friday's Crop Production and Supply/Demand Reports looming, Russia's inconsistent comments of "we are...we aren't going to export wheat", how much will USDA yield estimates decline, and how Chinese demand holds up for Beans and Corn. It is pretty clear from the lack of volume and market indecision though that this is a time to keep the powder dry to wait until something really pokes its head out. Remember that flat is still a position and one that usually leads to more Golf and better sleep.
Buys to Watch:
Australian Dollar- The Aussie Dollar appeared reluctant to rally yesterday afternoon, but coming into this morning it is a market leader with one of the highest percentage gains. The lower volume zone from .9104 - .9126 provided yesterday was traded into several times throughout the day and overnight, but the support down to .9068 held strong for the trade. For entry yesterday I also suggested executing only an initial position because Euro and Equity weakness could drag the Aussie lower, but despite the Euro trading below 1.27 and the S&P 500 testing the 1085 support the Aussie did not decline much in price.
The objective for the trade still sits at .9298 on the bullish head and shoulders pattern and 3rd leg advance for the Aussie, but it must be noted that there is some higher volume resistance that the market is now encountering. Nearby resistance sits at the .9175 high, but there is also an older swing high from August 6th at .9183. Furthermore, there is an even older high range on the weekly chart from April that ranges up to .9330. In conclusion, this means that you should be aware that it will likely be a grind, but not a deal breaker on the trade. I believe that you may now move the stop loss on the trade at least up to .9109, but could move up to .9123 possibly if you wish to lock in even more profit. Having only entered an initial position yesterday I am also looking for further entry, but there is not an outstanding setup for today. There is a lower volume zone from .9124 - .9132 that would be good for new entry with support down to the .9109 stop level, but I am not too confident that this will be hit today meaning it may be better to use either a 15 minute chart to look for a base to buy or wait for a better entry setup.
Sells to Watch:
Put on the Radar:
Grains (with Soybeans likely the best buy short term)- November Soybeans made an impressive close above the previous highs for the recent trade and now have an objective of $10.67 on the Bullish cup and handle pattern and around $10.83 on the 3rd leg advance. Overnight the moderate support from $10.45 - $10.47 provided a base on the trade and would be a good level to buy against on initial entry into the market. However, there is not very good support for the Beans until $10.38 1/2 below this, so I recommend using a fairly tight stop if you are buying against this level.
I am a little concerned about buying the Beans right now though because the December Corn has now reached its 3rd leg objective of $4.70 and could be nearing a top on the move. The Corn market has traded relatively sideways under this $4.70 level for the last 2 sessions and again overnight. Due to this lack of fresh advance the indicators are beginning to stagnate with RSI and Stochastics sitting well in overbought territory and threatening to set off sell signals. On top of this, MACD is also near a minor sell signal on the Bullish trend and I believe that any one or a combination of these indicators could cause technical liquidation in the market. Because of this I recommend taking profits on at least part of Corn long positions if you have been holding longer term.
However, December Wheat still looks like it is potentially setting up another rally leg. Wheat was the laggard of the Grain Sector yesterday as the flip-flop on Russian exports and planting weather has longs on edge, but if the market is able to hold moderate support from $7.28 - $7.29 with MACD for the daily chart nearing a minor buy signal on the Bullish trend.
Buy 1 November Bean vs. Sell 2 December Corn ((Nov Bean - Dec Corn*2) to chart)- I have no interest in carrying a position into the USDA reports on Friday and I strongly recommend only doing so if you have a strong knowledge of the Grain market. But, I wanted to note a possible trade on the horizon that looks technically promising. The Corn has gained over the Beans the last month, but the differential is now running into some longer term support between $.95 - $1.10 that could be setting up a reversal in favor of Beans. Stochastics recently produced a buy signal from overbought territory and MACD is also nearing a minor buy. Keep this on the Radar and take a look at it on Friday after the morning reports.
Bonds...A Tipping Point?- The Bonds got hammered towards the end of last week on the Equity rally and a number of analysts have called this a top on the Bonds. However, I am not in this camp quite yet as the longer term Bull trend still is very strong and intact. Bonds have rallied over the last 2 1/2 sessions, but today the market is encountering a teeter-totter point that could indicate how the market acts over the next few sessions. There is a low volume zone from 132.16 - 132.20 with higher volume support from 132.08 - 132.15 that is a good looking setup for long entry today. This trade works if the 3 days prior were just a minor pullback on the Bull trend. On the contrary though this 2 1/2 session rally could be seen as a pullback on a newly established shorter term Bear move. Personally I am still only looking to buy Bonds, so I will likely look at entering a small long position, but if this level fails to hold then we could see at least another several days of decline in Bonds.
Notes:
Crude Oil- Since August 27th Open Interest has dramatically increased in Crude Oil and money has piled in yet again yesterday. When looking at the daily chart and comparing the Open Interest versus the price action over these sessions I almost have to rub my eyes to make sure I am seeing this right. CQG sometimes posts later revisions in OI, but the total increase in new longs stands at 150,000 since Aug. 27th without much increase in price. All I am thinking is that these guys better be pretty confident that Crude is going to rally or they are in for a world of hurt if prices decline and liquidation begins (the spreads still look like crap). This is part of the reason I like to check out what a Commodity Fund's allocation system is prior to investing my money in them. Check out yesterday's letter or my blog to see the trade ideas yesterday on the radar for Crude, but for right now I recommend watching and waiting for the right opportunity.
Metals- The Metal Sector is very interesting right now as there are a number of markets that are meeting pivot points that could provide opportunity. The Industrial Metals of Copper, Palladium, and Silver have been hot lately and further advances could be an indicator of Economic growth. Palladium and Copper are nearing their highs for the year, with a move above this level possibly pointing the direction of Equities this fall. For Palladium I have a 3rd leg advance objective for the market of $551 that would put it just below the Spring high near $573. For Copper though I have a Bullish head and shoulders pattern that has completed its objective of $3.50 already with a 3 leg advance in the market up for debate right now. I have seen some analysts that put Copper on this advance, which would likely mean a move near $4. If Copper makes a new high close on the move above $3.5350 I believe this advance is likely, but until then I am sitting on the sidelines skeptically because the macro market is not really showing that this move is likely.
Today Gold made a run at its yearly highs with the high close for the December contract lying at $1262.4. After an initial push on the 7:20 am open though the market sold off slightly so this is a market to watch today. Silver is tied to both the Industrials and Gold, so the balance between both ends of the Metal spectrum should come into play if Silver is to continue its advance. The weekly chart for the Gold/Silver ratio now has a confirmed move below a consolidation triangle that indicates further Silver strength in the relationship, but if Gold fails then so could Silver. With the strong weekly close last week I have a less reliable objective for Silver of $21.48, so keeping an eye on these Metals should give a signal if the Long Silver trade is one to look for entry on.
Yesterday
So much for the return in volume after the holiday weekend. Across most of the markets volume remained paltry on a fairly quiet day other than some sideways swings. The Euro and Pound were the clear losers with Soybeans putting up a nice rally despite an otherwise quiet Grain Sector as the winner. There were some decent sized swings among the daily range with Crude rallying $2 off its low and Silver rallying nearly 50 cents of its own, but much ado for little change in the settlement prices from the previous session. The risk aversion markets of the Fixed Income Sector, Japanese Yen, and U.S. Dollar also had a nice recovery rally, with the Yen making new highs against the U.S. Dollar over the last decade, after they were beat up towards the end of last week.
Today
The markets are very quiet yet again with the Aussie and Pound the leaders and no real notable loser yet. As of 6:45 am the market is the slightest bit firmer, but a sneeze and accidental mouse click from somebody with size could easily change this. There is Consumer Installment Credit this afternoon at 2 pm, but you can pretty much file that under the same category as it is a Full Moon and tomorrow is Rosh Hashannah so sell the stock market and buy it back on Yom Kippur.
All kidding aside though there are a few intriguing setups that I am watching on the radar right now despite the lack of trade ideas in play for the time being. The Grain Sector could become even more interesting with Friday's Crop Production and Supply/Demand Reports looming, Russia's inconsistent comments of "we are...we aren't going to export wheat", how much will USDA yield estimates decline, and how Chinese demand holds up for Beans and Corn. It is pretty clear from the lack of volume and market indecision though that this is a time to keep the powder dry to wait until something really pokes its head out. Remember that flat is still a position and one that usually leads to more Golf and better sleep.
Buys to Watch:
Australian Dollar- The Aussie Dollar appeared reluctant to rally yesterday afternoon, but coming into this morning it is a market leader with one of the highest percentage gains. The lower volume zone from .9104 - .9126 provided yesterday was traded into several times throughout the day and overnight, but the support down to .9068 held strong for the trade. For entry yesterday I also suggested executing only an initial position because Euro and Equity weakness could drag the Aussie lower, but despite the Euro trading below 1.27 and the S&P 500 testing the 1085 support the Aussie did not decline much in price.
The objective for the trade still sits at .9298 on the bullish head and shoulders pattern and 3rd leg advance for the Aussie, but it must be noted that there is some higher volume resistance that the market is now encountering. Nearby resistance sits at the .9175 high, but there is also an older swing high from August 6th at .9183. Furthermore, there is an even older high range on the weekly chart from April that ranges up to .9330. In conclusion, this means that you should be aware that it will likely be a grind, but not a deal breaker on the trade. I believe that you may now move the stop loss on the trade at least up to .9109, but could move up to .9123 possibly if you wish to lock in even more profit. Having only entered an initial position yesterday I am also looking for further entry, but there is not an outstanding setup for today. There is a lower volume zone from .9124 - .9132 that would be good for new entry with support down to the .9109 stop level, but I am not too confident that this will be hit today meaning it may be better to use either a 15 minute chart to look for a base to buy or wait for a better entry setup.
Sells to Watch:
Put on the Radar:
Grains (with Soybeans likely the best buy short term)- November Soybeans made an impressive close above the previous highs for the recent trade and now have an objective of $10.67 on the Bullish cup and handle pattern and around $10.83 on the 3rd leg advance. Overnight the moderate support from $10.45 - $10.47 provided a base on the trade and would be a good level to buy against on initial entry into the market. However, there is not very good support for the Beans until $10.38 1/2 below this, so I recommend using a fairly tight stop if you are buying against this level.
I am a little concerned about buying the Beans right now though because the December Corn has now reached its 3rd leg objective of $4.70 and could be nearing a top on the move. The Corn market has traded relatively sideways under this $4.70 level for the last 2 sessions and again overnight. Due to this lack of fresh advance the indicators are beginning to stagnate with RSI and Stochastics sitting well in overbought territory and threatening to set off sell signals. On top of this, MACD is also near a minor sell signal on the Bullish trend and I believe that any one or a combination of these indicators could cause technical liquidation in the market. Because of this I recommend taking profits on at least part of Corn long positions if you have been holding longer term.
However, December Wheat still looks like it is potentially setting up another rally leg. Wheat was the laggard of the Grain Sector yesterday as the flip-flop on Russian exports and planting weather has longs on edge, but if the market is able to hold moderate support from $7.28 - $7.29 with MACD for the daily chart nearing a minor buy signal on the Bullish trend.
Buy 1 November Bean vs. Sell 2 December Corn ((Nov Bean - Dec Corn*2) to chart)- I have no interest in carrying a position into the USDA reports on Friday and I strongly recommend only doing so if you have a strong knowledge of the Grain market. But, I wanted to note a possible trade on the horizon that looks technically promising. The Corn has gained over the Beans the last month, but the differential is now running into some longer term support between $.95 - $1.10 that could be setting up a reversal in favor of Beans. Stochastics recently produced a buy signal from overbought territory and MACD is also nearing a minor buy. Keep this on the Radar and take a look at it on Friday after the morning reports.
Bonds...A Tipping Point?- The Bonds got hammered towards the end of last week on the Equity rally and a number of analysts have called this a top on the Bonds. However, I am not in this camp quite yet as the longer term Bull trend still is very strong and intact. Bonds have rallied over the last 2 1/2 sessions, but today the market is encountering a teeter-totter point that could indicate how the market acts over the next few sessions. There is a low volume zone from 132.16 - 132.20 with higher volume support from 132.08 - 132.15 that is a good looking setup for long entry today. This trade works if the 3 days prior were just a minor pullback on the Bull trend. On the contrary though this 2 1/2 session rally could be seen as a pullback on a newly established shorter term Bear move. Personally I am still only looking to buy Bonds, so I will likely look at entering a small long position, but if this level fails to hold then we could see at least another several days of decline in Bonds.
Notes:
Crude Oil- Since August 27th Open Interest has dramatically increased in Crude Oil and money has piled in yet again yesterday. When looking at the daily chart and comparing the Open Interest versus the price action over these sessions I almost have to rub my eyes to make sure I am seeing this right. CQG sometimes posts later revisions in OI, but the total increase in new longs stands at 150,000 since Aug. 27th without much increase in price. All I am thinking is that these guys better be pretty confident that Crude is going to rally or they are in for a world of hurt if prices decline and liquidation begins (the spreads still look like crap). This is part of the reason I like to check out what a Commodity Fund's allocation system is prior to investing my money in them. Check out yesterday's letter or my blog to see the trade ideas yesterday on the radar for Crude, but for right now I recommend watching and waiting for the right opportunity.
Metals- The Metal Sector is very interesting right now as there are a number of markets that are meeting pivot points that could provide opportunity. The Industrial Metals of Copper, Palladium, and Silver have been hot lately and further advances could be an indicator of Economic growth. Palladium and Copper are nearing their highs for the year, with a move above this level possibly pointing the direction of Equities this fall. For Palladium I have a 3rd leg advance objective for the market of $551 that would put it just below the Spring high near $573. For Copper though I have a Bullish head and shoulders pattern that has completed its objective of $3.50 already with a 3 leg advance in the market up for debate right now. I have seen some analysts that put Copper on this advance, which would likely mean a move near $4. If Copper makes a new high close on the move above $3.5350 I believe this advance is likely, but until then I am sitting on the sidelines skeptically because the macro market is not really showing that this move is likely.
Today Gold made a run at its yearly highs with the high close for the December contract lying at $1262.4. After an initial push on the 7:20 am open though the market sold off slightly so this is a market to watch today. Silver is tied to both the Industrials and Gold, so the balance between both ends of the Metal spectrum should come into play if Silver is to continue its advance. The weekly chart for the Gold/Silver ratio now has a confirmed move below a consolidation triangle that indicates further Silver strength in the relationship, but if Gold fails then so could Silver. With the strong weekly close last week I have a less reliable objective for Silver of $21.48, so keeping an eye on these Metals should give a signal if the Long Silver trade is one to look for entry on.
Tuesday, September 7, 2010
Tuesday 9/7/10 Commodity Ideas
Opening Note:
Yesterday
The Unemployment number did beat expectations slightly, but as I described in my late note Friday, it looks like the short squeeze was on no matter what the number. Equities did not gain much past the initial post-Unemployment rally, but did manage to close on their highs for the week. Meanwhile, the Grain Sector was very strong as Informa numbers estimated a decline in yields for the Friday Crop Production Report. Corn and Wheat led the Grains higher with a 17 and 24 cent higher settlement respectively. Silver and Gold both rebounded strongly despite a $14 early morning Gold break as dip buying continues to hold the markets firm. Finally, the Fixed Income Sector sold off on the gut reaction to the Unemployment number, but climbed part way back over Friday's session.
Today
The market's are weaker as of 7 am with Crude Oil, Silver, the Pound, and Wheat leading the laggards this morning. Cotton is the strength among the market, with what could be a final capitulation rally overnight, and the Fixed Income markets and other risk aversion markets of the Yen and Dollar strong.
The week is light on Economic numbers with the Crop Production and Supply/Demand Reports for the Grains on Friday the only thing I am looking forward to. However, the new Obama $50B stimulus plan should provide plenty of banter for the markets...it really does not do much for me in my trading decision making though for right now. We hopefully will see some more human traders returning to the market this week, but with Equities stuck in a well defined range it's debatable if we will see a new committed move for the time being.
There are a few stories that I am interested in watching this week though with opportunities possibly on the horizon in these markets. Is Crude Oil going to continue to trade it's fundamental over-supply story and continue as a laggard? Do the industrial Metals of Copper, Palladium, and Silver, maintain their recent strength to paint a positive wrinkle for Equities? Do Bonds maintain their Bullish trend since April? Can the demand market in the Grains maintain the positive momentum after the sizable move thus far? And, does the Euro begin to show signs that this 2nd leg lower is truly underway?
Buys to Watch:
Australian Dollar- The Bullish head and shoulders objective of .9298 for the Aussie Dollar is now confirmed so it is time to look for entry into the market. This morning the market has pulled back into a nice lower volume zone from .9104 - .9126 with higher volume support down to .9068 for stop placement below. I am a little concerned however with the Equity and Currency markets right now. Below 1095 in the S&P 500 there really is not good support until around 1085 and the Euro is looking very weak this morning, which could both lead the Aussie lower through correlation. Because of this, despite the good trade execution setup, I recommend just purchasing an initial position for today and looking to add tomorrow possibly if the Aussie proves itself in the face of possible adversity.
Sells to Watch:
Put on the Radar:
Crude Oil- Crude Oil is a weakness among the market once again this morning as the nearby spreads have moved back out on the ample supply story for Crude. Crude has a tendency to follow the Equity markets rather than its own fundamentals, but it appears that with the Equities stuck in a dead zone and the spreads moving that Crude is trading fundamentally once again which would point towards a further price break. The market failed to close above the $75.58 recent high that would point to a short term rally in the market, so this area now acts as resistance for possible short entry against. With allocation entering Crude over the last week there also is a good possibility that a number of longs will get stuck holding losing positions. Since August 27th there have been about 100,000 new longs (about 7.5% of the market) that have entered at a price no better than $71.53 and up to $75.58. A move below $71.53 in Crude projects a small cup and handle pattern with a projection of $67.62 that could fuel some of this new long liquidation.
The 2nd leg objective of $61.50 still stands with the shorter term pattern above likely being a move with good momentum if it is set off. There is a good amount of resistance in Crude from $74 - $75.50, but for right now I do not have a level that I am comfortable looking for short entry on. I honestly would prefer if Crude rallied above the $75.58 level towards $80 as this would be a better looking setup. So, for right now I recommend staying flat to look for a better entry setup, but jumping on the short trade if the market moves below $71.53.
Notes:
Long Term Silver Trade (Liquidate)- There are now enough warning signals on the long term Silver trade that I recommend liquidating the long term put strategy I suggested last Wednesday. On Friday Silver settled at $19.95 above the previous yearly high, which shows strength and continuation on its current rally. Despite trading nearly 40 cents lower this morning the market also saw a huge recovery rally on its open as it rallied nearly 30 cents in 20 minutes on the heels of Gold. The Gold/Silver ratio that I discussed on Friday also settled below 63.00, displaying that the Silver strength in relation to Gold is likely a continuing trend.
Despite multiple (if not almost daily) sell signals in one form or the other for the Gold market the strong, purposeful dip buying continues to lead the market higher. I really do not understand exactly what is going on in the Gold market right now because it has no correlation to any other market that I can tell over the last month and a half and looks like it is just moving on its own with algorithms spiking the trade and some entity buying every dip in the market. Coupled with the strength of the Copper and Palladium Industrial Metals the Silver is being supported on both ends fundamentally and now technically. Holding a short position could continue to get more painful going forward this month, so liquidating and re-evaluating looks like the right play now.
Corn- With the strong rally Friday Corn has now reached the $4.70 rally (only $4.69 really) for my purposes, with the July '11 - Dec '11 spread also trading 34 cents into the 32 - 37 cent objective range. This morning the market has sold off 10 cents from the overnight highs as the rally was bound to give back some of the gains last week. The chart for Corn still looks rather strong, but with the reports coming out on Friday and the market reaching its 3rd leg objective now I recommend looking to at least take some profits on long positions.
Because Corn has been the strength among the Grains I am also hesitant to encourage long entry into Soybeans or Wheat for the time being. Above $10.34 (which has been negated this morning) the November Beans have an objective of $10.67 and the Wheat market does look technically promising as it could be setting up another leg higher. But I suggest holding off on entry until at least after the Friday Crop and Supply/Demand reports.
Yesterday
The Unemployment number did beat expectations slightly, but as I described in my late note Friday, it looks like the short squeeze was on no matter what the number. Equities did not gain much past the initial post-Unemployment rally, but did manage to close on their highs for the week. Meanwhile, the Grain Sector was very strong as Informa numbers estimated a decline in yields for the Friday Crop Production Report. Corn and Wheat led the Grains higher with a 17 and 24 cent higher settlement respectively. Silver and Gold both rebounded strongly despite a $14 early morning Gold break as dip buying continues to hold the markets firm. Finally, the Fixed Income Sector sold off on the gut reaction to the Unemployment number, but climbed part way back over Friday's session.
Today
The market's are weaker as of 7 am with Crude Oil, Silver, the Pound, and Wheat leading the laggards this morning. Cotton is the strength among the market, with what could be a final capitulation rally overnight, and the Fixed Income markets and other risk aversion markets of the Yen and Dollar strong.
The week is light on Economic numbers with the Crop Production and Supply/Demand Reports for the Grains on Friday the only thing I am looking forward to. However, the new Obama $50B stimulus plan should provide plenty of banter for the markets...it really does not do much for me in my trading decision making though for right now. We hopefully will see some more human traders returning to the market this week, but with Equities stuck in a well defined range it's debatable if we will see a new committed move for the time being.
There are a few stories that I am interested in watching this week though with opportunities possibly on the horizon in these markets. Is Crude Oil going to continue to trade it's fundamental over-supply story and continue as a laggard? Do the industrial Metals of Copper, Palladium, and Silver, maintain their recent strength to paint a positive wrinkle for Equities? Do Bonds maintain their Bullish trend since April? Can the demand market in the Grains maintain the positive momentum after the sizable move thus far? And, does the Euro begin to show signs that this 2nd leg lower is truly underway?
Buys to Watch:
Australian Dollar- The Bullish head and shoulders objective of .9298 for the Aussie Dollar is now confirmed so it is time to look for entry into the market. This morning the market has pulled back into a nice lower volume zone from .9104 - .9126 with higher volume support down to .9068 for stop placement below. I am a little concerned however with the Equity and Currency markets right now. Below 1095 in the S&P 500 there really is not good support until around 1085 and the Euro is looking very weak this morning, which could both lead the Aussie lower through correlation. Because of this, despite the good trade execution setup, I recommend just purchasing an initial position for today and looking to add tomorrow possibly if the Aussie proves itself in the face of possible adversity.
Sells to Watch:
Put on the Radar:
Crude Oil- Crude Oil is a weakness among the market once again this morning as the nearby spreads have moved back out on the ample supply story for Crude. Crude has a tendency to follow the Equity markets rather than its own fundamentals, but it appears that with the Equities stuck in a dead zone and the spreads moving that Crude is trading fundamentally once again which would point towards a further price break. The market failed to close above the $75.58 recent high that would point to a short term rally in the market, so this area now acts as resistance for possible short entry against. With allocation entering Crude over the last week there also is a good possibility that a number of longs will get stuck holding losing positions. Since August 27th there have been about 100,000 new longs (about 7.5% of the market) that have entered at a price no better than $71.53 and up to $75.58. A move below $71.53 in Crude projects a small cup and handle pattern with a projection of $67.62 that could fuel some of this new long liquidation.
The 2nd leg objective of $61.50 still stands with the shorter term pattern above likely being a move with good momentum if it is set off. There is a good amount of resistance in Crude from $74 - $75.50, but for right now I do not have a level that I am comfortable looking for short entry on. I honestly would prefer if Crude rallied above the $75.58 level towards $80 as this would be a better looking setup. So, for right now I recommend staying flat to look for a better entry setup, but jumping on the short trade if the market moves below $71.53.
Notes:
Long Term Silver Trade (Liquidate)- There are now enough warning signals on the long term Silver trade that I recommend liquidating the long term put strategy I suggested last Wednesday. On Friday Silver settled at $19.95 above the previous yearly high, which shows strength and continuation on its current rally. Despite trading nearly 40 cents lower this morning the market also saw a huge recovery rally on its open as it rallied nearly 30 cents in 20 minutes on the heels of Gold. The Gold/Silver ratio that I discussed on Friday also settled below 63.00, displaying that the Silver strength in relation to Gold is likely a continuing trend.
Despite multiple (if not almost daily) sell signals in one form or the other for the Gold market the strong, purposeful dip buying continues to lead the market higher. I really do not understand exactly what is going on in the Gold market right now because it has no correlation to any other market that I can tell over the last month and a half and looks like it is just moving on its own with algorithms spiking the trade and some entity buying every dip in the market. Coupled with the strength of the Copper and Palladium Industrial Metals the Silver is being supported on both ends fundamentally and now technically. Holding a short position could continue to get more painful going forward this month, so liquidating and re-evaluating looks like the right play now.
Corn- With the strong rally Friday Corn has now reached the $4.70 rally (only $4.69 really) for my purposes, with the July '11 - Dec '11 spread also trading 34 cents into the 32 - 37 cent objective range. This morning the market has sold off 10 cents from the overnight highs as the rally was bound to give back some of the gains last week. The chart for Corn still looks rather strong, but with the reports coming out on Friday and the market reaching its 3rd leg objective now I recommend looking to at least take some profits on long positions.
Because Corn has been the strength among the Grains I am also hesitant to encourage long entry into Soybeans or Wheat for the time being. Above $10.34 (which has been negated this morning) the November Beans have an objective of $10.67 and the Wheat market does look technically promising as it could be setting up another leg higher. But I suggest holding off on entry until at least after the Friday Crop and Supply/Demand reports.
Friday, September 3, 2010
Friday 9/3/10 Commodity Ideas
Opening Note:
Yesterday
Yesterday was slow as expected without too much to report as far as interesting moves. The Equity markets were impressive yesterday as they refused to give back the previous day's rally. On a slight uptrend the Indices managed steady gains throughout the day to move into the upper end of the 1090 higher volume resistance. Crude Oil followed suit after the early morning break on a 15 minute chart uptrend that rallied above the $74.50 moderate resistance level from the previous day. Silver was one of the leaders yesterday as Gold maintained its own Bullish trend and support from the industrial Metals like Copper and Palladium boosted the market from both ends. And finally, Cotton was the strongest market as it established a new high close on the Bullish move despite quiet action in the Grain markets.
Today
The markets are close to dead in preparation of the Unemployment Report this morning. I will instead provide a post Unemployment commentary because making an educated guess for today is rather pointless as of 7 am. I would like to note however that the Equity Sector has held up well beyond my expectations over the last 48 hours as the Bears have been run out of the market. Because most are already expecting a downgraded unemployment number it would take a pretty major shock to cause the longs to liquidate their positions. I suggest taking a sideline approach for today as I will be waiting until Tuesday when more human traders will be returning to the market. Once the dust settles we should have a better game plan for the week and month after the long weekend.
Late Unemployment Comments- Even before the number was actually released there was a quick rally burst in the Stock Indices. With the number beating expectations (although not a real positive number standing alone) this obviously worked to the Bulls advantage. It seems to me like this may have been a planned strategy prior to the number regardless of the outcome. We saw this on the strong Wednesday rally prior to the numbers that were released throughout the morning as it looks like advantageous Bulls looked to specifically push a short covering rally. As has been the case throughout the summer, the swings in expectations and sentiment have been violent and the Bearish expectations obviously over-extended themselves to set up this trap over the last 3 days.
I still have no interest in executing trades for today and wish to see how the market plays out. The S&P 500 has now rallied above the resistance up to 1098 and without much resistance until 1110 - 1113 I think that the market will likely test the upper end of the summer range, with a failure to do so a pretty Bearish signal for me. Have a Good Labor Day and talk to you Tuesday!
Buys to Watch:
Sells to Watch:
Put on the Radar:
A Note on the Long Term Silver Trade- On the weekly chart for the Gold/Silver the ratio has fallen below a longer term trendline that would encourage an increase in the price of Silver versus the price of Gold. Over the last week and a half this has been the case as Silver has displayed a stronger rally. However, this move near the apex of the consolidation triangle and less reliable with some stronger support for the ratio nearby. Having only entered on Wednesday much of the move in this ratio was avoided, but a move below 63.00 would indicate further momentum on Silver's gains in relation to Gold. This would be an indicator that it is probably time to exit and re-evaluate the trade because Gold would then be the better short under this scenario.
Silver was a leader yesterday on a fairly quiet day and established a high close on the 8 day rally. However, the daily chart, along with Gold, is giving all indications that the rally is overextended. Silver's high close for the year is $19.743, which is now being tested. Two consecutive closes above this level would be a concerning development as momentum is still positive for the market and would indicate that further gains are likely. I am still confident in the trade, but if Silver does establish a rally breakout then it would be time to evaluate if this is still a trade worth holding. There is no harm in saying I change my mind because if either of these scenarios occur then it could be a painful trip even if the trade eventually works.
Australian Dollar- With a second consecutive close above the head and shoulders neckline the Aussie Dollar has now confirmed the Bullish pattern objective of .9298. On another test overnight the market also dipped into the lower volume zone from .9056 - .9062 and held the minor support level at .9040. As today could prove to be volatile and possibly two sided trade I think it is a good idea to wait for entry until Tuesday though.
Crude Oil- The spreads have recovered to a degree, but they are still sitting in a concerning area for those Bullish Crude. I still have the 2nd leg lower objective of $61.50 for the market, but if the October contract is able to settle above $75.58 then the market would have an objective just below $80. Open Interest has increased sharply in Crude over the last week, which supports the recent Bullish move, so if this close is made I would not have a problem looking for this shorter term rally. Lets take a look on Tuesday.
Notes:
Gold- As noted yesterday, the trendline for Gold from the lows July 28th - August 11th has a value of $1253 today. With Gold falling on its 7:20 am open prior to the Unemployment Report and plummeting further down to $1240 it will be extremely difficult for the market to mount a recovery today. Although Gold is not yet below the upward channel if you take the August 24th spike low into account this is a negative sign for the those holding long positions. If the market fails to close above this trend by Tuesday's close then I recommend taking profits on long positions.
The Unwinding of the Long Treasuries/Short Equity Trade...Let's Not Get Ahead of Ourselves
The media has made a lot of the possible unwinding of the Long Treasuries vs. Short Equities trade since Wednesday's rally, but I am not willing to bet my money on this move right now. The strength of the Bond market has definitely been tested with a strong short term top being placed on the daily chart, but the longer term Bull trend over the last several months is still clearly intact. Markets have pullbacks on moves, although this one is rather strong, and until this trend is negated I am not looking to pick a top. Furthermore, the S&P 500 still is sitting pat in the sideways range for this summer. The rally over the last 3 days has been strong, but has yet to really accomplish anything new that would point to a move out of the range. I clearly have a Bearish opinion of the market over the longer term (as I believe a move below the range is more likely than above), but until a move outside of this summer range is established all this really is is just talk. Above 1130 the S&P 500 projects 1250 - 1260 and below 980 the projection is just below 800, but until either happens the only real trade is taking the short term swings to hopefully make the Lamborghini payments. Let's lay off the big bets on this trade unwinding until the market REALLY starts to show it.
Yesterday
Yesterday was slow as expected without too much to report as far as interesting moves. The Equity markets were impressive yesterday as they refused to give back the previous day's rally. On a slight uptrend the Indices managed steady gains throughout the day to move into the upper end of the 1090 higher volume resistance. Crude Oil followed suit after the early morning break on a 15 minute chart uptrend that rallied above the $74.50 moderate resistance level from the previous day. Silver was one of the leaders yesterday as Gold maintained its own Bullish trend and support from the industrial Metals like Copper and Palladium boosted the market from both ends. And finally, Cotton was the strongest market as it established a new high close on the Bullish move despite quiet action in the Grain markets.
Today
The markets are close to dead in preparation of the Unemployment Report this morning. I will instead provide a post Unemployment commentary because making an educated guess for today is rather pointless as of 7 am. I would like to note however that the Equity Sector has held up well beyond my expectations over the last 48 hours as the Bears have been run out of the market. Because most are already expecting a downgraded unemployment number it would take a pretty major shock to cause the longs to liquidate their positions. I suggest taking a sideline approach for today as I will be waiting until Tuesday when more human traders will be returning to the market. Once the dust settles we should have a better game plan for the week and month after the long weekend.
Late Unemployment Comments- Even before the number was actually released there was a quick rally burst in the Stock Indices. With the number beating expectations (although not a real positive number standing alone) this obviously worked to the Bulls advantage. It seems to me like this may have been a planned strategy prior to the number regardless of the outcome. We saw this on the strong Wednesday rally prior to the numbers that were released throughout the morning as it looks like advantageous Bulls looked to specifically push a short covering rally. As has been the case throughout the summer, the swings in expectations and sentiment have been violent and the Bearish expectations obviously over-extended themselves to set up this trap over the last 3 days.
I still have no interest in executing trades for today and wish to see how the market plays out. The S&P 500 has now rallied above the resistance up to 1098 and without much resistance until 1110 - 1113 I think that the market will likely test the upper end of the summer range, with a failure to do so a pretty Bearish signal for me. Have a Good Labor Day and talk to you Tuesday!
Buys to Watch:
Sells to Watch:
Put on the Radar:
A Note on the Long Term Silver Trade- On the weekly chart for the Gold/Silver the ratio has fallen below a longer term trendline that would encourage an increase in the price of Silver versus the price of Gold. Over the last week and a half this has been the case as Silver has displayed a stronger rally. However, this move near the apex of the consolidation triangle and less reliable with some stronger support for the ratio nearby. Having only entered on Wednesday much of the move in this ratio was avoided, but a move below 63.00 would indicate further momentum on Silver's gains in relation to Gold. This would be an indicator that it is probably time to exit and re-evaluate the trade because Gold would then be the better short under this scenario.
Silver was a leader yesterday on a fairly quiet day and established a high close on the 8 day rally. However, the daily chart, along with Gold, is giving all indications that the rally is overextended. Silver's high close for the year is $19.743, which is now being tested. Two consecutive closes above this level would be a concerning development as momentum is still positive for the market and would indicate that further gains are likely. I am still confident in the trade, but if Silver does establish a rally breakout then it would be time to evaluate if this is still a trade worth holding. There is no harm in saying I change my mind because if either of these scenarios occur then it could be a painful trip even if the trade eventually works.
Australian Dollar- With a second consecutive close above the head and shoulders neckline the Aussie Dollar has now confirmed the Bullish pattern objective of .9298. On another test overnight the market also dipped into the lower volume zone from .9056 - .9062 and held the minor support level at .9040. As today could prove to be volatile and possibly two sided trade I think it is a good idea to wait for entry until Tuesday though.
Crude Oil- The spreads have recovered to a degree, but they are still sitting in a concerning area for those Bullish Crude. I still have the 2nd leg lower objective of $61.50 for the market, but if the October contract is able to settle above $75.58 then the market would have an objective just below $80. Open Interest has increased sharply in Crude over the last week, which supports the recent Bullish move, so if this close is made I would not have a problem looking for this shorter term rally. Lets take a look on Tuesday.
Notes:
Gold- As noted yesterday, the trendline for Gold from the lows July 28th - August 11th has a value of $1253 today. With Gold falling on its 7:20 am open prior to the Unemployment Report and plummeting further down to $1240 it will be extremely difficult for the market to mount a recovery today. Although Gold is not yet below the upward channel if you take the August 24th spike low into account this is a negative sign for the those holding long positions. If the market fails to close above this trend by Tuesday's close then I recommend taking profits on long positions.
The Unwinding of the Long Treasuries/Short Equity Trade...Let's Not Get Ahead of Ourselves
The media has made a lot of the possible unwinding of the Long Treasuries vs. Short Equities trade since Wednesday's rally, but I am not willing to bet my money on this move right now. The strength of the Bond market has definitely been tested with a strong short term top being placed on the daily chart, but the longer term Bull trend over the last several months is still clearly intact. Markets have pullbacks on moves, although this one is rather strong, and until this trend is negated I am not looking to pick a top. Furthermore, the S&P 500 still is sitting pat in the sideways range for this summer. The rally over the last 3 days has been strong, but has yet to really accomplish anything new that would point to a move out of the range. I clearly have a Bearish opinion of the market over the longer term (as I believe a move below the range is more likely than above), but until a move outside of this summer range is established all this really is is just talk. Above 1130 the S&P 500 projects 1250 - 1260 and below 980 the projection is just below 800, but until either happens the only real trade is taking the short term swings to hopefully make the Lamborghini payments. Let's lay off the big bets on this trade unwinding until the market REALLY starts to show it.
Thursday, September 2, 2010
Thursday 9/2/10 Commodity Ideas
Opening Note:
Yesterday
Going into yesterday most traders knew that there was allocation coming, but I do not think that even those that were wildly Bullish expected a 250 point up day for the Dow. It is pretty clear that shorts were caught off guard by the all day buying spree, which surely added to the gains in the market for the day. While the Grains, Precious Metals, and Softs (other than the strong Cotton) saw little in the way of allocation there were big swings across every other market. The 8pm Bullish Australian GDP number Wednesday evening got the Aussie Dollar rolling as it was the leader higher among the very strong Foreign Currency markets that punished the U.S. Dollar. The Industrial Metals like Copper and Palladium mounted impressive gains to establish breakout highs over the last couple months. The Fixed Income sector experienced more violent liquidation reminiscent of Friday as the Bullish ISM number at 9 am fueled the largest move. And in my shocker for the day, Crude Oil exploded at 7:15 am on a $2 rally despite an increase in the EIA stocks number and the nearby supply glut.
As has been the case many times in the past month, I do not believe that any of the numbers yesterday had a true impact on the trade yesterday. The Bearish ADP Unemployment number only caused a brief sell off before buying resumed and the Bearish EIA stocks for Crude only held the market steady temporarily before prices took off again. It is pretty clear that some of this allocation just waited until after the reports to buy the market regardless of the news.
Today
The market is Very quiet...crickets quiet. I have to say that I am pretty impressed with the stock market action into this morning as there was little more than a 4 point break at any time in the last 24 hours in the S&P 500 that is still holding steady as of 7 am. Meanwhile Crude Oil is back to its weakness status as the market has fallen $1 since the 4:30 overnight highs. Other than that there really is not much to report.
Today there is another round of minor Economic data that should be noted, but will likely have only a slight impact if any on the market as the focus right now is on allocation and the Unemployment Report tomorrow. Volume and volatility will surely be light today with the trade choppy and less meaningful as well. Because of this I have no trades that will be listed in the Buys or Sells sections for today or tomorrow. While I do have some ideas, the market right now continues to give volatile back and forth trade that makes holding any position for more than 12 hours difficult. I believe there is a 51% chance that we see a slight pullback in the market today with stronger nearby resistance in the stock market today, but with Unemployment tomorrow your guess is as good as mine where the market goes in the next 24 hours.
I suggest clearing your slate prior to the Unemployment Report tomorrow and saving your ammo as I myself will definitely not be holding any outright position into the number. With a technical support rally in the stock market in motion I think there is a good possibility that the number tomorrow could be a trap for the Bears. Traders have bought poor numbers numerous times over the last 2 weeks and there could be some strong buying that enters the market even if the number is terrible to force more short covering. Tuesday should see a return in able bodied traders and volume, so waiting until next week to see where we are at is my game plan over the next two days.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Crude Oil- As has been the case over the last week, Crude Oil skyrocketed yesterday after Tuesday's $3 break to continue the back and forth volatility in the market. I provided a suggestion yesterday for a short entry level in Crude, but allocation and short covering carried the market well beyond this level even prior to the stocks number. The move all the way back to $74.50 did provide a good opportunity for a short term fade, but for right now I am out of the market and holding off on entry until at least after the Unemployment Report.
Crude still is the clear weakness among the market with a Bearish fundamental as well as technical picture and is my favorite short right now. RSI for the market still maintains a Bear market range along with MACD on the daily chart despite the short term base and the market can not seem to hang above the last consolidation support line. Furthermore, although the Oct. - Nov. spread did come back in a little yesterday there is clearly still a short term over-supply of Crude that could become a bigger issue over the next couple weeks. I do have some concerns about Crude for the time being though because the MACD for the daily chart is nearing a minor buy signal on the Bear trend and Open Interest for the market has climbed nearly 100,000 contracts since August 27th. Moral of the story: Let's see how Crude looks on Tuesday and if we have to buy a long S&P 500 or Aussie Dollar hedge we will do it.
Australian Dollar- The Aussie is now broken out on a Bullish head and shoulders pattern with the neckline today at .9008 and the objective for the pattern at .9298. Confirmation will likely be made today as the Aussie is a Currency strength with a close above the .9008 neckline to put long entry into play. We will have to see what the trade is like today, but there is a low volume zone from .9056 - .9062 with minor support to .9040 that has provided a base overnight. If the market does travel below this minor support though there is an even better entry level from .9012 - .9024 with stronger support at .9000 and the pattern's neckline.
Grains-
Corn still has the 3rd leg projection of $4.70 and maintains its strength among the Grain sector with a new high close yesterday. The market has held a tight range overnight, but if the market is able to hold $4.45 today the move higher should continue to have strength.
Soybean Meal- Soy Meal was the weakness among the Grains yesterday as November Soybeans fell flat and the Bean Oil was slightly stronger. The neckline for the Bearish head and shoulders top pattern sits at $289.3 today with a $17 price break projected once the pattern is engaged.
Wheat appears to be shifting back into a Bullish mode as the market has now rallied out of the downward consolidation channel. A Stochastics buy signal was produced a couple days ago, although rather weak, and RSI and MACD still show the market in a Bull trend for the daily chart. I want to see the price action in Wheat for the rest of the week, but it is possible that another rally leg could be emerging in the market.
Notes:
S&P 500- There is some higher volume resistance in the S&P 500 between 1086.50 - 1090 that will likely provide a top on the market at least for today. There also is still a decent amount of resistance up to 1098 even if the market rallies above the 1090 level, but above 1098 would likely mean a test of 1115. Unless you have an iron stomach and wish to carry a long position through the Unemployment Report then taking profits around 1085 would be a great level.
Gold- Gold is now on the 26th day of its Bullish rally that looks like it wants to head back to the yearly highs. I am using a trendline for the market from the July 28th - August 11th lows that provides a value of $1250 today without 2 consecutive violation closes on this line yet. Gold seems to have a way of just eking it out when it comes to trends, so I expect it will find a way to close above today. Keep this trend on your chart though as a future indicator.
Yesterday
Going into yesterday most traders knew that there was allocation coming, but I do not think that even those that were wildly Bullish expected a 250 point up day for the Dow. It is pretty clear that shorts were caught off guard by the all day buying spree, which surely added to the gains in the market for the day. While the Grains, Precious Metals, and Softs (other than the strong Cotton) saw little in the way of allocation there were big swings across every other market. The 8pm Bullish Australian GDP number Wednesday evening got the Aussie Dollar rolling as it was the leader higher among the very strong Foreign Currency markets that punished the U.S. Dollar. The Industrial Metals like Copper and Palladium mounted impressive gains to establish breakout highs over the last couple months. The Fixed Income sector experienced more violent liquidation reminiscent of Friday as the Bullish ISM number at 9 am fueled the largest move. And in my shocker for the day, Crude Oil exploded at 7:15 am on a $2 rally despite an increase in the EIA stocks number and the nearby supply glut.
As has been the case many times in the past month, I do not believe that any of the numbers yesterday had a true impact on the trade yesterday. The Bearish ADP Unemployment number only caused a brief sell off before buying resumed and the Bearish EIA stocks for Crude only held the market steady temporarily before prices took off again. It is pretty clear that some of this allocation just waited until after the reports to buy the market regardless of the news.
Today
The market is Very quiet...crickets quiet. I have to say that I am pretty impressed with the stock market action into this morning as there was little more than a 4 point break at any time in the last 24 hours in the S&P 500 that is still holding steady as of 7 am. Meanwhile Crude Oil is back to its weakness status as the market has fallen $1 since the 4:30 overnight highs. Other than that there really is not much to report.
Today there is another round of minor Economic data that should be noted, but will likely have only a slight impact if any on the market as the focus right now is on allocation and the Unemployment Report tomorrow. Volume and volatility will surely be light today with the trade choppy and less meaningful as well. Because of this I have no trades that will be listed in the Buys or Sells sections for today or tomorrow. While I do have some ideas, the market right now continues to give volatile back and forth trade that makes holding any position for more than 12 hours difficult. I believe there is a 51% chance that we see a slight pullback in the market today with stronger nearby resistance in the stock market today, but with Unemployment tomorrow your guess is as good as mine where the market goes in the next 24 hours.
I suggest clearing your slate prior to the Unemployment Report tomorrow and saving your ammo as I myself will definitely not be holding any outright position into the number. With a technical support rally in the stock market in motion I think there is a good possibility that the number tomorrow could be a trap for the Bears. Traders have bought poor numbers numerous times over the last 2 weeks and there could be some strong buying that enters the market even if the number is terrible to force more short covering. Tuesday should see a return in able bodied traders and volume, so waiting until next week to see where we are at is my game plan over the next two days.
Buys to Watch:
Sells to Watch:
Put on the Radar:
Crude Oil- As has been the case over the last week, Crude Oil skyrocketed yesterday after Tuesday's $3 break to continue the back and forth volatility in the market. I provided a suggestion yesterday for a short entry level in Crude, but allocation and short covering carried the market well beyond this level even prior to the stocks number. The move all the way back to $74.50 did provide a good opportunity for a short term fade, but for right now I am out of the market and holding off on entry until at least after the Unemployment Report.
Crude still is the clear weakness among the market with a Bearish fundamental as well as technical picture and is my favorite short right now. RSI for the market still maintains a Bear market range along with MACD on the daily chart despite the short term base and the market can not seem to hang above the last consolidation support line. Furthermore, although the Oct. - Nov. spread did come back in a little yesterday there is clearly still a short term over-supply of Crude that could become a bigger issue over the next couple weeks. I do have some concerns about Crude for the time being though because the MACD for the daily chart is nearing a minor buy signal on the Bear trend and Open Interest for the market has climbed nearly 100,000 contracts since August 27th. Moral of the story: Let's see how Crude looks on Tuesday and if we have to buy a long S&P 500 or Aussie Dollar hedge we will do it.
Australian Dollar- The Aussie is now broken out on a Bullish head and shoulders pattern with the neckline today at .9008 and the objective for the pattern at .9298. Confirmation will likely be made today as the Aussie is a Currency strength with a close above the .9008 neckline to put long entry into play. We will have to see what the trade is like today, but there is a low volume zone from .9056 - .9062 with minor support to .9040 that has provided a base overnight. If the market does travel below this minor support though there is an even better entry level from .9012 - .9024 with stronger support at .9000 and the pattern's neckline.
Grains-
Corn still has the 3rd leg projection of $4.70 and maintains its strength among the Grain sector with a new high close yesterday. The market has held a tight range overnight, but if the market is able to hold $4.45 today the move higher should continue to have strength.
Soybean Meal- Soy Meal was the weakness among the Grains yesterday as November Soybeans fell flat and the Bean Oil was slightly stronger. The neckline for the Bearish head and shoulders top pattern sits at $289.3 today with a $17 price break projected once the pattern is engaged.
Wheat appears to be shifting back into a Bullish mode as the market has now rallied out of the downward consolidation channel. A Stochastics buy signal was produced a couple days ago, although rather weak, and RSI and MACD still show the market in a Bull trend for the daily chart. I want to see the price action in Wheat for the rest of the week, but it is possible that another rally leg could be emerging in the market.
Notes:
S&P 500- There is some higher volume resistance in the S&P 500 between 1086.50 - 1090 that will likely provide a top on the market at least for today. There also is still a decent amount of resistance up to 1098 even if the market rallies above the 1090 level, but above 1098 would likely mean a test of 1115. Unless you have an iron stomach and wish to carry a long position through the Unemployment Report then taking profits around 1085 would be a great level.
Gold- Gold is now on the 26th day of its Bullish rally that looks like it wants to head back to the yearly highs. I am using a trendline for the market from the July 28th - August 11th lows that provides a value of $1250 today without 2 consecutive violation closes on this line yet. Gold seems to have a way of just eking it out when it comes to trends, so I expect it will find a way to close above today. Keep this trend on your chart though as a future indicator.
Wednesday, September 1, 2010
Wednesday 9/1/10 Commodity Ideas
Opening Note:
Yesterday
While the Philly Fed number came in rather Bearish yesterday and the Consumer Confidence number came in Bullish I do not think that either of these numbers had anything to do with the market action that we saw yesterday. It was in fact after the Bearish Philly number that we saw the biggest rally in the Equity markets with the Confidence number giving only a slight aftershock rally when it was released. Both Gold and Silver continued their impressive rallies yesterday with allocation coming into both markets on the 7:20 open on the dot that sent the algorithms crazy as usual. The Grain markets saw some closing allocation, with selling in Beans and Wheat further confirming that Corn is the one that you actually want to own. And finally, in the most interesting divergence of the day, October Crude Oil settled $3 lower on the day as the nearby spreads moved much further out to paint a very bearish fundamental supply story.
Today
I hope everybody bought the stock market close yesterday on the first day of the month trade because along with nearly every supportive market (poor Nat. Gas) the Equity markets are impressively higher as of 7 am this morning. Overnight a Bullish surprise in Australian 2nd Quarter GDP sent the Aussie Dollar on a tear that has carried over into the rest of the Currency markets with the Euro??? leading among the followers. Grains are stronger with Corn putting on an impressive rally this morning to new highs on the move. And yet again, Crude Oil is sticking out as the clear weakness among all of the sectors despite being slightly up on the day...and I am sitting here saying PLEASE give me a rally above $73 so I can sell the crap out of it.
There will be allocation today as well as a slew of minor Economic numbers including the ADP Unemployment Report, Construction Spending, and the ISM Manufacturing Index (ADP actually just came out pretty Bearish, but not much market reaction other than a couple point S&P sell off and then straight back to the buying). On top of this there is another 4 pack of less important data numbers tomorrow followed by the Friday Unemployment Report Main Event. As of right now I am pretty turned off by the sporadic and rather nonsensical moves in the market day to day over the last couple weeks, so I suggest using today as more of a day to watch rather than trade. Right now it literally feels like the computers are in complete control of everything that is happening (except in the Grains...I still feel like at least it's people messing with me in the Grains) and what is happening is just pushing people out of the market. Other than looking to sell a decent Crude Oil rally I do not see much to do for today as I intend to be watching and leaving earlier rather than later. It looks like today is positioned to be an all out buy day across the entire market, so do not stand in the way for long if you are jumping in.
**I have a longer term trade constructed in the Silver market with a thorough description that I will be sending out as a supplemental section later today.
Buys to Watch:
Sells to Watch:
Crude Oil- When I removed Crude from the Sell list a couple days ago I maintained that I would be looking for more opportunities to sell and the fundamentally Bearish story has now come into the picture again thanks to the Spreads. Take a look at the October - November Crude Oil spread and the move from - $0.62 all the way out to -$1.74 this morning over the last 7 days. This move is extremely Bearish Oil as it clearly shows that the fundamental supply is more than adequate right now. With the $3 sell off yesterday Crude also travelled back below the consolidation support line again and technically looks like the negative momentum will continue lower as Crude is the definite weakness among the entire market. There is a low volume zone between $73.10 - $73.30 with some moderate resistance up to $73.75 for an initial look at a short entry on a rally today. The longer term 2nd objective for Crude still remains at $61.50, but looking for a test near the contract lows over the summer just above $70 is an area to begin looking at taking profits on this portion of the trade. Remember that the Crude EIA numbers are released at 9:30 today. This will effect the market, but the spread action is still saying that there is not likely a Bullish surprise. It would be prudent to wait until after this number for the more risk averse.
Put on the Radar:
S&P 500- The stock market is already up significantly this morning so looking to take profits early is not a bad thing. However, there is likely to be continued buying this morning on the open. The next level to take profits falls at 1064.50 against minor resistance at 1065 and if the market rallies to 1070.50 this would be a great level to take profits with stronger resistance falling between 1069 - 1076.
On a side note, I know that I have spoken rather Bearish about the Equity markets going forward. However, if a September rally is in fact able to form off of the 1037 base and rally above 1125 - 1130 then there is a Bullish head and shoulders pattern that would be set off with a projection of 1250 - 1260 for the market.
Australian Dollar- The Aussie Dollar took off around 8 pm last night on the Bullish GDP data and is the leader among the Currencies for today. This strong advance has actually set off a Bullish head and shoulders pattern for the market above .9011 that provides an objective of .9298. This move would be the 3rd leg on the Aussie's advance and if you recall from my late July Afternoon Update essay I pegged the Aussie at .9297 (funny how the numbers work out sometimes). As the market is already much higher on the day I recommend waiting until tomorrow on confirmation of the pattern prior to looking for entry.
Grains- Briefly described in the Opening Note, the end of the month allocation in the Grains yesterday saw selling in both the Beans and Wheat, but a neutral mix in the Corn. This further confirms that the Corn market is the long purchase of choice among this sector. The Corn market actually gained strength overnight and closed well this morning, so with the $4.70 3rd leg rally objective still in mind Corn is still probably one of the better long positions anywhere.
On the flip side I am still looking at the Soybean Meal as a potential sale. Although the resistance level from $298 - $301 was taken out on the day that I was looking to fade it the Meal failed to make new highs on the recent rally leaving the possible formation of this bearish head and shoulders pattern still possible. Drawing a line from the lows August 11th to the lows August 25th creates the neckline on the pattern that has a $17 move projected if it is indeed set off. Because Beans are a weakness among the Grains you must also look at the Bean Oil to examine this trade. Looking at the Bean Oil - Soy Meal daily chart there appears to be a short term base forming at a previous support level that would favor the Oil in this relationship going forward, thus making the Meal the better sale in my opinion.
Notes:
Euro & Dollar Index- They were basically inverses on a similar trade, but overnight the stop loss on each trade was triggered. The Euro has exploded higher this morning on the Aussie's coattails and the running of shorts out of the market. Luckily, if the new 1.2750 stop loss on the trade was used then you were able to save yourself an extra 100 ticks or so already. I no longer recommend the Euro as a short or the Dollar as a long for the time being and actually have an objective of 1.2937 for the Euro if it holds above 1.2780. Because I believe the longer term trend on the next move is Bearish for the Euro I still am only looking to sell it and will re-evaluate the market if once it hits this small Bullish objective.
Yesterday
While the Philly Fed number came in rather Bearish yesterday and the Consumer Confidence number came in Bullish I do not think that either of these numbers had anything to do with the market action that we saw yesterday. It was in fact after the Bearish Philly number that we saw the biggest rally in the Equity markets with the Confidence number giving only a slight aftershock rally when it was released. Both Gold and Silver continued their impressive rallies yesterday with allocation coming into both markets on the 7:20 open on the dot that sent the algorithms crazy as usual. The Grain markets saw some closing allocation, with selling in Beans and Wheat further confirming that Corn is the one that you actually want to own. And finally, in the most interesting divergence of the day, October Crude Oil settled $3 lower on the day as the nearby spreads moved much further out to paint a very bearish fundamental supply story.
Today
I hope everybody bought the stock market close yesterday on the first day of the month trade because along with nearly every supportive market (poor Nat. Gas) the Equity markets are impressively higher as of 7 am this morning. Overnight a Bullish surprise in Australian 2nd Quarter GDP sent the Aussie Dollar on a tear that has carried over into the rest of the Currency markets with the Euro??? leading among the followers. Grains are stronger with Corn putting on an impressive rally this morning to new highs on the move. And yet again, Crude Oil is sticking out as the clear weakness among all of the sectors despite being slightly up on the day...and I am sitting here saying PLEASE give me a rally above $73 so I can sell the crap out of it.
There will be allocation today as well as a slew of minor Economic numbers including the ADP Unemployment Report, Construction Spending, and the ISM Manufacturing Index (ADP actually just came out pretty Bearish, but not much market reaction other than a couple point S&P sell off and then straight back to the buying). On top of this there is another 4 pack of less important data numbers tomorrow followed by the Friday Unemployment Report Main Event. As of right now I am pretty turned off by the sporadic and rather nonsensical moves in the market day to day over the last couple weeks, so I suggest using today as more of a day to watch rather than trade. Right now it literally feels like the computers are in complete control of everything that is happening (except in the Grains...I still feel like at least it's people messing with me in the Grains) and what is happening is just pushing people out of the market. Other than looking to sell a decent Crude Oil rally I do not see much to do for today as I intend to be watching and leaving earlier rather than later. It looks like today is positioned to be an all out buy day across the entire market, so do not stand in the way for long if you are jumping in.
**I have a longer term trade constructed in the Silver market with a thorough description that I will be sending out as a supplemental section later today.
Buys to Watch:
Sells to Watch:
Crude Oil- When I removed Crude from the Sell list a couple days ago I maintained that I would be looking for more opportunities to sell and the fundamentally Bearish story has now come into the picture again thanks to the Spreads. Take a look at the October - November Crude Oil spread and the move from - $0.62 all the way out to -$1.74 this morning over the last 7 days. This move is extremely Bearish Oil as it clearly shows that the fundamental supply is more than adequate right now. With the $3 sell off yesterday Crude also travelled back below the consolidation support line again and technically looks like the negative momentum will continue lower as Crude is the definite weakness among the entire market. There is a low volume zone between $73.10 - $73.30 with some moderate resistance up to $73.75 for an initial look at a short entry on a rally today. The longer term 2nd objective for Crude still remains at $61.50, but looking for a test near the contract lows over the summer just above $70 is an area to begin looking at taking profits on this portion of the trade. Remember that the Crude EIA numbers are released at 9:30 today. This will effect the market, but the spread action is still saying that there is not likely a Bullish surprise. It would be prudent to wait until after this number for the more risk averse.
Put on the Radar:
S&P 500- The stock market is already up significantly this morning so looking to take profits early is not a bad thing. However, there is likely to be continued buying this morning on the open. The next level to take profits falls at 1064.50 against minor resistance at 1065 and if the market rallies to 1070.50 this would be a great level to take profits with stronger resistance falling between 1069 - 1076.
On a side note, I know that I have spoken rather Bearish about the Equity markets going forward. However, if a September rally is in fact able to form off of the 1037 base and rally above 1125 - 1130 then there is a Bullish head and shoulders pattern that would be set off with a projection of 1250 - 1260 for the market.
Australian Dollar- The Aussie Dollar took off around 8 pm last night on the Bullish GDP data and is the leader among the Currencies for today. This strong advance has actually set off a Bullish head and shoulders pattern for the market above .9011 that provides an objective of .9298. This move would be the 3rd leg on the Aussie's advance and if you recall from my late July Afternoon Update essay I pegged the Aussie at .9297 (funny how the numbers work out sometimes). As the market is already much higher on the day I recommend waiting until tomorrow on confirmation of the pattern prior to looking for entry.
Grains- Briefly described in the Opening Note, the end of the month allocation in the Grains yesterday saw selling in both the Beans and Wheat, but a neutral mix in the Corn. This further confirms that the Corn market is the long purchase of choice among this sector. The Corn market actually gained strength overnight and closed well this morning, so with the $4.70 3rd leg rally objective still in mind Corn is still probably one of the better long positions anywhere.
On the flip side I am still looking at the Soybean Meal as a potential sale. Although the resistance level from $298 - $301 was taken out on the day that I was looking to fade it the Meal failed to make new highs on the recent rally leaving the possible formation of this bearish head and shoulders pattern still possible. Drawing a line from the lows August 11th to the lows August 25th creates the neckline on the pattern that has a $17 move projected if it is indeed set off. Because Beans are a weakness among the Grains you must also look at the Bean Oil to examine this trade. Looking at the Bean Oil - Soy Meal daily chart there appears to be a short term base forming at a previous support level that would favor the Oil in this relationship going forward, thus making the Meal the better sale in my opinion.
Notes:
Euro & Dollar Index- They were basically inverses on a similar trade, but overnight the stop loss on each trade was triggered. The Euro has exploded higher this morning on the Aussie's coattails and the running of shorts out of the market. Luckily, if the new 1.2750 stop loss on the trade was used then you were able to save yourself an extra 100 ticks or so already. I no longer recommend the Euro as a short or the Dollar as a long for the time being and actually have an objective of 1.2937 for the Euro if it holds above 1.2780. Because I believe the longer term trend on the next move is Bearish for the Euro I still am only looking to sell it and will re-evaluate the market if once it hits this small Bullish objective.
Tuesday, August 31, 2010
Tuesday 8/31/10 Commodity Ideas (Better Late Than Never)
Opening Note: **Written at 7 am.
Yesterday
First off, I did realize that the date on yesterday's newsletter was one day off after sending it and I have rolled my clocks forward 24 hours to time synch. with everyone else. Unfortunately, this may have been one of the more exciting things that happened yesterday. The morning's Personal Income number came and went without much deviation from expectations. The oversold bounce that carried over from Friday into Sunday night in the supportive markets reversed with the S&P 500 settling 19 points lower on the day with Crude Oil also falling back below its support line. The most notable move on the day did come in advance to President Obama's midday speech on the Economy as Equities sold off slightly, but other than this recurring Presidential sell-off it was pretty much just a sluggish grind lower.
Today
This morning the macro market is again weaker with Equities trading modestly lower along with nearly every other supportive market to some degree. The Grain markets are moderately lower as the crop progress report came in unchanged for both Soybeans and Corn while the market was expecting a decline in the good/excellent condition percentage of the crop. The Bond and Japanese Yen markets have continued their impressive 2 day recovery since Friday's sell off to now trade back near the recent highs on the move. And finally, Copper as a strength market over the last several weeks has rejected an attempted breakout to new highs from yesterday's close that could signal continued weakness throughout the market as a leading market has failed.
With the quick dismantling of the oversold bounce and Bullish enthusiasm from Friday and the retracement back to the recent lows in Stocks yesterday I can not help but take a look at the weekly chart for the S&P 500 and realize how close the market is to setting off the ominous head and shoulders topping pattern. The market correlation web is pointing more towards this large Bearish move actually happening now as many of the constructive Currencies for the Equities now also appear to be topping and the risk aversion markets continue to carry steam on their trek higher. I go into more detail later in the Radar and Notes section of the letter to describe these distress signals, but even more so than yesterday I recommend looking to sell rallies in the supportive markets
Tomorrow is the first day of September and over the last decade there is a large statistical anomaly that greatly favors the 1st day of the month as a larger overall gainer than all of the other days in the month combined. Although I have a Bearish opinion of the market going forward it may be wise to take home a small long position into tomorrow and look to take profits near Wednesday's close.
Late Late Note (9:30): It is pretty clear today that much of the action over the last week and possibly heading into the beginning of this month is strictly volatility for the sake of volatility. Since I first began writing the letter this morning the swings in the market have made little to no sense when taking into account relationships, momentum, support/resistance, and magnitude of the moves. Some of this is due to bookkeeping for the end of the month, but today is not an isolated instance over the last couple months. August and early September are notorious for the low volume across the market, but with the emergence of more high frequency programs than ever the swings in the market have been more erratic and nonsensical on a day to day basis than over a time period I can recall since I began studying and trading the markets 5+ years ago. There are thousands of strategies that these programs use, but I have noticed that the market sweeping programs are becoming larger and more successful at causing liquidation and short covering rallies. This makes not only short term trading, but position trading much more difficult right now. Be careful, Be more picky, and Good Luck.
Buys to Watch:
Dollar Index- When I was doing my analysis this morning the Dollar Index was actually marginally higher on the day, but a rally in the Euro and Swiss Franc have pushed the Dollar back to new lows and actually into a decent zone now for long entry again on the trade. The Dollar has been in the Buy section for the last few days with the low volume zone from 82.70 - 82.84 targeted for long entry, but with the modest gains in the Dollar over the last few sessions I am actually moving the stop loss level on the trade up to just below 82.89. This leaves a small lower volume zone from 83.00 - 83.08 as the optimal level for new long entry on the trade with a very high risk reward. The Dollar Index formed a Bullish Morning Star candlestick pattern over the last 3 sessions and Stochastics is now nearing a fresh buy signal despite holding some negative momentum still. The long term 2nd leg move still maintains the objective of 94 with a target of 84.50 - 85 on this individual trade for an area to look at taking profits.
Sells to Watch:
Euro- Like the Dollar, when I was doing my analysis this morning the Euro was about unchanged on the morning, but has exploded since this time to encounter the high volume resistance between 1.2700 - 1.2750. The low volume zone for short entry sat between 1.2732 - 1.2790 on this initial trade, but I now would like to move my stop loss recommendation on the trade to just above this higher volume 1.2750 level. The Euro does have positive momentum right now according to the daily Stochastics, but like the dollar is nearing a possible crossover that would provide a fresh sell signal for momentum. If the Euro does in fact trade above this higher volume resistance it is time to take a fresh look at the market.
Put on the Radar:
S&P 500- The S&P 500 has now found support at 1037 three times in the last five days, which has produced a spike rally in the market each time it has been encountered. The rallies off of this base have continually failed, but this is obviously a significant support level over the short term. Below this the next moderate support falls from 1020 - 1023.
Looking now at the weekly chart there is the obvious large head and shoulders topping pattern that is forming in the market. For this week the breakout value sits at 988 and with a 196 point magnitude on the pattern the objective for the market would fall below 800. It is very unlikely that the pattern sets off this week, but it is now worth noting as the S&P 500 is now closer to this level than the 1130 high on the summer range.
Canadian Dollar- Along with the Australian Dollar the Canadian has the highest correlation to the U.S. Equity markets and the chart is now beginning to look concerning. The weekly chart for the Canadian shows a similar large consolidation range like the S&P 500 that could be forming a top. In comparison to the S&P the Canadian is actually sitting even lower in this consolidation range with a move below the support at .9360 looking like it may deal a devastating blow to the market to set off a Bearish collapse.
British Pound (also vs. Franc & Euro)- The Swiss Franc and Euro are much higher on the day now, but the Pound has maintained its weakness despite this European strength. With the possibility of another round of liquidation on the horizon for the macro market I think it is important to keep an eye on the Pound, especially in relation to the Euro and Swiss Franc. During the '08 market collapse the Pound actually ended up peforming weaker pound for pound (pun intended) versus both the Euro and the Franc. Much has been made about the situation in the EU, but the flow over into the much smaller British Economy that does not have Germany to support it could actually make the Pound the better market to short going forward if global de-leveraging emerges. The recent lows for the Pound sit at 1.5369, which the market has flirted with today that could also accelerate current weakness in the market as the uptrend for the market has clearly been negated.
Notes:
Corn and Soybeans- The Soybean market fell apart prior to yesterday's close below the $10.25 support that I was looking to hold, so the Soybeans are no longer on the Radar as a buy. Corn meanwhile traded lower overnight on a Bullish crop progress report that kept the Good/Excellent condition percentage for the crop at unchanged when the trade was expecting these numbers to be downgraded yesterday afternoon. Although I still think that the Corn market has a good chance to reach the $4.70 objective on the 3rd leg rally I recommend taking profits on longs for the time being as the $4.38 stop level was triggered on the trade. The July '11 - Dec '11 Corn Spread also traded below the 20 cent support line overnight meaning that I also believe that it is time to take profits on the trade and re-evaluate the market.
Yesterday
First off, I did realize that the date on yesterday's newsletter was one day off after sending it and I have rolled my clocks forward 24 hours to time synch. with everyone else. Unfortunately, this may have been one of the more exciting things that happened yesterday. The morning's Personal Income number came and went without much deviation from expectations. The oversold bounce that carried over from Friday into Sunday night in the supportive markets reversed with the S&P 500 settling 19 points lower on the day with Crude Oil also falling back below its support line. The most notable move on the day did come in advance to President Obama's midday speech on the Economy as Equities sold off slightly, but other than this recurring Presidential sell-off it was pretty much just a sluggish grind lower.
Today
This morning the macro market is again weaker with Equities trading modestly lower along with nearly every other supportive market to some degree. The Grain markets are moderately lower as the crop progress report came in unchanged for both Soybeans and Corn while the market was expecting a decline in the good/excellent condition percentage of the crop. The Bond and Japanese Yen markets have continued their impressive 2 day recovery since Friday's sell off to now trade back near the recent highs on the move. And finally, Copper as a strength market over the last several weeks has rejected an attempted breakout to new highs from yesterday's close that could signal continued weakness throughout the market as a leading market has failed.
With the quick dismantling of the oversold bounce and Bullish enthusiasm from Friday and the retracement back to the recent lows in Stocks yesterday I can not help but take a look at the weekly chart for the S&P 500 and realize how close the market is to setting off the ominous head and shoulders topping pattern. The market correlation web is pointing more towards this large Bearish move actually happening now as many of the constructive Currencies for the Equities now also appear to be topping and the risk aversion markets continue to carry steam on their trek higher. I go into more detail later in the Radar and Notes section of the letter to describe these distress signals, but even more so than yesterday I recommend looking to sell rallies in the supportive markets
Tomorrow is the first day of September and over the last decade there is a large statistical anomaly that greatly favors the 1st day of the month as a larger overall gainer than all of the other days in the month combined. Although I have a Bearish opinion of the market going forward it may be wise to take home a small long position into tomorrow and look to take profits near Wednesday's close.
Late Late Note (9:30): It is pretty clear today that much of the action over the last week and possibly heading into the beginning of this month is strictly volatility for the sake of volatility. Since I first began writing the letter this morning the swings in the market have made little to no sense when taking into account relationships, momentum, support/resistance, and magnitude of the moves. Some of this is due to bookkeeping for the end of the month, but today is not an isolated instance over the last couple months. August and early September are notorious for the low volume across the market, but with the emergence of more high frequency programs than ever the swings in the market have been more erratic and nonsensical on a day to day basis than over a time period I can recall since I began studying and trading the markets 5+ years ago. There are thousands of strategies that these programs use, but I have noticed that the market sweeping programs are becoming larger and more successful at causing liquidation and short covering rallies. This makes not only short term trading, but position trading much more difficult right now. Be careful, Be more picky, and Good Luck.
Buys to Watch:
Dollar Index- When I was doing my analysis this morning the Dollar Index was actually marginally higher on the day, but a rally in the Euro and Swiss Franc have pushed the Dollar back to new lows and actually into a decent zone now for long entry again on the trade. The Dollar has been in the Buy section for the last few days with the low volume zone from 82.70 - 82.84 targeted for long entry, but with the modest gains in the Dollar over the last few sessions I am actually moving the stop loss level on the trade up to just below 82.89. This leaves a small lower volume zone from 83.00 - 83.08 as the optimal level for new long entry on the trade with a very high risk reward. The Dollar Index formed a Bullish Morning Star candlestick pattern over the last 3 sessions and Stochastics is now nearing a fresh buy signal despite holding some negative momentum still. The long term 2nd leg move still maintains the objective of 94 with a target of 84.50 - 85 on this individual trade for an area to look at taking profits.
Sells to Watch:
Euro- Like the Dollar, when I was doing my analysis this morning the Euro was about unchanged on the morning, but has exploded since this time to encounter the high volume resistance between 1.2700 - 1.2750. The low volume zone for short entry sat between 1.2732 - 1.2790 on this initial trade, but I now would like to move my stop loss recommendation on the trade to just above this higher volume 1.2750 level. The Euro does have positive momentum right now according to the daily Stochastics, but like the dollar is nearing a possible crossover that would provide a fresh sell signal for momentum. If the Euro does in fact trade above this higher volume resistance it is time to take a fresh look at the market.
Put on the Radar:
S&P 500- The S&P 500 has now found support at 1037 three times in the last five days, which has produced a spike rally in the market each time it has been encountered. The rallies off of this base have continually failed, but this is obviously a significant support level over the short term. Below this the next moderate support falls from 1020 - 1023.
Looking now at the weekly chart there is the obvious large head and shoulders topping pattern that is forming in the market. For this week the breakout value sits at 988 and with a 196 point magnitude on the pattern the objective for the market would fall below 800. It is very unlikely that the pattern sets off this week, but it is now worth noting as the S&P 500 is now closer to this level than the 1130 high on the summer range.
Canadian Dollar- Along with the Australian Dollar the Canadian has the highest correlation to the U.S. Equity markets and the chart is now beginning to look concerning. The weekly chart for the Canadian shows a similar large consolidation range like the S&P 500 that could be forming a top. In comparison to the S&P the Canadian is actually sitting even lower in this consolidation range with a move below the support at .9360 looking like it may deal a devastating blow to the market to set off a Bearish collapse.
British Pound (also vs. Franc & Euro)- The Swiss Franc and Euro are much higher on the day now, but the Pound has maintained its weakness despite this European strength. With the possibility of another round of liquidation on the horizon for the macro market I think it is important to keep an eye on the Pound, especially in relation to the Euro and Swiss Franc. During the '08 market collapse the Pound actually ended up peforming weaker pound for pound (pun intended) versus both the Euro and the Franc. Much has been made about the situation in the EU, but the flow over into the much smaller British Economy that does not have Germany to support it could actually make the Pound the better market to short going forward if global de-leveraging emerges. The recent lows for the Pound sit at 1.5369, which the market has flirted with today that could also accelerate current weakness in the market as the uptrend for the market has clearly been negated.
Notes:
Corn and Soybeans- The Soybean market fell apart prior to yesterday's close below the $10.25 support that I was looking to hold, so the Soybeans are no longer on the Radar as a buy. Corn meanwhile traded lower overnight on a Bullish crop progress report that kept the Good/Excellent condition percentage for the crop at unchanged when the trade was expecting these numbers to be downgraded yesterday afternoon. Although I still think that the Corn market has a good chance to reach the $4.70 objective on the 3rd leg rally I recommend taking profits on longs for the time being as the $4.38 stop level was triggered on the trade. The July '11 - Dec '11 Corn Spread also traded below the 20 cent support line overnight meaning that I also believe that it is time to take profits on the trade and re-evaluate the market.
Monday, August 30, 2010
Monday 8/30/10 Commodity Ideas
Opening Note:
Yesterday
In the closing sentence of Friday's Opening Note I stated that I saw the possibility for both market liquidation and oversold buying. Because I meant this more in the sense of one or the either I was rather surprised when we saw both happen violently after the morning announcements. The GDP revisions were fairly uneventful on Friday, but the notes from Bernacke's speech at 9 am sent the market into a whirlwind with gut reaction selling followed by strong buying that emerged just 7 minutes later. The Supportive Commodity markets made spike lows with the Equities, Crude Oil, and Copper leading the buying spree that occurred thereafter through the weekly close. Meanwhile the risk aversion markets sold off sharply with Bonds falling nearly 2 1/2 handles off their morning highs and the Yen breaking more than a full point itself.
It is apparent that one could take away either a Bullish or Bearish spin from the Bernacke speech. Bullish being that the Fed is willing to enact more quantitative easing should the Economy worsen, but Bearish because the Economic outlook is not great and the effectiveness of the Fed's current tools is questionable. Personally I have a difficult time taking anything worth investing shorter or longer term capital from these notes and I believe that what we saw was a more technical oversold bounce in the market as opportunistic longs pushed the market and shorts covered into the weekend.
Today
The Supportive markets started out rather strong yesterday evening, but since then have reversed direction with the S&P 500 now 10 points off session highs and a few ticks lower on the day as of 7 am. The Grains are notably higher along with the Fixed Income markets, but other than that the trade is rather mixed around the rest of the market. This is an unimpressive follow through thus far after strong gains in the face of adversity on Friday and I believe that the markets are going to have to step it up today if they are going to keep the positive momentum into the beginning of September.
A number of the supportive market Sectors like the Foreign Currencies (except the Yen), Energies, and Equities all have rather fresh buy signals on their daily Stochastics indicators, with some from oversold territory. This means short term that the market may still have some more short covering to take care of, but when I look at the market correlation web it still looks like the macro market is generally melting lower towards another test on the large topping pattern in the Equity Indices that could exacerbate the negative momentum and losses in the market. We have at least a notable piece of Economic information each day this week with the Unemployment Report finale on Friday, so I rollover my tread lightly opinion from Friday into this week as I do not feel the market is convincingly heading one direction this week. However, I still feel that selling rallies in the weaker supportive markets is still the trade going forward as I expect the oversold bounce will run out of momentum sooner rather than later. Finally, keep in mind that Wednesday is the 1st of September, and the statistics say that the first day of each month is the strongest gainer in the Equities so plan accordingly to take home a long position tomorrow.
Buys to Watch:
December Corn- The Dec. Corn was not able to make a new daily high close Friday after falling below $4.38 3/4 later in the day. However, the market is again stronger this morning with higher volume support holding to create a nice base on Corn's march higher. The former resistance from $4.36 1/2 - $4.38 3/4 now becomes support fro the the market with new higher volume support from Friday's trade being left from $4.38 1/2 - $4.40 as a new spot to possibly add to the trade. A settlement today below $4.38 1/2 would be a negative signal for me and would suggest that taking profits and re-examining the trade would be a good idea at that point. But, with a fresh Stochastics buy signal on the daily chart I believe that Corn continues higher towards the $4.70 objective with a close above $4.40 being an indicator to add to the trade.
The July '11 - December '11 Corn Spread also continued higher overnight to new highs on the recent rally. 32 - 37 cents premium the July '11 contract is the objective for this 3rd leg of the spread with new higher volume support now left from 21/ 1/2 - 22 cents as a level to possibly add to the spread against. A move below 20 cents would signal that it is time to get out of the trade and re-examine, but like the Dec. Corn outright I feel strongly that the spread is on its way to the 3rd Leg target.
Dollar Index- The swings in the Yen over the last few days to not aid the Dollar's stability, but with the pretty trade setup still holding to form a base I believe the Dollar is now ready to build some gains. Although it has been traded into a number of times now, the former low volume zone from 82.70 - 82.84 still is the area to enter a long position with higher volume support down to 82.52 for stop placement below. The long term objective for the Dollar Index is 94 on the large 2nd leg higher, but I recommend looking for a move to 84.50 - 85 to look to take profits on this particular trade setup and then re-examining to enter a new long later. The Stochastics for the daily chart does have a negative momentum sell signal from a couple days ago, but RSI for the chart has set up a base in the Bull market trend zone that could provide fresh positive momentum with a day or two of gains. Finally, Friday's trade left a Doji candlestick (market closes basically at unchanged) that often signals a reversal with a higher close today providing a Bullish candlestick pattern.
Sells to Watch:
Euro- It has now been 3 days in and out of the trade entry zone for the Euro, but I feel as good about this Euro sale as ever this morning. On Friday the Euro finally traded convincingly above the 1.2750 level that had acted as a market top recently, but struggled to hold any sort of positive momentum anytime it has moved above this level. The daily chart for the Euro does still have positive momentum from a daily Stochastics buy signal crossover like many of the other comparable markets, but the Euro is again the weakest foreign Currency this morning with a close below 1.2714 today producing an Engulfing Bearish candlestick pattern. Between 1.2732 - 1.2790 remains the lower volume zone for short entry in the market with higher volume trade to 1.2838 providing resistance for stop placement above. The longer term 2nd leg for the market has an objective of 1.10, but a move below 1.25 is a good test to look to begin taking profits on this leg of the move.
Put on the Radar:
November Soybeans- Corn is the clear leader among the Grain sector, but Soybeans are following on a similar path. The 3rd leg on the Bullish move for Beans now has an objective of $10.83. I still recommend looking to buy Corn rather than Beans as the chart is stronger, but this is another encouraging piece of evidence for the Corn story and could be a good buy if you only trade Soybeans. There was some higher volume support left in the market from Friday's trade from $10.22 1/2 - $10.25, so looking for long entry on a pullback between $10.25 1/2 - $10.27 provides good risk/reward for long entry. On Friday I had the Soybean Meal on the radar as a possible sale, but with higher volume resistance above $301 now traded above the Meal is no longer a potential short for the time being.
Notes:
Crude Oil- Crude Oil was a frustrating trade to hold a short position in last week as the oversold bounce in the market continued for over $3.50 after the 9 am lows on Friday. This rally carried Crude back above the low trendline from the previous consolidation zone sitting at $74.49 today. Crude now has a confirmed Stochastics buy signal from oversold territory while open interest has also climbed in the market along with volume on this 3 day rally leg. Although the market does not have good follow through today and has already tested the $74.49 support line I think there are too many Bullish indicators to be looking for a short position in the market for the time being. Higher volume trade from $75.50 - $75.72 provided some strong resistance in the market so far on the subsequent rally attempts, so I actually remain neutral on Crude for the time being as continuation higher also does not look great right now. The 2nd leg objective of $61.50 on the longer term move still remains for Crude, so I will be waiting for some fresh Bearish signals in the future for short initiation.
Bonds- The Bonds fell over 2 handles off their early morning highs on Friday, but I am still not excited about trying to sell it or the other Fixed Income markets yet. The Bullish trend still remains strong despite the set back, so I still think that you should look at buying dips rather than selling rallies.
Yesterday
In the closing sentence of Friday's Opening Note I stated that I saw the possibility for both market liquidation and oversold buying. Because I meant this more in the sense of one or the either I was rather surprised when we saw both happen violently after the morning announcements. The GDP revisions were fairly uneventful on Friday, but the notes from Bernacke's speech at 9 am sent the market into a whirlwind with gut reaction selling followed by strong buying that emerged just 7 minutes later. The Supportive Commodity markets made spike lows with the Equities, Crude Oil, and Copper leading the buying spree that occurred thereafter through the weekly close. Meanwhile the risk aversion markets sold off sharply with Bonds falling nearly 2 1/2 handles off their morning highs and the Yen breaking more than a full point itself.
It is apparent that one could take away either a Bullish or Bearish spin from the Bernacke speech. Bullish being that the Fed is willing to enact more quantitative easing should the Economy worsen, but Bearish because the Economic outlook is not great and the effectiveness of the Fed's current tools is questionable. Personally I have a difficult time taking anything worth investing shorter or longer term capital from these notes and I believe that what we saw was a more technical oversold bounce in the market as opportunistic longs pushed the market and shorts covered into the weekend.
Today
The Supportive markets started out rather strong yesterday evening, but since then have reversed direction with the S&P 500 now 10 points off session highs and a few ticks lower on the day as of 7 am. The Grains are notably higher along with the Fixed Income markets, but other than that the trade is rather mixed around the rest of the market. This is an unimpressive follow through thus far after strong gains in the face of adversity on Friday and I believe that the markets are going to have to step it up today if they are going to keep the positive momentum into the beginning of September.
A number of the supportive market Sectors like the Foreign Currencies (except the Yen), Energies, and Equities all have rather fresh buy signals on their daily Stochastics indicators, with some from oversold territory. This means short term that the market may still have some more short covering to take care of, but when I look at the market correlation web it still looks like the macro market is generally melting lower towards another test on the large topping pattern in the Equity Indices that could exacerbate the negative momentum and losses in the market. We have at least a notable piece of Economic information each day this week with the Unemployment Report finale on Friday, so I rollover my tread lightly opinion from Friday into this week as I do not feel the market is convincingly heading one direction this week. However, I still feel that selling rallies in the weaker supportive markets is still the trade going forward as I expect the oversold bounce will run out of momentum sooner rather than later. Finally, keep in mind that Wednesday is the 1st of September, and the statistics say that the first day of each month is the strongest gainer in the Equities so plan accordingly to take home a long position tomorrow.
Buys to Watch:
December Corn- The Dec. Corn was not able to make a new daily high close Friday after falling below $4.38 3/4 later in the day. However, the market is again stronger this morning with higher volume support holding to create a nice base on Corn's march higher. The former resistance from $4.36 1/2 - $4.38 3/4 now becomes support fro the the market with new higher volume support from Friday's trade being left from $4.38 1/2 - $4.40 as a new spot to possibly add to the trade. A settlement today below $4.38 1/2 would be a negative signal for me and would suggest that taking profits and re-examining the trade would be a good idea at that point. But, with a fresh Stochastics buy signal on the daily chart I believe that Corn continues higher towards the $4.70 objective with a close above $4.40 being an indicator to add to the trade.
The July '11 - December '11 Corn Spread also continued higher overnight to new highs on the recent rally. 32 - 37 cents premium the July '11 contract is the objective for this 3rd leg of the spread with new higher volume support now left from 21/ 1/2 - 22 cents as a level to possibly add to the spread against. A move below 20 cents would signal that it is time to get out of the trade and re-examine, but like the Dec. Corn outright I feel strongly that the spread is on its way to the 3rd Leg target.
Dollar Index- The swings in the Yen over the last few days to not aid the Dollar's stability, but with the pretty trade setup still holding to form a base I believe the Dollar is now ready to build some gains. Although it has been traded into a number of times now, the former low volume zone from 82.70 - 82.84 still is the area to enter a long position with higher volume support down to 82.52 for stop placement below. The long term objective for the Dollar Index is 94 on the large 2nd leg higher, but I recommend looking for a move to 84.50 - 85 to look to take profits on this particular trade setup and then re-examining to enter a new long later. The Stochastics for the daily chart does have a negative momentum sell signal from a couple days ago, but RSI for the chart has set up a base in the Bull market trend zone that could provide fresh positive momentum with a day or two of gains. Finally, Friday's trade left a Doji candlestick (market closes basically at unchanged) that often signals a reversal with a higher close today providing a Bullish candlestick pattern.
Sells to Watch:
Euro- It has now been 3 days in and out of the trade entry zone for the Euro, but I feel as good about this Euro sale as ever this morning. On Friday the Euro finally traded convincingly above the 1.2750 level that had acted as a market top recently, but struggled to hold any sort of positive momentum anytime it has moved above this level. The daily chart for the Euro does still have positive momentum from a daily Stochastics buy signal crossover like many of the other comparable markets, but the Euro is again the weakest foreign Currency this morning with a close below 1.2714 today producing an Engulfing Bearish candlestick pattern. Between 1.2732 - 1.2790 remains the lower volume zone for short entry in the market with higher volume trade to 1.2838 providing resistance for stop placement above. The longer term 2nd leg for the market has an objective of 1.10, but a move below 1.25 is a good test to look to begin taking profits on this leg of the move.
Put on the Radar:
November Soybeans- Corn is the clear leader among the Grain sector, but Soybeans are following on a similar path. The 3rd leg on the Bullish move for Beans now has an objective of $10.83. I still recommend looking to buy Corn rather than Beans as the chart is stronger, but this is another encouraging piece of evidence for the Corn story and could be a good buy if you only trade Soybeans. There was some higher volume support left in the market from Friday's trade from $10.22 1/2 - $10.25, so looking for long entry on a pullback between $10.25 1/2 - $10.27 provides good risk/reward for long entry. On Friday I had the Soybean Meal on the radar as a possible sale, but with higher volume resistance above $301 now traded above the Meal is no longer a potential short for the time being.
Notes:
Crude Oil- Crude Oil was a frustrating trade to hold a short position in last week as the oversold bounce in the market continued for over $3.50 after the 9 am lows on Friday. This rally carried Crude back above the low trendline from the previous consolidation zone sitting at $74.49 today. Crude now has a confirmed Stochastics buy signal from oversold territory while open interest has also climbed in the market along with volume on this 3 day rally leg. Although the market does not have good follow through today and has already tested the $74.49 support line I think there are too many Bullish indicators to be looking for a short position in the market for the time being. Higher volume trade from $75.50 - $75.72 provided some strong resistance in the market so far on the subsequent rally attempts, so I actually remain neutral on Crude for the time being as continuation higher also does not look great right now. The 2nd leg objective of $61.50 on the longer term move still remains for Crude, so I will be waiting for some fresh Bearish signals in the future for short initiation.
Bonds- The Bonds fell over 2 handles off their early morning highs on Friday, but I am still not excited about trying to sell it or the other Fixed Income markets yet. The Bullish trend still remains strong despite the set back, so I still think that you should look at buying dips rather than selling rallies.
Thursday, August 26, 2010
Thursday 8/26/10 Commodity Ideas
Opening Note:
Yesterday
While my prediction that the Economic numbers would continue to disappoint was correct the market reaction to these numbers came as a surprise yesterday. Durable Goods and New Home Sales fell well below expectations, but with the Equity market and a number of Commodities already moderately lower on the day it was in fact buying that entered the market after the initial reactionary price break. The Fixed Income markets and Japanese Yen followed in line as well with Bond prices falling 2 full handles off their morning highs. The EIA Crude Inventory number came in well above expectations (highly Bearish), but an explosion in price followed after Crude dipped below $71 on a test near October contract lows. Finally, the Metal Sector appears to be the allocation of choice right now as money continued to flow into both Gold and Silver (another 55 cents up in Silver..wtf?) as well as the base metals like Copper and Palladium, which appear to have flow over from the precious metals and have acted stronger lately than other correlated markets.
A Little Analysis
Although you could put a Bullish spin on these price advances, I believe that yesterday was just a case of oversold markets bouncing. Throughout the Summer trading range we have seen violent price reversals like yesterday and it is usually when the Bull or Bear opinion becomes too widespread. Granted the talk of a double dip recession is now at the forefront of media discussions, but we are actually now beginning to see some of the hard data to back up this conclusion. It's one thing to have swings in opinion based on price action, but another when the evidence of a slower Economy is actually being presented While the dip buyers in the market got away with one yesterday I believe that this actually provides a good opportunity to finally enter some decent sales in the weaker markets as the Bearish data should continue for another 7 days.
Today
Overnight the Equity markets traded higher, but have fallen to new lows as I am writing at 7:10 am. Crude Oil and Copper lead the gainers of Commodities for right now, but the Fixed Income markets are trading moderately higher with the Yen rallying stronger this morning. The Jobless Claims number will have an impact this morning at 7:30 am., but I believe that it is likely that we now have a top on the Equity and Commodity markets for the day with lower trade to follow. 1059 - 1061 in the S&P 500 is a lower volume zone that has provided resistance overnight, but if the market is able to make new highs then the strong resistance at 1069 should provide a stiff top on any further gains. Crude Oil and the Euro rallied into some good low volume zones for short entry overnight, with the Yen falling into a good buy zone as well, so if these markets trade back into them there will be good opportunities today.
***Late Note- The Jobless Claims slightly beat the awful expectations, but the number was still pretty brutal on its own. There was an initial rally after the number, but Crude Oil has fallen $1 since with Equities slowly winding lower as well. There was selling on the Crude open, so I believe that we will see lower trade today with low potential for any buying to enter on the stock market open.
Buys to Watch:
December Corn- I would not call the Corn trade yesterday pretty, but the moderate support for the market at $4.15 held and provided a base for the market to rally off of into this morning. The Wheat market suffered a serious price break throughout the first hour of trade yesterday leading the Corn lower back into the low volume zone between $4.17 - $4.19, which provided a good level for new long entry. It is clear that the Wheat is the laggard of the Grain Sector for right now, so it is imperative to keep an eye on the December Wheat contract if you are trading Corn as a move below $6.77 1/2 could accelerate losses and drag Corn along with it. However, with Corn settling near $4.25 this morning there is a potential Bullish Morning Doji Star candlestick pattern forming and RSI has now ticked back higher to show a reemergence of positive momentum. $4.20 now provides stronger support for the December contract that I believe will not be violated for today, but I still recommend maintaining a stop loss on the trade below $4.15 for the time being. And remember the objective of $4.70 on this 3rd leg.
The July '11 - December '11 Corn Spread also held its support level at 15 cents and is higher this morning trading above 17 cents. I believe that you can still look for entry on this trade today if the market pulls back to 16 /12 cents this morning with the 3rd leg objective on the trade still between 32 - 37 cents.
Finally, although the Grain markets have been relatively uncorrelated to the macro picture I have noticed a higher correlation over the last 2 weeks on the macro weakness. Keep an eye on Crude Oil and the S&P 500 because a substantial break in these markets could actually cause Fund liquidation out of all Commodities including the Grains. I believe that this may have led the price break on Tuesday, which is the first time in a number of months that there has been this relationship.
Japanese Yen- This is strictly a shorter term day trade without a specific objective other than a rally test back near the recent highs. The Yen suffered a serious correction yesterday as the risk aversion trade weakened just a day after making new highs on the move. This morning the Yen pulled back into a lower volume zone from 117.86 - 118.10 that does not have great higher volume support below it, but has found support near the low end of this range on several tests. I recommend using smaller size than normal on this trade, but with the Fixed Income markets finding strength off of a similar support level and the Equity and other Foreign Currencies possibly finding a top for the day I believe that this is a low risk day trade worth taking.
Sells to Watch:
Crude Oil- Crude Oil has the longer term 2nd leg objective of $61.50 and yesterday's rally into today provides a nice setup for new short entry into the market. Crude Oil has been the absolute strength among the entire market over the last 24 hours, but it is running into a strong wall this morning that not even the high frequency programs have been able to break through. Between $73.24 - $73.52 there is a low volume zone with higher volume resistance from $73.60 - $74.12. I had a resting "hope and pray" order at $73.42 that I got hit on while I was in the shower this morning, but a rally after the Jobless report this morning also sent the market into this resistance this morning. I recommend using a stop just above the higher volume resistance and looking for another test near the $70.35 swing lows before taking profits.
Euro- The Euro has the longer term objective of 1.10 on the 2nd leg move. Overnight the Euro made new highs on the recent trade on another test of 1.2750. There is a larger low volume zone from 1.2732 - 1.2790 with higher volume resistance above to 1.2838. However, this 1.2750 level continues to act like a wall for the market so I do not believe it is likely that the market travels into the higher end of this range. I recommend looking for at least a test of 1.25 on the 2 - 3 day trade before taking profits.
Put on the Radar:
Buy Dollar Index- The Dollar Index has weakened slightly over the last 3 days, but is finally finding a decent spot for long entry. There is a lower volume zone between 82.70 - 82.84 with higher volume support to 82.52 for stop placement on the long entry. This zone was dipped into overnight, but only slightly and briefly. A break back into this zone should be bought with an eye on a test of 85 for profit taking on the trade. The longer term objective on the 2nd leg rally for the Dollar remains at 94.
Notes:
A Tip For Equity Trading- I always watch all of the main domestic Equity Indexes throughout the day and a new trend has emerged that I believe is helpful. While the leader/laggard of the Sector has been a revolving door over much of the last few months the Nasdaq Index has emerged as the volatility and direction indicator among the Sector no matter what the direction. This was evident yesterday as although the Equity markets were weaker the Nasdaq was the leader among the Sector and what followed was a sizable rally off of the base. Conversely, on days that the Equity markets have suffered the Nasdaq has been the weakest performer in the Sector as liquidation out of this leader over the recovery (and out of Apple...which looks really ugly right now) leads the market lower. If you see a weaker market with the Nasdaq the best performer then watch out on your shorts and if you see a stronger market with the Nasdaq the weakest then watch out on your longs.
Copper- What a crappy swing in the market on my short opinion. Copper was a laggard market on Tuesday and coming into Wednesday as well, but when the macro market bounced so did the Copper...and violently. The market rallied nearly 13 cents over a 24 hour period taking out my $3.2310 stop level by yesterday afternoon. Copper is definitely no longer a short, but rather a neutral for the time being as I believe that some of the Metal excitement has spilled over into these industrial metals.
Yesterday
While my prediction that the Economic numbers would continue to disappoint was correct the market reaction to these numbers came as a surprise yesterday. Durable Goods and New Home Sales fell well below expectations, but with the Equity market and a number of Commodities already moderately lower on the day it was in fact buying that entered the market after the initial reactionary price break. The Fixed Income markets and Japanese Yen followed in line as well with Bond prices falling 2 full handles off their morning highs. The EIA Crude Inventory number came in well above expectations (highly Bearish), but an explosion in price followed after Crude dipped below $71 on a test near October contract lows. Finally, the Metal Sector appears to be the allocation of choice right now as money continued to flow into both Gold and Silver (another 55 cents up in Silver..wtf?) as well as the base metals like Copper and Palladium, which appear to have flow over from the precious metals and have acted stronger lately than other correlated markets.
A Little Analysis
Although you could put a Bullish spin on these price advances, I believe that yesterday was just a case of oversold markets bouncing. Throughout the Summer trading range we have seen violent price reversals like yesterday and it is usually when the Bull or Bear opinion becomes too widespread. Granted the talk of a double dip recession is now at the forefront of media discussions, but we are actually now beginning to see some of the hard data to back up this conclusion. It's one thing to have swings in opinion based on price action, but another when the evidence of a slower Economy is actually being presented While the dip buyers in the market got away with one yesterday I believe that this actually provides a good opportunity to finally enter some decent sales in the weaker markets as the Bearish data should continue for another 7 days.
Today
Overnight the Equity markets traded higher, but have fallen to new lows as I am writing at 7:10 am. Crude Oil and Copper lead the gainers of Commodities for right now, but the Fixed Income markets are trading moderately higher with the Yen rallying stronger this morning. The Jobless Claims number will have an impact this morning at 7:30 am., but I believe that it is likely that we now have a top on the Equity and Commodity markets for the day with lower trade to follow. 1059 - 1061 in the S&P 500 is a lower volume zone that has provided resistance overnight, but if the market is able to make new highs then the strong resistance at 1069 should provide a stiff top on any further gains. Crude Oil and the Euro rallied into some good low volume zones for short entry overnight, with the Yen falling into a good buy zone as well, so if these markets trade back into them there will be good opportunities today.
***Late Note- The Jobless Claims slightly beat the awful expectations, but the number was still pretty brutal on its own. There was an initial rally after the number, but Crude Oil has fallen $1 since with Equities slowly winding lower as well. There was selling on the Crude open, so I believe that we will see lower trade today with low potential for any buying to enter on the stock market open.
Buys to Watch:
December Corn- I would not call the Corn trade yesterday pretty, but the moderate support for the market at $4.15 held and provided a base for the market to rally off of into this morning. The Wheat market suffered a serious price break throughout the first hour of trade yesterday leading the Corn lower back into the low volume zone between $4.17 - $4.19, which provided a good level for new long entry. It is clear that the Wheat is the laggard of the Grain Sector for right now, so it is imperative to keep an eye on the December Wheat contract if you are trading Corn as a move below $6.77 1/2 could accelerate losses and drag Corn along with it. However, with Corn settling near $4.25 this morning there is a potential Bullish Morning Doji Star candlestick pattern forming and RSI has now ticked back higher to show a reemergence of positive momentum. $4.20 now provides stronger support for the December contract that I believe will not be violated for today, but I still recommend maintaining a stop loss on the trade below $4.15 for the time being. And remember the objective of $4.70 on this 3rd leg.
The July '11 - December '11 Corn Spread also held its support level at 15 cents and is higher this morning trading above 17 cents. I believe that you can still look for entry on this trade today if the market pulls back to 16 /12 cents this morning with the 3rd leg objective on the trade still between 32 - 37 cents.
Finally, although the Grain markets have been relatively uncorrelated to the macro picture I have noticed a higher correlation over the last 2 weeks on the macro weakness. Keep an eye on Crude Oil and the S&P 500 because a substantial break in these markets could actually cause Fund liquidation out of all Commodities including the Grains. I believe that this may have led the price break on Tuesday, which is the first time in a number of months that there has been this relationship.
Japanese Yen- This is strictly a shorter term day trade without a specific objective other than a rally test back near the recent highs. The Yen suffered a serious correction yesterday as the risk aversion trade weakened just a day after making new highs on the move. This morning the Yen pulled back into a lower volume zone from 117.86 - 118.10 that does not have great higher volume support below it, but has found support near the low end of this range on several tests. I recommend using smaller size than normal on this trade, but with the Fixed Income markets finding strength off of a similar support level and the Equity and other Foreign Currencies possibly finding a top for the day I believe that this is a low risk day trade worth taking.
Sells to Watch:
Crude Oil- Crude Oil has the longer term 2nd leg objective of $61.50 and yesterday's rally into today provides a nice setup for new short entry into the market. Crude Oil has been the absolute strength among the entire market over the last 24 hours, but it is running into a strong wall this morning that not even the high frequency programs have been able to break through. Between $73.24 - $73.52 there is a low volume zone with higher volume resistance from $73.60 - $74.12. I had a resting "hope and pray" order at $73.42 that I got hit on while I was in the shower this morning, but a rally after the Jobless report this morning also sent the market into this resistance this morning. I recommend using a stop just above the higher volume resistance and looking for another test near the $70.35 swing lows before taking profits.
Euro- The Euro has the longer term objective of 1.10 on the 2nd leg move. Overnight the Euro made new highs on the recent trade on another test of 1.2750. There is a larger low volume zone from 1.2732 - 1.2790 with higher volume resistance above to 1.2838. However, this 1.2750 level continues to act like a wall for the market so I do not believe it is likely that the market travels into the higher end of this range. I recommend looking for at least a test of 1.25 on the 2 - 3 day trade before taking profits.
Put on the Radar:
Buy Dollar Index- The Dollar Index has weakened slightly over the last 3 days, but is finally finding a decent spot for long entry. There is a lower volume zone between 82.70 - 82.84 with higher volume support to 82.52 for stop placement on the long entry. This zone was dipped into overnight, but only slightly and briefly. A break back into this zone should be bought with an eye on a test of 85 for profit taking on the trade. The longer term objective on the 2nd leg rally for the Dollar remains at 94.
Notes:
A Tip For Equity Trading- I always watch all of the main domestic Equity Indexes throughout the day and a new trend has emerged that I believe is helpful. While the leader/laggard of the Sector has been a revolving door over much of the last few months the Nasdaq Index has emerged as the volatility and direction indicator among the Sector no matter what the direction. This was evident yesterday as although the Equity markets were weaker the Nasdaq was the leader among the Sector and what followed was a sizable rally off of the base. Conversely, on days that the Equity markets have suffered the Nasdaq has been the weakest performer in the Sector as liquidation out of this leader over the recovery (and out of Apple...which looks really ugly right now) leads the market lower. If you see a weaker market with the Nasdaq the best performer then watch out on your shorts and if you see a stronger market with the Nasdaq the weakest then watch out on your longs.
Copper- What a crappy swing in the market on my short opinion. Copper was a laggard market on Tuesday and coming into Wednesday as well, but when the macro market bounced so did the Copper...and violently. The market rallied nearly 13 cents over a 24 hour period taking out my $3.2310 stop level by yesterday afternoon. Copper is definitely no longer a short, but rather a neutral for the time being as I believe that some of the Metal excitement has spilled over into these industrial metals.
Wednesday, August 25, 2010
Wednesday 8/25/10 Commodity Ideas
Opening Note:
Well...I'm back, feeling well rested, and ready to get back to the market commentary. Everybody needs a break from time to time and I am afraid the lack of vacation, undertaking of new work opportunities, and overall lack of sleep was turning me into more of a market zombie than any sort of market analyst. However, I can say that I truly missed writing about the markets and with some new changes in my schedule I am full on the newsletter train once again. I am working on some new updates to the newsletter to hopefully include charts (with my lines, projections, and patterns) and possibly some changes in the schedule and timing of the letter, so I will send an update once I reach some conclusions.
Since Last Time
The last letter I wrote was my essay on allocation that I believed would lead the macro market back to its highs for the year, but since then a lot has changed. The Fixed Income markets have continued on their torrid rally, the S&P 500 ran into a wall when it encountered the "right shoulder highs" around the 1130 level, the Grain market found some serious demand and global weather issues, and the Currency markets have now reversed from the "beat up the Dollar trade". If you have kept up with my letters since when I began back in January you probably noticed that I have been pretty bearish on the general market direction and almost bordering on "perma-bear" status (not the actual truth...I bought the crap out of everything the 1st half of '08). The market finally looks like it has a high probability of finally setting off the large Bear move that I have waited on for months...and months.
**I will write an update to piece together the overall picture because I have a lot to say, but a lack of time this morning. Just know I'm a full on Yogi Bear right now.
Yesterday
Yesterday the macro market was weaker, but not as bad as it could have been. Equities slid lower off weaker global markets and the poor Existing Home Sales numbers released at 9 am (CT), leading the rest of the market along with them. However, the market did make a strong bounce off of its lows early in the day to trade sideways for much of the day until the close (thus the not as bad as it could have been). Both the Fixed Income markets and the Japanese Yen skyrocketed yesterday to new highs as the risk aversion trade continued its run higher, while the supportive Commodity markets like Copper, Crude Oil, and the Canadian Dollar stood out among the losers. On a very odd note though, both the Gold and Silver markets started out much weaker after their opens, but exploded higher basically out of nowhere with Silver rallying 60+ cents in an hour. I do not comprehend the real story in these Metals right now, so I recommend just flat out avoiding them for the time being.
Today
Although Equities, Foreign Currencies, and the other Supportive Commodity markets traded moderately higher overnight they are sitting back near their lows as of 7:15 am with Copper, the Canadian Dollar and a correction in the Yen the weakest markets this morning. Of moderate importance there is the New Home Sales number this morning that I expect will not have "an upside surprise" to lead the market higher today. There also are a number of Economic numbers to be released over the next week and a half that continue to beat up the Equity markets without Earnings to beat the Doctored Expectations. I expect the macro market to continue to move lower over the next week and a half as these number are released. I am flat out selling any rallies in the Euro, Crude Oil, Canadian Dollar and the Nasdaq for right now and I recommend looking to sell rallies in the supportive markets for the next 8 days.
Buys to Watch:
December '10 Corn- It feels like the entire world is on the Corn/Grain trade right now, but after yesterday's sizable price break I feel more confident stepping into some new longs in Corn. Right now Corn is on the 3rd leg of its rally with a target now of roughly $4.70 on the rally from the $4.05 base level. For this target to hold true the major support from $4.05 to $4.11 needs to hold strong though. For long entry there is a very attractive low volume zone between $4.17 - $4.19 with moderate support at $4.15, but with more major support below this level from $4.05 - $4.11. I personally already purchased some yesterday at $4.17 with risk now to just below $4.15 and will look at entry again near $4.11 if this level is reached.
**In addition I also like the July '11 - Dec '11 Corn spread still. I believe that this spread is also setting up a 3rd leg higher currently with a target area between 32 - 37 cents premium July. This spread takes advantage of the acreage battle over Wheat & Beans versus Corn planting acres next year as well as the growing demand story for Corn worldwide for a brief fundamental summary. There is strong support between 15 - 15 3/4 cents for the spread, so with the open this morning likely around 16 - 16 1/2 cents this is a good low risk play on the Bullish Corn story as well.
Sells to Watch:
Copper- The Bearish pattern in Copper was set off yesterday, negated overnight, but yet again set off with more conviction this morning. Below $3.2310 Copper has set off a Bearish topping pattern with a projection of $3.0720 on the smaller move. Copper has held up as one of the stronger Commodities in the face of weaker Equities over the last couple weeks, but the market can have great momentum once it commits to a move and catches traders off guard. Overnight the market had a small bounce off of the $3.2310 level and without a definitive resistance level I am using a price just above this breakout as a stop loss for the trade.
Put on the Radar:
Longer Term Moves That You Look Great-
Euro- The uptrend for the Euro has now been broken and I believe that the Currency is now embarking on its 2nd Leg lower on the large move below parity with the U.S. Dollar. This 2nd leg has the longer term objective of 1.10. I covered my short Euro position yesterday morning just after the Existing Home Sales number and am looking for short entry again as well. Optimally I would love to sell the Euro in the low volume area between 1.2730 - 1.2800 with resistance above to 1.2825, but the 1.2750 level appears to be acting like a strong top. Right now the trend in the market is to buy the Euro on weak U.S. economic data (not sure why...and I think these guys are off their rockers), which is working out as a terrific sale if you have the patience to wait an hour after a weak number. I took advantage of this at least 3 times over the last month, so look for a rally after Home Sales today or any of the other Economic numbers this week to jump on the short Euro.
Crude Oil- Like the Euro I believe Crude Oil is embarking on its own 2nd leg lower with an objective of $61.50 for this leg. Crude Oil has acted the weakest of any Commodity over the last couple weeks with the rally bounces minimal to non-existent. Finding a rally in Crude Oil has been extremely difficult and I really do not have a great level to sell for today. I personally gave up trying to find a rally last week and bought some Sep. $71 puts, but with volatility rather high already for Oil it is difficult to jump into the options market right now. If you get a decent rally sell it.
Dollar Index- As the inverse of the Euro trade, I am strictly looking to buy the U.S. Dollar now as the Bear trend has now reversed Bullish. The 2nd leg higher for the Dollar Index has a longer term objective of 94 now. I have a bullish trendline from the recent base that sits at 83.16 today, which I am looking for as an entry level if the Dollar breaks this morning.
**I have basically been trading in and out of all of these markets while only looking to sell Crude and the Euro and Buy the Dollar Index. Options provide a way to keep an initial position for the move, but I am focusing on catching 2- 3 day moves in each of these markets on the moves. It may be tempting to look at the move in Crude and say "This can't go any further without a pullback", but I seriously encourage only looking at these markets as strictly one direction trades
Notes:
Bonds- I am out of time, but just do not try and pick a top on the Bonds. The market is on a crazy rally higher that does not seem to have an end. I continue to look at buying the dips for a 1-2 day profit. Yes, the Fixed Income markets are likely a bubble, but this is a longer term Bubble that shows no signs of stopping anytime soon and will likely take away all of the top-pickers money before they are right on the trade.
Well...I'm back, feeling well rested, and ready to get back to the market commentary. Everybody needs a break from time to time and I am afraid the lack of vacation, undertaking of new work opportunities, and overall lack of sleep was turning me into more of a market zombie than any sort of market analyst. However, I can say that I truly missed writing about the markets and with some new changes in my schedule I am full on the newsletter train once again. I am working on some new updates to the newsletter to hopefully include charts (with my lines, projections, and patterns) and possibly some changes in the schedule and timing of the letter, so I will send an update once I reach some conclusions.
Since Last Time
The last letter I wrote was my essay on allocation that I believed would lead the macro market back to its highs for the year, but since then a lot has changed. The Fixed Income markets have continued on their torrid rally, the S&P 500 ran into a wall when it encountered the "right shoulder highs" around the 1130 level, the Grain market found some serious demand and global weather issues, and the Currency markets have now reversed from the "beat up the Dollar trade". If you have kept up with my letters since when I began back in January you probably noticed that I have been pretty bearish on the general market direction and almost bordering on "perma-bear" status (not the actual truth...I bought the crap out of everything the 1st half of '08). The market finally looks like it has a high probability of finally setting off the large Bear move that I have waited on for months...and months.
**I will write an update to piece together the overall picture because I have a lot to say, but a lack of time this morning. Just know I'm a full on Yogi Bear right now.
Yesterday
Yesterday the macro market was weaker, but not as bad as it could have been. Equities slid lower off weaker global markets and the poor Existing Home Sales numbers released at 9 am (CT), leading the rest of the market along with them. However, the market did make a strong bounce off of its lows early in the day to trade sideways for much of the day until the close (thus the not as bad as it could have been). Both the Fixed Income markets and the Japanese Yen skyrocketed yesterday to new highs as the risk aversion trade continued its run higher, while the supportive Commodity markets like Copper, Crude Oil, and the Canadian Dollar stood out among the losers. On a very odd note though, both the Gold and Silver markets started out much weaker after their opens, but exploded higher basically out of nowhere with Silver rallying 60+ cents in an hour. I do not comprehend the real story in these Metals right now, so I recommend just flat out avoiding them for the time being.
Today
Although Equities, Foreign Currencies, and the other Supportive Commodity markets traded moderately higher overnight they are sitting back near their lows as of 7:15 am with Copper, the Canadian Dollar and a correction in the Yen the weakest markets this morning. Of moderate importance there is the New Home Sales number this morning that I expect will not have "an upside surprise" to lead the market higher today. There also are a number of Economic numbers to be released over the next week and a half that continue to beat up the Equity markets without Earnings to beat the Doctored Expectations. I expect the macro market to continue to move lower over the next week and a half as these number are released. I am flat out selling any rallies in the Euro, Crude Oil, Canadian Dollar and the Nasdaq for right now and I recommend looking to sell rallies in the supportive markets for the next 8 days.
Buys to Watch:
December '10 Corn- It feels like the entire world is on the Corn/Grain trade right now, but after yesterday's sizable price break I feel more confident stepping into some new longs in Corn. Right now Corn is on the 3rd leg of its rally with a target now of roughly $4.70 on the rally from the $4.05 base level. For this target to hold true the major support from $4.05 to $4.11 needs to hold strong though. For long entry there is a very attractive low volume zone between $4.17 - $4.19 with moderate support at $4.15, but with more major support below this level from $4.05 - $4.11. I personally already purchased some yesterday at $4.17 with risk now to just below $4.15 and will look at entry again near $4.11 if this level is reached.
**In addition I also like the July '11 - Dec '11 Corn spread still. I believe that this spread is also setting up a 3rd leg higher currently with a target area between 32 - 37 cents premium July. This spread takes advantage of the acreage battle over Wheat & Beans versus Corn planting acres next year as well as the growing demand story for Corn worldwide for a brief fundamental summary. There is strong support between 15 - 15 3/4 cents for the spread, so with the open this morning likely around 16 - 16 1/2 cents this is a good low risk play on the Bullish Corn story as well.
Sells to Watch:
Copper- The Bearish pattern in Copper was set off yesterday, negated overnight, but yet again set off with more conviction this morning. Below $3.2310 Copper has set off a Bearish topping pattern with a projection of $3.0720 on the smaller move. Copper has held up as one of the stronger Commodities in the face of weaker Equities over the last couple weeks, but the market can have great momentum once it commits to a move and catches traders off guard. Overnight the market had a small bounce off of the $3.2310 level and without a definitive resistance level I am using a price just above this breakout as a stop loss for the trade.
Put on the Radar:
Longer Term Moves That You Look Great-
Euro- The uptrend for the Euro has now been broken and I believe that the Currency is now embarking on its 2nd Leg lower on the large move below parity with the U.S. Dollar. This 2nd leg has the longer term objective of 1.10. I covered my short Euro position yesterday morning just after the Existing Home Sales number and am looking for short entry again as well. Optimally I would love to sell the Euro in the low volume area between 1.2730 - 1.2800 with resistance above to 1.2825, but the 1.2750 level appears to be acting like a strong top. Right now the trend in the market is to buy the Euro on weak U.S. economic data (not sure why...and I think these guys are off their rockers), which is working out as a terrific sale if you have the patience to wait an hour after a weak number. I took advantage of this at least 3 times over the last month, so look for a rally after Home Sales today or any of the other Economic numbers this week to jump on the short Euro.
Crude Oil- Like the Euro I believe Crude Oil is embarking on its own 2nd leg lower with an objective of $61.50 for this leg. Crude Oil has acted the weakest of any Commodity over the last couple weeks with the rally bounces minimal to non-existent. Finding a rally in Crude Oil has been extremely difficult and I really do not have a great level to sell for today. I personally gave up trying to find a rally last week and bought some Sep. $71 puts, but with volatility rather high already for Oil it is difficult to jump into the options market right now. If you get a decent rally sell it.
Dollar Index- As the inverse of the Euro trade, I am strictly looking to buy the U.S. Dollar now as the Bear trend has now reversed Bullish. The 2nd leg higher for the Dollar Index has a longer term objective of 94 now. I have a bullish trendline from the recent base that sits at 83.16 today, which I am looking for as an entry level if the Dollar breaks this morning.
**I have basically been trading in and out of all of these markets while only looking to sell Crude and the Euro and Buy the Dollar Index. Options provide a way to keep an initial position for the move, but I am focusing on catching 2- 3 day moves in each of these markets on the moves. It may be tempting to look at the move in Crude and say "This can't go any further without a pullback", but I seriously encourage only looking at these markets as strictly one direction trades
Notes:
Bonds- I am out of time, but just do not try and pick a top on the Bonds. The market is on a crazy rally higher that does not seem to have an end. I continue to look at buying the dips for a 1-2 day profit. Yes, the Fixed Income markets are likely a bubble, but this is a longer term Bubble that shows no signs of stopping anytime soon and will likely take away all of the top-pickers money before they are right on the trade.
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