Opening Note:
Yesterday
Like a dam bursting at the seams, the market was flooded with liquidation shortly after the stock market open yesterday morning. No Sector was really spared from the rush to the door, but the Metals, Grains, and Equities especially felt the heat. The Industrial Metals like Copper, Palladium, and Platinum (I'm only semi-grouping Silver here now) were the overall worst performers and should continue to be. The European default worries were the initial catalyst that got money rolling out of of Commodities, but the scare of Chinese policies to curb inflation really hit these over-subscribed markets that have depended on Asian demand and stockpiling. The Grain markets, especially Corn, Beans, and Bean Oil also tested and settled near limit down on similar fears that Chinese demand will wane in the coming months.
Most of the liquidation occurred in the market between 8:30 am - 12 pm, yet it was a late day Treasury and yield curve move that provided the biggest surprise in my opinion. The trend over the last couple months has been a steepening of the yield curve with the prices of the longer maturities falling in relation to the short end. Around 12 pm though the Bond market prices took off on a nearly 2 handle rally over the next two hours. Mind you, this was after the liquidation run across the market. My initial diagnosis is that this rally was a delayed and possibly faulty "run to safety" into the Treasury markets.
Today
There were some volatile moves and further liquidation overnight, but overall the market is slightly stronger this morning as of 6:45 am. The Soybean complex, Cotton, Crude Oil, and the Industrial Metals are the weaknesses again. In nearly every case though the markets are well off their overnight lows. The last three days were the largest group liquidation effort that we have seen across the market since May of this year, with yesterday particularly nasty. I expect that we could see a bit of a relief recovery for today. A number of markets have tested and held individual technical pivot points, which should aid in stopping the outflows or at worst slowing them over the next 12 hours.
The key word in the previous paragraph is a "bit" of a relief recovery for today though. I have little interest in trying to Buy and would rather wait for the opportunities to re-initiate shorts. The European debt situation and threats of Chinese policies to curb inflation are far from over and will likely still have a few jabs, if not uppercuts, to deliver to the market throughout the rest of the year. In today's letter I attempted to lay out some of the technical levels that will stall the liquidation effort temporarily. My belief though is that there more time and price decline needed before the market finds a base to assemble. The puking of the risk trade caught many large participants off guard this time again, and I have a feeling that after getting cut and bruised this year that many will say "enough" and hold off until January. Going forward for the next few weeks I advise taking a Bearish stance on the risk trade and using rallies as opportunities to short the market.
With a lack of patterns, mostly rough estimates for targets, and high volatility it is difficult for me to suggest individual Sales for the time being. However, I repeat my statement from yesterday "I believe Silver and the rest of the Industrial Metals, Cotton, Soybeans and Bean Oil, Nasdaq, Australian Dollar, and Crude Oil along with Heating Oil will be the biggest decliners over the next couple weeks" and I wish to add the Euro to this list as well.
Buys to Watch:
Sells to Watch:
Bonds- I lowered my stop loss on the trade suggestion yesterday morning to just above the resistance from 127.02 - 127.12. Yesterday afternoon's rally though ran straight through this resistance within 30 minutes as I painfully was forced to puke my outright position. This resistance was taken out, but after re-evaluation this morning I still feel strongly that Bonds are one of the best and most consistent sales among the market. I believe that this "run to safety" yesterday was not only delayed, but faulty in logic and an improper gut reaction that caused a sharp reversal in the yield curve.
First, the 10 Year Note has tested its individual resistance and breakout level several times now and has failed on each attempt. Below 125.015 the 10 Year has an objective of roughly 122.16. There is high volume resistance though from 125.06 - 125.13 that continues to stall out nearly four separate rally attempts so far. As long as this level holds then the Bonds should as well. The Bonds are now testing stronger resistance from 127.28 - 128.05 that has held up on multiple tests now as a top for the market as well. For now I recommend only initiating a smaller initial position against this resistance, but I highly suggest looking into the put options. There are December options that expire in 9 days with implied volatility that seems extremely cheap. Yesterday afternoon I purchased some 126 Puts, and while I am currently still out a little money on my initial purchase it would only take one or two days lower to make 3-4 times my risk on the trade. The target for the Bonds is 123.00 and I still see a strong possibility that they could reach this level by expiration next Friday.
Wheat (Take Some Profits Here, Hold Off a Day or Two for New Entry)- December Wheat has nearly reached my $6.00 target originally suggested only 6 days ago when the market was near $7.20. With substantial liquidation among the Grains over the last week and Wheat comparatively performing better than Beans and Corn over this time I think it is time to take some profits. As you will see below, I have both Corn and Beans reaching a technical support that should stall losses in the Grains for now. Above $6.37 for Wheat, which it is nearly at this morning, there is a definite lack of resistance as well. The $6.45 and $6.65 swing lows now become resistance, but yesterday's capitulation really only left higher volume resistance last at $6.70. Take some hopefully large profits for now and wait for a rebound rally prior to initiating a new short position.
Put on the Radar: (Some Technical Levels)
January Soybeans- Based on the base of the Summer rally from July 7th to the high November 12th the 38.2 % Fibonacci Retracement level is $11.80. Overnight the Soybeans found a base at $11.75 and recovered nearly 30 cents from this level into the morning. I expect this level to at least temporarily provide further support for price levels. However, I am not convinced that the Beans are finished liquidating. After such a sharp break I do not expect fund money to come sprinting back into the market to create a "real" base for Beans to build upon. The 50% level is $11.30 and I am looking for a decline to at least this level prior to looking at Beans as a Buy.
December Corn- From the base June 30th to the high November 9th the 38.2% Fibonacci Retracement level is $5.05 for the December contract. Corn found support at $5.09 overnight and has recovered like Beans. I expect less continued liquidation in Corn compared to Beans currently, so look for Corn to possibly find a base near $5.05.
January Crude Oil- Firstly, roll your Crude contract to January if you have not yet. Based on the low August 25th to the high November 11th the Fibonacci Retracement "Box" between the 50% and 61.8% levels is $81.11 - $79.23. Crude Oil has now violated the lowest Bull trend you can draw on the daily chart and repeatedly dismantled stronger support, so I would not look at Crude as a Buy until at least this level.
December Silver- Silver is now testing the Bull trend line from the low August 24th - October 26th that spans the entire 3 month rally. Yesterday this trend was $24.95 and supported a low near $24.98 and today's value is $25.07 to support a low of $25.015 so far. In addition, the 38.2% Fibonacci Retracement for the entire move falls at $24.92 1/2 to provide further temporary support. Silver was uncharacteristically strong yesterday though in relation to the Industrial Metals and versus what one would presume in its relation to Gold on a liquidation day. I think that the Bulls may be able to hold Silver above the trend for a day or two longer, but I strongly believe that it is due for a correction into the 50 - 61.8% Box between $22.20 - $23.56. This means that I believe Gold will also continue lower.
Swiss Franc- The Swiss Franc is testing a Bearish reversal breakout on its daily chart this morning. Below the real support at 1.0070 as well as the spike to 1.0031 the market has a conservative objective of .9770. If the Franc confirms this reversal then expect the Euro to follow along with a break of roughly 5 -7 points itself.
Notes:
Wednesday, November 17, 2010
Tuesday, November 16, 2010
Tuesday 11/16/10 Commodity Ideas
Opening Note:
Yesterday
The "sticky" zones that I listed on my radar yesterday were areas that provided an early base for the market. At first it appeared likely that with bases in place that some constructive price action would follow throughout the day. Previously strong markets like Crude Oil, Nasdaq, and Gold floundered throughout the morning though and declined further into the afternoon stock market close. The Treasury markets were definitely the laggard Sector of the day with the Ten Year Note falling a full handle and Bonds trading a full 2 handles lower by the 3 pm stock market close.
Today
Everything other than the Euro, Sugar, and the Treasury markets is lower this morning at least moderately. The previously strong Metal Sector, Cotton, Silver, Nasdaq, and Soybean markets are the largest decliners as of 6:45 am. Most of this move can be tied to concern over Asian demand with South Korea cutting rates overnight and fear that China will enact further policies to curb inflation. The Euro is relatively stable though this morning around 1.36 again. At least the European default story is not completely running away or else the markets could be very ugly.
The "sticky" levels I described yesterday were broken on subsequent tests overnight in most cases (Sugar is good though). In addition, some of the relationships that produced trends over the market rally since early June have now violated their trends or reversed with vigor. The Canadian Dollar/Australian Dollar has violated, the Nasdaq/S&P 500 is on a very strong test and near violating, and Gold/Silver will likely confirm a violation with today's close (not a bad idea to look at these relationships as trade ideas for a weaker market). All of theses signals lead me to believe that the current correction will continue for at least another couple weeks. This will produce an end to most of the individual market Bull trends over the last few months that are still intact. The leader markets over the rally are also now the laggards as liquidation is larger and the correction will need to be deeper.
When I make a buy or sell suggestion I like to provide a clear profit target and entry suggestions. Most of the supportive markets now have strong reversal tops, but in most cases all I can provide are vague areas where I expect the markets to decline to. I can and will say that I believe Silver and the rest of the Industrial Metals, Cotton, Soybeans and Bean Oil, Nasdaq, Australian Dollar, and Crude Oil along with Heating Oil will be the biggest decliners over the next couple weeks. However, for the Sells to Watch I will only keep trades that I feel are less risky and more consistent. I recommend looking to go with the market break for now and at least until the S&P 500 declines to around 1150. With the reversals just beginning and the pivot bases failing the Bears should continue to dominate the trade. Look to sell the rallies and go with.
Buys to Watch:
Sells to Watch:
Bonds- In the morning yesterday the 10 Year Note made a brief fake out on its Bearish reversal breakout causing a bit of confusion in the Bond market. This early attempt failed though and the Bonds recovered slightly on a rally to 127.16. This level did not reach what I would deem an acceptable level to initiate a short position based on the resistance from 127.27 - 128.05. Later at 1:15 pm though the 10 year established its own Bearish breakout with the Bonds trading near 126.24. Over the next two hours the Bonds declined over a full handle further to make the daily move over 2 full handles by the stock market close.
This morning the Bonds are almost a full handle off their lows from yesterday's afternoon close. You can usually expect a rebound when you get such a drastic move. I still believe the Bonds are a great sale though on continuation towards their 123.00 reversal objective. There is a bit more room to rally, but the next high volume resistance level is from 127.02 - 127.12 as an area to enter a short position against with stop placement above. For the long term trade I recommend using a stop loss above this level as well. It is possible that a rally to this level may not occur until this evening or tomorrow, so be patient because it could be a 36 - 48 hour recovery rally. Also keep an eye on the 10 Year Note. The breakout level for the 10 Year was 125.015 with a rough objective near 122.16. It is possible that the 10 Year at least temporarily negates the reversal, but there is higher volume resistance from 125.06 - 125.13 that I believe will provide at top for the market.
December Wheat- Around 11:15 am yesterday the Wheat market tested my higher volume resistance level from $6.85 - $6.90 1/2. $6.85 proceeded to be the high tick for yesterday's session as the resistance held perfectly for new short entry with a settlement of $6.72 3/4 for the December contract in the afternoon. This morning Wheat is already over 7 cents lower and is testing the $6.65 support level from an earlier swing low again. Both Beans and Corn are weaker than Wheat this morning. As I have noted though, I believe that while Beans may have stronger liquidation potential the Wheat will be the better short position to sit with. You had to sit through a 50 cent rally off yesterday's overnight lows in Beans to hold a short while you only had to give 15 cents in the Wheat. Wheat should be the consistent decliner with a less volatile demand story for the time being.
Today there is higher volume resistance from $6.72 1/2 - $6.76 1/2 leftover from yesterday's session that is a good level to enter a short position against on a rally. Stop placement should be made above $6.76 1/2 on short entry today and for short positions from yesterday I recommend moving up the stop loss to this same level to lock in profits. The longer term target (within the next 3-4 weeks) is $6.00 for the December contract and $6.40 for the March contract on the Bearish triangle breakout. It is also still possible to look at Wheat as a sideways item, so expect support buying to enter at today's $6.65 level and near the $6.43 1/2 low on the Fall range for December Wheat.
Put on the Radar:
Notes:
Yesterday
The "sticky" zones that I listed on my radar yesterday were areas that provided an early base for the market. At first it appeared likely that with bases in place that some constructive price action would follow throughout the day. Previously strong markets like Crude Oil, Nasdaq, and Gold floundered throughout the morning though and declined further into the afternoon stock market close. The Treasury markets were definitely the laggard Sector of the day with the Ten Year Note falling a full handle and Bonds trading a full 2 handles lower by the 3 pm stock market close.
Today
Everything other than the Euro, Sugar, and the Treasury markets is lower this morning at least moderately. The previously strong Metal Sector, Cotton, Silver, Nasdaq, and Soybean markets are the largest decliners as of 6:45 am. Most of this move can be tied to concern over Asian demand with South Korea cutting rates overnight and fear that China will enact further policies to curb inflation. The Euro is relatively stable though this morning around 1.36 again. At least the European default story is not completely running away or else the markets could be very ugly.
The "sticky" levels I described yesterday were broken on subsequent tests overnight in most cases (Sugar is good though). In addition, some of the relationships that produced trends over the market rally since early June have now violated their trends or reversed with vigor. The Canadian Dollar/Australian Dollar has violated, the Nasdaq/S&P 500 is on a very strong test and near violating, and Gold/Silver will likely confirm a violation with today's close (not a bad idea to look at these relationships as trade ideas for a weaker market). All of theses signals lead me to believe that the current correction will continue for at least another couple weeks. This will produce an end to most of the individual market Bull trends over the last few months that are still intact. The leader markets over the rally are also now the laggards as liquidation is larger and the correction will need to be deeper.
When I make a buy or sell suggestion I like to provide a clear profit target and entry suggestions. Most of the supportive markets now have strong reversal tops, but in most cases all I can provide are vague areas where I expect the markets to decline to. I can and will say that I believe Silver and the rest of the Industrial Metals, Cotton, Soybeans and Bean Oil, Nasdaq, Australian Dollar, and Crude Oil along with Heating Oil will be the biggest decliners over the next couple weeks. However, for the Sells to Watch I will only keep trades that I feel are less risky and more consistent. I recommend looking to go with the market break for now and at least until the S&P 500 declines to around 1150. With the reversals just beginning and the pivot bases failing the Bears should continue to dominate the trade. Look to sell the rallies and go with.
Buys to Watch:
Sells to Watch:
Bonds- In the morning yesterday the 10 Year Note made a brief fake out on its Bearish reversal breakout causing a bit of confusion in the Bond market. This early attempt failed though and the Bonds recovered slightly on a rally to 127.16. This level did not reach what I would deem an acceptable level to initiate a short position based on the resistance from 127.27 - 128.05. Later at 1:15 pm though the 10 year established its own Bearish breakout with the Bonds trading near 126.24. Over the next two hours the Bonds declined over a full handle further to make the daily move over 2 full handles by the stock market close.
This morning the Bonds are almost a full handle off their lows from yesterday's afternoon close. You can usually expect a rebound when you get such a drastic move. I still believe the Bonds are a great sale though on continuation towards their 123.00 reversal objective. There is a bit more room to rally, but the next high volume resistance level is from 127.02 - 127.12 as an area to enter a short position against with stop placement above. For the long term trade I recommend using a stop loss above this level as well. It is possible that a rally to this level may not occur until this evening or tomorrow, so be patient because it could be a 36 - 48 hour recovery rally. Also keep an eye on the 10 Year Note. The breakout level for the 10 Year was 125.015 with a rough objective near 122.16. It is possible that the 10 Year at least temporarily negates the reversal, but there is higher volume resistance from 125.06 - 125.13 that I believe will provide at top for the market.
December Wheat- Around 11:15 am yesterday the Wheat market tested my higher volume resistance level from $6.85 - $6.90 1/2. $6.85 proceeded to be the high tick for yesterday's session as the resistance held perfectly for new short entry with a settlement of $6.72 3/4 for the December contract in the afternoon. This morning Wheat is already over 7 cents lower and is testing the $6.65 support level from an earlier swing low again. Both Beans and Corn are weaker than Wheat this morning. As I have noted though, I believe that while Beans may have stronger liquidation potential the Wheat will be the better short position to sit with. You had to sit through a 50 cent rally off yesterday's overnight lows in Beans to hold a short while you only had to give 15 cents in the Wheat. Wheat should be the consistent decliner with a less volatile demand story for the time being.
Today there is higher volume resistance from $6.72 1/2 - $6.76 1/2 leftover from yesterday's session that is a good level to enter a short position against on a rally. Stop placement should be made above $6.76 1/2 on short entry today and for short positions from yesterday I recommend moving up the stop loss to this same level to lock in profits. The longer term target (within the next 3-4 weeks) is $6.00 for the December contract and $6.40 for the March contract on the Bearish triangle breakout. It is also still possible to look at Wheat as a sideways item, so expect support buying to enter at today's $6.65 level and near the $6.43 1/2 low on the Fall range for December Wheat.
Put on the Radar:
Notes:
Monday, November 15, 2010
Monday 11/15/10 Commodity Ideas
Opening Note:
Yesterday
Concerns that China will take further action to curb inflation and European default worries continued to pressure the market throughout the U.S. session Friday. Commodities with the strongest Chinese demand saw the largest declines with Crude falling nearly $3, Silver down almost $1.50, and both Soybeans and Corn settling limit down. This sell off was not limited though to just markets related to Asian demand as contagion spread across all of the supportive markets. In many cases it was actually the best performers over the a last months and weeks that saw the largest decline as investors that drove the market could not get to the exit door quick enough.
The most interesting bit Friday was that for all of this market sell off the Euro was actually trading higher on the day. There has become almost a culture of acceptance and belief among the media, and often times in the market, that the correlation between Dollar and Commodity prices is in stone and can therefore be extrapolated down to a weekly, daily, or even hourly section of time. It is pretty clear though that if you hold the microscope up to the relationship that it is a lot more loose than others may have you believe. The relationship is real and holds up over time, but try to avoid the the trap of breaking it down too micro.
Today
Most of the supportive markets are at least slightly higher this morning. The Euro is lower however, helping to further confuse those looking to the Dollar/Commodities relationship for answers. The Treasury market prices are significantly weaker across the entire curve with Ten Year Note testing a key Bearish reversal level this morning. Most of the markets in free fall Friday have found stability overnight and into the morning with some even managing recovery rallies.
I have more details on the Radar, but barring horrible Economic data this morning I believe that there are a number of supportive markets that have capitulated to price levels that should find support. We have confirmation so far that the puking of positions has at least stalled for now, so I expect that there should be some recovery for the next couple days at least. Despite the Euro's weakness and the fundamental concern over Chinese demand, I still believe that the Physical Commodity, Equity, and Foreign Currency markets wish to proceed higher over the next several months based on Quantitative Easing and positioning for the inflation that may come down the road from the package.
Buys to Watch:
Sells to Watch:
Bonds- After a fake out rally Thursday evening the Bonds finally displayed strong confirmation Friday of its Bearish reversal. Below 129.05 the reversal now has a longer term (over the next couple weeks) objective of 123.00. This morning the Bonds are already significantly lower, but there are two different strategies that I am looking at for new entry or to add to the position. First, there is higher volume resistance from 127.27 - 128.05 as an area to sell against with stop placement just above. If this rally does not happen though then it is important to pay attention to the 10 Year Note. The 10 Year has violated its long term Bullish trend and is testing its own Bearish reversal level this morning. Below 125.015 the 10 Yr. projects a move to around 122.16. If the 10 Year does confirm a move below this level then the Bonds can be sold based upon this action. This morning there has been a lot of chop in the Treasuries, so be patient and wait for the opportunity rather than just jumping in.
Wheat- The sell off in the Grains Friday set off the Bearish triangle pattern in the Wheat market below $6.86. The December contract now has a target around $6.00 ($6.40 for March) with the pattern trendline at $6.89 1/2 today. Beans and Corn were weaker on Friday, but I again believe that this was more based on Chinese demand concerns and liquidation in the stronger markets. Wheat has generally been the laggard of the Grains and should be the consistent weakness still despite Chinese concerns.
For new short entry there is a low volume zone between $6.77 1/2 - $6.85 with higher volume resistance from $6.85 1/2 - $6.90 1/2 for stop placement above. If the December contract trades above $6.90 1/2 again then I no longer advise holding a short position in the market. While holding a short position it is also important to keep an eye on the support levels as areas to temporarily take profits or reduce position size. It looks like buying interest is viewing the Wheat market as possibly a sideways item with support near $6.65 and $6.43 1/2 on a range trade. It may be wise to trade in and out of the Wheat market around these levels rather than holding just for the longer move.
Put on the Radar:
Sticky Levels After the Capitulation Friday
S&P 500- Although the Nasdaq was unable to hold its own key support the S&P 500 has now established support at 1192 on three separate tests. Over the last 6 six sessions the stock market has consistently declined and now looks positioned for a recovery rally over the next 2 - 3 sessions. I believe the Nasdaq is generally the better buy among the Equities still off of this S&P 500 support.
Crude Oil- The December contract settled nearly $3 lower on Friday to bring the market back on a test of the original $84.50 Bullish breakout level on the range. Like the Equities, Crude has found support on multiple tests of the $84.50 level. The technicals still show negative momentum after Friday, but I believe this level can be looked at as a base for a 2-3 day recovery rally as well.
Gold- $1356 - $1360 is the base that Gold will look to build upon for short term recovery.
Sugar- From Wednesday's settlement Sugar declined 20% through Friday's close. This morning the market looks to be establishing at least a base to hold off further liquidation. On three separate tests near 25.50 cents/lb. the draw downs have stalled, so look at this level as well for a short term recovery base.
Euro- I still believe the next downside target for the Euro is between 1.32 and 1.33. For now 1.36 has established itself as a sticking point that could support gains at least temporarily. As the Euro is a weakness this morning this is my least favorite of the short term buys, but worth noting at least as an indicator for the others.
Notes:
Yesterday
Concerns that China will take further action to curb inflation and European default worries continued to pressure the market throughout the U.S. session Friday. Commodities with the strongest Chinese demand saw the largest declines with Crude falling nearly $3, Silver down almost $1.50, and both Soybeans and Corn settling limit down. This sell off was not limited though to just markets related to Asian demand as contagion spread across all of the supportive markets. In many cases it was actually the best performers over the a last months and weeks that saw the largest decline as investors that drove the market could not get to the exit door quick enough.
The most interesting bit Friday was that for all of this market sell off the Euro was actually trading higher on the day. There has become almost a culture of acceptance and belief among the media, and often times in the market, that the correlation between Dollar and Commodity prices is in stone and can therefore be extrapolated down to a weekly, daily, or even hourly section of time. It is pretty clear though that if you hold the microscope up to the relationship that it is a lot more loose than others may have you believe. The relationship is real and holds up over time, but try to avoid the the trap of breaking it down too micro.
Today
Most of the supportive markets are at least slightly higher this morning. The Euro is lower however, helping to further confuse those looking to the Dollar/Commodities relationship for answers. The Treasury market prices are significantly weaker across the entire curve with Ten Year Note testing a key Bearish reversal level this morning. Most of the markets in free fall Friday have found stability overnight and into the morning with some even managing recovery rallies.
I have more details on the Radar, but barring horrible Economic data this morning I believe that there are a number of supportive markets that have capitulated to price levels that should find support. We have confirmation so far that the puking of positions has at least stalled for now, so I expect that there should be some recovery for the next couple days at least. Despite the Euro's weakness and the fundamental concern over Chinese demand, I still believe that the Physical Commodity, Equity, and Foreign Currency markets wish to proceed higher over the next several months based on Quantitative Easing and positioning for the inflation that may come down the road from the package.
Buys to Watch:
Sells to Watch:
Bonds- After a fake out rally Thursday evening the Bonds finally displayed strong confirmation Friday of its Bearish reversal. Below 129.05 the reversal now has a longer term (over the next couple weeks) objective of 123.00. This morning the Bonds are already significantly lower, but there are two different strategies that I am looking at for new entry or to add to the position. First, there is higher volume resistance from 127.27 - 128.05 as an area to sell against with stop placement just above. If this rally does not happen though then it is important to pay attention to the 10 Year Note. The 10 Year has violated its long term Bullish trend and is testing its own Bearish reversal level this morning. Below 125.015 the 10 Yr. projects a move to around 122.16. If the 10 Year does confirm a move below this level then the Bonds can be sold based upon this action. This morning there has been a lot of chop in the Treasuries, so be patient and wait for the opportunity rather than just jumping in.
Wheat- The sell off in the Grains Friday set off the Bearish triangle pattern in the Wheat market below $6.86. The December contract now has a target around $6.00 ($6.40 for March) with the pattern trendline at $6.89 1/2 today. Beans and Corn were weaker on Friday, but I again believe that this was more based on Chinese demand concerns and liquidation in the stronger markets. Wheat has generally been the laggard of the Grains and should be the consistent weakness still despite Chinese concerns.
For new short entry there is a low volume zone between $6.77 1/2 - $6.85 with higher volume resistance from $6.85 1/2 - $6.90 1/2 for stop placement above. If the December contract trades above $6.90 1/2 again then I no longer advise holding a short position in the market. While holding a short position it is also important to keep an eye on the support levels as areas to temporarily take profits or reduce position size. It looks like buying interest is viewing the Wheat market as possibly a sideways item with support near $6.65 and $6.43 1/2 on a range trade. It may be wise to trade in and out of the Wheat market around these levels rather than holding just for the longer move.
Put on the Radar:
Sticky Levels After the Capitulation Friday
S&P 500- Although the Nasdaq was unable to hold its own key support the S&P 500 has now established support at 1192 on three separate tests. Over the last 6 six sessions the stock market has consistently declined and now looks positioned for a recovery rally over the next 2 - 3 sessions. I believe the Nasdaq is generally the better buy among the Equities still off of this S&P 500 support.
Crude Oil- The December contract settled nearly $3 lower on Friday to bring the market back on a test of the original $84.50 Bullish breakout level on the range. Like the Equities, Crude has found support on multiple tests of the $84.50 level. The technicals still show negative momentum after Friday, but I believe this level can be looked at as a base for a 2-3 day recovery rally as well.
Gold- $1356 - $1360 is the base that Gold will look to build upon for short term recovery.
Sugar- From Wednesday's settlement Sugar declined 20% through Friday's close. This morning the market looks to be establishing at least a base to hold off further liquidation. On three separate tests near 25.50 cents/lb. the draw downs have stalled, so look at this level as well for a short term recovery base.
Euro- I still believe the next downside target for the Euro is between 1.32 and 1.33. For now 1.36 has established itself as a sticking point that could support gains at least temporarily. As the Euro is a weakness this morning this is my least favorite of the short term buys, but worth noting at least as an indicator for the others.
Notes:
Friday, November 12, 2010
Friday 11/12/10 Commodity Ideas
Opening Note:
Yesterday
The market began the morning weaker on continued European Debt worries and the continuation of the precipitous fall in the Euro. The Euro eventually succumbed to the pressure after a second battle with the key 1.37 level to settle at 1.3659. While the Euro ground lower throughout the day, many Commodity markets and especially the Equities performed above expectations comparatively. Following an early sell off across the board on the stock market open, the Equities actually formed a Bullish intraday trend with the worst of the other markets only trending slightly lower.
The Grain markets and inter-crop spreads were especially interesting yesterday following Informa's planting expectations for 2011. The numbers showed Corn garnering more acres from Beans than expected. This produced a sharp rally in the July'11 - Dec'11 Corn spread while the front month Dec'10 contract was lower on the day and a break in the July'11 - Nov'11 Bean spread while the front month Jan'11 contract was moderately higher on the day. This relationship between the spreads and outrights was tricky and counter-intuitive, yet explainable as the 2011 crop was the story in the spreads.
Today
Asian Sell Off
Tempered disaster struck last night at 7 pm (we'll call it a tropical storm compared to the flash crash's Category 5) when the Asian market opened. In unison it looks like the continent decided that the Irish contagion risk was too high and dumped a significant amount of Commodity positions. Markets that have stronger fundamental ties to Asian demand like the Metals, Crude Oil, Soybeans, and Bean Oil saw the sharpest declines. It just so happens though that most of these markets were also the comparative strengths and best performers amongst the broad market over the last several weeks or months. (Leader? Laggard? Who knows, but I understand why some of these hedge fund managers that have been successful for decades are deciding they have enough money to retire this year.) The break in the market until the European open was rather relentless as well. Since short term statistical trading programs have flooded the market there is usually a fade that comes into to chop out the bandwagon money riding the short term wave. This was not the case last night though as these programs were run over as the selling came fast at first and then appeared to almost wait for bids to enter to take them out.
Euro Higher?
The most curious thing this morning is that the only markets higher on my board as of 7 am are the Treasuries, Swiss Franc, Yen, and THE EURO. Since 1:30 am the Euro has actually formed a Bullish 15 minute chart trend to carry the market back above 1.37 at least temporarily. Meanwhile most of the troubled markets from last evening have stabilized, but not rebounded much. This tells me that while the driver for the move was based on European risk it was more of a long term fundamental puke-job rather than a move based on the news of the hour or day. This makes the market right now, as Bernacke put it, "Unusually Uncertain". If the Euro continues to strengthen along this trend then we could actually see markets exceptionally lower that are nothing but buys for the rest of the day.
Less Probability of Market Capitulation
The Euro has again become a significant driver in the market meaning that the outlook and game plan has changed. In both January and May of this year it was the buildup of a falling Euro that eventually led to the fast market sell offs. If the Euro continues its descent then there is the definite possibility of this occurring for the 3rd time this year. The supportive Physical Commodity, Equity, and Currency markets continue to hold up relatively well compared to the Euro. For right now though I am taking the stance that the market fundamentals and sentiment are different this time around. In January and May the U.S. economy was running on the fumes of government stimulus while a new package has been established and has yet to even begin. Furthermore, The Fed has pretty much decided that their game plan is to no only infuse inflation into the Economy, but to hopefully enact the "Wealth Effect" by targeting a higher stock market as well. We have yet to see how tight The Fed policy will be for the market, but I would rather pick my spots to buy rather than fight the Fed. While there is the possibility that there could be another sharp break prior to Fed intervention, I am not trading on this philosophy for now and would rather be on the sidelines than exposed to the risk of Government intervention.
Buys to Watch: (No Buys, Just a Helpful Tip)
Keep Up Charts of Commodities in Euros- I get asked all the time how I keep track of the diverse markets. The answer is organization by sorting the markets into Sectors, eliminating the ones without a story, and establishing the leader and laggard of each Sector daily to minimize the focus. Since the beginning of the year I have had an entire sector (or row on my quote board) devoted strictly to individual Commodity markets versus the Euro. This means I have each Grain, Equity Index, Crude Oil, Metal, and Currency divided by the Euro to establish the ratio. Right now the Quantitative Easing trade is generally holding up the physical Commodities (other than last evening), making it appear that with the Euro out of the equation they would prefer to rally. While this relationship may shift and the Commodities may begin to sag on their own, this means that a long position may still be profitable. While the Euro is a story I think you need to at least take a look at the Commodity vs. Euro chart prior to execution to establish whether the Euro risk is something that should be hedged or reduced. I have found some great individual relationship trades strictly based on these charts that I would not have normally found as well. If you are shorting a market I see no reason to take the Euro into account, but prior to Longs see if a short Euro would add to the trade.
Sells to Watch:
Bonds- I am giving the Bonds another shot in the Sells despite the overnight spike rally. I believe this rally was based on "run to safety" buying in response to the Asian sell off, but a move that was clearly wrong so far. This rally continued up to my next resistance level from 129.22 - 129.27 prior to reversing and actually trading lower again this morning. With the market back below the 129.05 breakout I believe that you can enter a minimal short position again based off the resistance from 128.24 - 129.06. If this resistance is violated again then it is time to hold off and wait for a test of the Bearish daily chart trend from the high Oct. 12th - Nov. 5th to be re-tested. The longer term objective remains 123.00 on the reversal pattern.
Put on the Radar:
Sell Wheat- Overnight the Wheat market fell along with all of the other Grains. The Beans and Corn were both weaker though with the Wheat the strength though. Unless proved otherwise I am concluding that this move was a liquidation of positions based on Asian demand, so it would make absolute sense that Wheat was not the weakness as Corn and Beans have more interest and demand story for now. This means I am still looking at Wheat as the best short, and likely most consistent, among the Grains. After touching the top of the triangle overnight Wednesday evening the market has fallen back to the Oct 4th - Oct 22nd base trend at $6.88 today. Below this level the market has a rough projection of $6.00 for the Dec contract ($6.40 for March). The apex is nearing for the triangle, so I think that it is important that this breakout is established by Monday at the latest. Otherwise, I expect more of a sideways decline rather than liquidation with momentum.
S&P 500 & Nasdaq- In relation to some of the other markets the Equities actually held up rather well last evening. The spike lows for each market held critical support with 1192.50 for the S&P 500 and 2142 for the Nasdaq. I think that you can continue to look at the stock market as a buy above these levels, with a move below likely producing a correction that could last several weeks.
Notes:
Canadian Dollar vs Australian Dollar (Canadian/Aussie to chart)- The Bearish trendline for the chart since early June has been violated over the last 3 days. Since the flash crash and market plummet in May the supportive markets established at least a base in early June with many of the physical Commodity markets actually rallying with strength since this date (Metals, Grains). It is no coincidence that this Currency relationship has followed the same move and the violation of this trend is a warning signal for the Commodity rally. The Aussie tends to have more volatility than the Canuck and moves directionally more during times of weakness or strength. I think it is wise to hold off for now, but long Canadian vs. Short Aussie could be a good longer term Currency trade on the horizon.
Crude Oil- There was some large liquidation in the Crude Oil market last night that took out my $86.45 stop loss level for the long position. During times when people "just want to get out" the volume based support and resistance levels are rendered basically useless, as is the case over the last 14 hours. I think Crude is way to unpredictable right now to hold a position in either direction. The trend continues to look constructive, but Bullish momentum has flagged and outright price has not rallied as much as I would expect in relation to the gains in open interest. The longer term target for Crude near $95 is still in play, but the indecision, volatility, and subdued momentum make Crude an undesirable long for right now.
Yesterday
The market began the morning weaker on continued European Debt worries and the continuation of the precipitous fall in the Euro. The Euro eventually succumbed to the pressure after a second battle with the key 1.37 level to settle at 1.3659. While the Euro ground lower throughout the day, many Commodity markets and especially the Equities performed above expectations comparatively. Following an early sell off across the board on the stock market open, the Equities actually formed a Bullish intraday trend with the worst of the other markets only trending slightly lower.
The Grain markets and inter-crop spreads were especially interesting yesterday following Informa's planting expectations for 2011. The numbers showed Corn garnering more acres from Beans than expected. This produced a sharp rally in the July'11 - Dec'11 Corn spread while the front month Dec'10 contract was lower on the day and a break in the July'11 - Nov'11 Bean spread while the front month Jan'11 contract was moderately higher on the day. This relationship between the spreads and outrights was tricky and counter-intuitive, yet explainable as the 2011 crop was the story in the spreads.
Today
Asian Sell Off
Tempered disaster struck last night at 7 pm (we'll call it a tropical storm compared to the flash crash's Category 5) when the Asian market opened. In unison it looks like the continent decided that the Irish contagion risk was too high and dumped a significant amount of Commodity positions. Markets that have stronger fundamental ties to Asian demand like the Metals, Crude Oil, Soybeans, and Bean Oil saw the sharpest declines. It just so happens though that most of these markets were also the comparative strengths and best performers amongst the broad market over the last several weeks or months. (Leader? Laggard? Who knows, but I understand why some of these hedge fund managers that have been successful for decades are deciding they have enough money to retire this year.) The break in the market until the European open was rather relentless as well. Since short term statistical trading programs have flooded the market there is usually a fade that comes into to chop out the bandwagon money riding the short term wave. This was not the case last night though as these programs were run over as the selling came fast at first and then appeared to almost wait for bids to enter to take them out.
Euro Higher?
The most curious thing this morning is that the only markets higher on my board as of 7 am are the Treasuries, Swiss Franc, Yen, and THE EURO. Since 1:30 am the Euro has actually formed a Bullish 15 minute chart trend to carry the market back above 1.37 at least temporarily. Meanwhile most of the troubled markets from last evening have stabilized, but not rebounded much. This tells me that while the driver for the move was based on European risk it was more of a long term fundamental puke-job rather than a move based on the news of the hour or day. This makes the market right now, as Bernacke put it, "Unusually Uncertain". If the Euro continues to strengthen along this trend then we could actually see markets exceptionally lower that are nothing but buys for the rest of the day.
Less Probability of Market Capitulation
The Euro has again become a significant driver in the market meaning that the outlook and game plan has changed. In both January and May of this year it was the buildup of a falling Euro that eventually led to the fast market sell offs. If the Euro continues its descent then there is the definite possibility of this occurring for the 3rd time this year. The supportive Physical Commodity, Equity, and Currency markets continue to hold up relatively well compared to the Euro. For right now though I am taking the stance that the market fundamentals and sentiment are different this time around. In January and May the U.S. economy was running on the fumes of government stimulus while a new package has been established and has yet to even begin. Furthermore, The Fed has pretty much decided that their game plan is to no only infuse inflation into the Economy, but to hopefully enact the "Wealth Effect" by targeting a higher stock market as well. We have yet to see how tight The Fed policy will be for the market, but I would rather pick my spots to buy rather than fight the Fed. While there is the possibility that there could be another sharp break prior to Fed intervention, I am not trading on this philosophy for now and would rather be on the sidelines than exposed to the risk of Government intervention.
Buys to Watch: (No Buys, Just a Helpful Tip)
Keep Up Charts of Commodities in Euros- I get asked all the time how I keep track of the diverse markets. The answer is organization by sorting the markets into Sectors, eliminating the ones without a story, and establishing the leader and laggard of each Sector daily to minimize the focus. Since the beginning of the year I have had an entire sector (or row on my quote board) devoted strictly to individual Commodity markets versus the Euro. This means I have each Grain, Equity Index, Crude Oil, Metal, and Currency divided by the Euro to establish the ratio. Right now the Quantitative Easing trade is generally holding up the physical Commodities (other than last evening), making it appear that with the Euro out of the equation they would prefer to rally. While this relationship may shift and the Commodities may begin to sag on their own, this means that a long position may still be profitable. While the Euro is a story I think you need to at least take a look at the Commodity vs. Euro chart prior to execution to establish whether the Euro risk is something that should be hedged or reduced. I have found some great individual relationship trades strictly based on these charts that I would not have normally found as well. If you are shorting a market I see no reason to take the Euro into account, but prior to Longs see if a short Euro would add to the trade.
Sells to Watch:
Bonds- I am giving the Bonds another shot in the Sells despite the overnight spike rally. I believe this rally was based on "run to safety" buying in response to the Asian sell off, but a move that was clearly wrong so far. This rally continued up to my next resistance level from 129.22 - 129.27 prior to reversing and actually trading lower again this morning. With the market back below the 129.05 breakout I believe that you can enter a minimal short position again based off the resistance from 128.24 - 129.06. If this resistance is violated again then it is time to hold off and wait for a test of the Bearish daily chart trend from the high Oct. 12th - Nov. 5th to be re-tested. The longer term objective remains 123.00 on the reversal pattern.
Put on the Radar:
Sell Wheat- Overnight the Wheat market fell along with all of the other Grains. The Beans and Corn were both weaker though with the Wheat the strength though. Unless proved otherwise I am concluding that this move was a liquidation of positions based on Asian demand, so it would make absolute sense that Wheat was not the weakness as Corn and Beans have more interest and demand story for now. This means I am still looking at Wheat as the best short, and likely most consistent, among the Grains. After touching the top of the triangle overnight Wednesday evening the market has fallen back to the Oct 4th - Oct 22nd base trend at $6.88 today. Below this level the market has a rough projection of $6.00 for the Dec contract ($6.40 for March). The apex is nearing for the triangle, so I think that it is important that this breakout is established by Monday at the latest. Otherwise, I expect more of a sideways decline rather than liquidation with momentum.
S&P 500 & Nasdaq- In relation to some of the other markets the Equities actually held up rather well last evening. The spike lows for each market held critical support with 1192.50 for the S&P 500 and 2142 for the Nasdaq. I think that you can continue to look at the stock market as a buy above these levels, with a move below likely producing a correction that could last several weeks.
Notes:
Canadian Dollar vs Australian Dollar (Canadian/Aussie to chart)- The Bearish trendline for the chart since early June has been violated over the last 3 days. Since the flash crash and market plummet in May the supportive markets established at least a base in early June with many of the physical Commodity markets actually rallying with strength since this date (Metals, Grains). It is no coincidence that this Currency relationship has followed the same move and the violation of this trend is a warning signal for the Commodity rally. The Aussie tends to have more volatility than the Canuck and moves directionally more during times of weakness or strength. I think it is wise to hold off for now, but long Canadian vs. Short Aussie could be a good longer term Currency trade on the horizon.
Crude Oil- There was some large liquidation in the Crude Oil market last night that took out my $86.45 stop loss level for the long position. During times when people "just want to get out" the volume based support and resistance levels are rendered basically useless, as is the case over the last 14 hours. I think Crude is way to unpredictable right now to hold a position in either direction. The trend continues to look constructive, but Bullish momentum has flagged and outright price has not rallied as much as I would expect in relation to the gains in open interest. The longer term target for Crude near $95 is still in play, but the indecision, volatility, and subdued momentum make Crude an undesirable long for right now.
Thursday, November 11, 2010
Thursday 11/11/10 Commodity Ideas
Opening Note:
Yesterday
The market set a weaker tone early and through the first hour after the stock market open led by a rally in the Dollar. From 8:45 - 10 am the Euro faced a strong test of the critical 1.37 level near the bottom of its month long range. The Euro eventually proved true though as its recovery over the rest of the day encouraged rallies in the Equities, Energies, and for at least a while in the Metals. The day after the November Grain Report there was a continued slide in both Wheat and Corn prices.
Today
The Euro is again testing its critical 1.37 level this morning, giving back all of yesterday's recovery overnight. While my confidence was fairly high yesterday that the Euro would find support, I am less confident this morning even though the test has been slow. The Commodity and Equity markets have performed reasonably well despite a sharp Euro sell off over the last week. However, if the flood gates open below 1.37 then I expect the supportive markets to also be pulled along. The Metals are the clear strength as of 6:30 am, but as many of the individual markets are in a volatile parabolic phase this could just as easily change as hold true for the rest of the day. The Energies are definitely the strength sector other than the Metals as Crude Oil continues to crawl to new highs while correlated markets have failed.
Below 1.37 in the Euro I expect a continued correction to 1.32 - 1.33. It is highly possible that momentum on the break would stay at a similar fast pace. Because I am looking at this as a critical point for the entire market I think it is wise to dial it back for today until the Euro gives a clear definition on its direction over the next week. If the Euro does fail I suspect that the Metals might lead a liquidation sell off, but if it holds true then I still like Crude Oil the best and most consistent. I believe the path of least resistance will be to follow the Euro in the other supportive markets, so I recommend going with rather than fighting.
I want to send a special thank you and a Happy Veterans Day to all the Veterans and Active Servicemen. Bond markets are closed for the holiday, so expect slower trade in the treasury markets. No pertinent Economic Data until Monday, so look for the battle of the European Debt versus Quantitative Easing to take the focus of the market for the next two days.
Buys to Watch:
Crude Oil- A surprising Bullish draw in Crude supplies for the EIA number yesterday sparked a midday rally in Crude. The December contract finally rallied and settled above the pesky $87.50 resistance that had stalled the market for 3 1/2 days. The intermediate profit target is still the psychological $90 level, with the long term target still from $94.95 - $96.55. Now that Crude has rallied above its smaller consolidation I am moving up the stop loss on the Long position to just below $86.45, meaning a move below this level would prompt me to exit and re-evaluate. I would view the December contract holding above $87.70 as a good signal for faster continuation. If it does not though there is a lower volume zone from $87.10 - $87.64 to buy against the support below this level to the $86.45 stop level.
Sells to Watch:
Bonds (but with some concerns)- Yesterday's close (although rather weak) confirmed the breakout below 129.05 on the Bearish reversal pattern. I realize I made an error in yesterday's letter on the Bond market Auction schedule as the auction actually took place yesterday at noon. A sharp sell off immediately followed the auction, but quickly rebounded to settle back near the highs for the session near the breakout level (a bit concerning). Today there is higher volume resistance from 128.24 - 129.06 as an area to enter a short position against with a stop loss just above this range. I recommend beginning with minimal size for entry today as a feeler with the idea of adding to the position once it establishes better Bearish momentum on pullbacks. I think it is smart to keep a tight stop on current entry because above 129.06 the next resistance zone is from 129.22 - 129.27 and above that the next is 130.16 - 130.28. If the market decides to rally above 129.06 then there will be ample opportunity to get into the market at a better price, so no reason to throw the boat at the market for now. The reversal objective for the market is 123.00.
Put on the Radar:
Buy S&P 500 & Nasdaq- First I wanted to point out the daily chart for the Nasdaq/S&P 500 ratio. The Quantitative Easing trade really began early September and the Bullish trendline for the ratio from Sept 1st - Oct. 6th is being tested currently. The Euro's test of 1.37 will likely play an integral part in whether this trend holds or fails, but a weakening of the Nasdaq in relation to the S&P 500 is a Bearish signal for the stock market. If you are trading Equities I think it is smart to keep a close eye on the Euro for the next few days.
While the Euro is testing this morning the Equities have acutally descended near or into decent zones for long entry. In the S&P 500 there is a lower volume zone from 1198.50 - 1202 with support below to 1192.50 for stop placement below. The market briefly dipped into this zone and found immediate support yesterday. For the Nasdaq there is a low volume zone from 2153 - 2159.50 with higher volume support below to 2148 for stop placement below. I think it is critical that both markets hold the 1192.50 and 2148 support levels respectively to continue holding a long position in either Index. If either fails then I expect a larger correction in the stock market over the next several weeks. Although the Nasdaq is the weaker of the two markets over the last week I believe that it is the better buy at these levels, as if the ratio trend holds and stocks rally then the Nasdaq should be the better performer.
Sell Wheat- The December Wheat contract has now traded back into the triangle range that I originally was using as a Bullish pattern breakout. The trendline from the high October 11th - November 1st sits at $7.21 3/4 today and provided resistance for the high on the overnight session. With the Bearish reaction in both Corn and Wheat following the Tuesday report I expect further pressure in both markets with Wheat the weaker of the two. I believe you can look to fade rallies against this trend for the time being.
The bigger move on the horizon though is a Bearish breakout from this same triangle pattern after shaking the tree with a Bullish move prior to the report. The base trendline is drawn from the low October 4th - October 22nd providing a value of $6.86 1/2. A Bearish breakout would produce a target near $6.00 for the December contract. I think that the RSI for the daily chart may also give an early indication whether the Wheat market will initiate this Bearish move. By drawing a Bullish trendline on the RSI from the same low October 4th you can see that the trend almost has a confirmed violation well before the Wheat prices reflect this violation. If RSI provides confirmation then I think you can begin piecing into a short position in anticipation of the longer term move.
Notes:
Yesterday
The market set a weaker tone early and through the first hour after the stock market open led by a rally in the Dollar. From 8:45 - 10 am the Euro faced a strong test of the critical 1.37 level near the bottom of its month long range. The Euro eventually proved true though as its recovery over the rest of the day encouraged rallies in the Equities, Energies, and for at least a while in the Metals. The day after the November Grain Report there was a continued slide in both Wheat and Corn prices.
Today
The Euro is again testing its critical 1.37 level this morning, giving back all of yesterday's recovery overnight. While my confidence was fairly high yesterday that the Euro would find support, I am less confident this morning even though the test has been slow. The Commodity and Equity markets have performed reasonably well despite a sharp Euro sell off over the last week. However, if the flood gates open below 1.37 then I expect the supportive markets to also be pulled along. The Metals are the clear strength as of 6:30 am, but as many of the individual markets are in a volatile parabolic phase this could just as easily change as hold true for the rest of the day. The Energies are definitely the strength sector other than the Metals as Crude Oil continues to crawl to new highs while correlated markets have failed.
Below 1.37 in the Euro I expect a continued correction to 1.32 - 1.33. It is highly possible that momentum on the break would stay at a similar fast pace. Because I am looking at this as a critical point for the entire market I think it is wise to dial it back for today until the Euro gives a clear definition on its direction over the next week. If the Euro does fail I suspect that the Metals might lead a liquidation sell off, but if it holds true then I still like Crude Oil the best and most consistent. I believe the path of least resistance will be to follow the Euro in the other supportive markets, so I recommend going with rather than fighting.
I want to send a special thank you and a Happy Veterans Day to all the Veterans and Active Servicemen. Bond markets are closed for the holiday, so expect slower trade in the treasury markets. No pertinent Economic Data until Monday, so look for the battle of the European Debt versus Quantitative Easing to take the focus of the market for the next two days.
Buys to Watch:
Crude Oil- A surprising Bullish draw in Crude supplies for the EIA number yesterday sparked a midday rally in Crude. The December contract finally rallied and settled above the pesky $87.50 resistance that had stalled the market for 3 1/2 days. The intermediate profit target is still the psychological $90 level, with the long term target still from $94.95 - $96.55. Now that Crude has rallied above its smaller consolidation I am moving up the stop loss on the Long position to just below $86.45, meaning a move below this level would prompt me to exit and re-evaluate. I would view the December contract holding above $87.70 as a good signal for faster continuation. If it does not though there is a lower volume zone from $87.10 - $87.64 to buy against the support below this level to the $86.45 stop level.
Sells to Watch:
Bonds (but with some concerns)- Yesterday's close (although rather weak) confirmed the breakout below 129.05 on the Bearish reversal pattern. I realize I made an error in yesterday's letter on the Bond market Auction schedule as the auction actually took place yesterday at noon. A sharp sell off immediately followed the auction, but quickly rebounded to settle back near the highs for the session near the breakout level (a bit concerning). Today there is higher volume resistance from 128.24 - 129.06 as an area to enter a short position against with a stop loss just above this range. I recommend beginning with minimal size for entry today as a feeler with the idea of adding to the position once it establishes better Bearish momentum on pullbacks. I think it is smart to keep a tight stop on current entry because above 129.06 the next resistance zone is from 129.22 - 129.27 and above that the next is 130.16 - 130.28. If the market decides to rally above 129.06 then there will be ample opportunity to get into the market at a better price, so no reason to throw the boat at the market for now. The reversal objective for the market is 123.00.
Put on the Radar:
Buy S&P 500 & Nasdaq- First I wanted to point out the daily chart for the Nasdaq/S&P 500 ratio. The Quantitative Easing trade really began early September and the Bullish trendline for the ratio from Sept 1st - Oct. 6th is being tested currently. The Euro's test of 1.37 will likely play an integral part in whether this trend holds or fails, but a weakening of the Nasdaq in relation to the S&P 500 is a Bearish signal for the stock market. If you are trading Equities I think it is smart to keep a close eye on the Euro for the next few days.
While the Euro is testing this morning the Equities have acutally descended near or into decent zones for long entry. In the S&P 500 there is a lower volume zone from 1198.50 - 1202 with support below to 1192.50 for stop placement below. The market briefly dipped into this zone and found immediate support yesterday. For the Nasdaq there is a low volume zone from 2153 - 2159.50 with higher volume support below to 2148 for stop placement below. I think it is critical that both markets hold the 1192.50 and 2148 support levels respectively to continue holding a long position in either Index. If either fails then I expect a larger correction in the stock market over the next several weeks. Although the Nasdaq is the weaker of the two markets over the last week I believe that it is the better buy at these levels, as if the ratio trend holds and stocks rally then the Nasdaq should be the better performer.
Sell Wheat- The December Wheat contract has now traded back into the triangle range that I originally was using as a Bullish pattern breakout. The trendline from the high October 11th - November 1st sits at $7.21 3/4 today and provided resistance for the high on the overnight session. With the Bearish reaction in both Corn and Wheat following the Tuesday report I expect further pressure in both markets with Wheat the weaker of the two. I believe you can look to fade rallies against this trend for the time being.
The bigger move on the horizon though is a Bearish breakout from this same triangle pattern after shaking the tree with a Bullish move prior to the report. The base trendline is drawn from the low October 4th - October 22nd providing a value of $6.86 1/2. A Bearish breakout would produce a target near $6.00 for the December contract. I think that the RSI for the daily chart may also give an early indication whether the Wheat market will initiate this Bearish move. By drawing a Bullish trendline on the RSI from the same low October 4th you can see that the trend almost has a confirmed violation well before the Wheat prices reflect this violation. If RSI provides confirmation then I think you can begin piecing into a short position in anticipation of the longer term move.
Notes:
Wednesday, November 10, 2010
Wednesday 11/10/10 Commodity Ideas
Opening Note:
Yesterday
Early stability in the markets held throughout the first half of the day, but an afternoon sell off followed among the supportive markets. The battle over the last 3 days has been a strengthening Dollar versus Commodity and Equity markets that still want to trend higher. The Dollar began a trending rally from 6:30 am that continued throughout the rest of the day and finally toppled the supportive markets around noon. Crude Oil broke $1.75 and the S&P 500 fell 13 points from noon until the close, but none of this compares to what happened in the Metals. The Metals settlement is established at 12:30 pm (CT) each day and is usually followed by dried up volume and volatility. From 12 pm until the 3 pm stock market close though Gold fell $42 from its highs and Silver an astounding $2.93, or exactly a 10% break top to bottom (in less than 3 hours!!!). The supportive markets have held up relatively well throughout the 3 day Dollar rally and I believe this afternoon break was clogged up momentum between the Dollar and Commodity market relationships that was overdue for a correction.
While the Grain Report yesterday morning was constructive for Soybeans, Corn and Wheat, it was only Soybeans that benefited. All three markets opened significantly higher than the previous day's and the 7:15 am close. My opinion going in was that we would see continued support in all 3 markets, but this was quickly dismantled on the open. Both Corn and Wheat plummeted within the first 5 minutes to establish a trend that would continue throughout the day to lower settlements for each market. Beans on the other hand made an impressive close 55 cents higher. Unwinding of Long Corn versus Short Bean and Short Wheat positions contributed to the movement, but the overall fundamental feeling is that the demand over the next several months will be stronger in Beans with much of the story already priced into both Wheat and Corn. More analysis to come in the Notes section.
Today
The supportive markets are relatively unchanged this morning with a "calm after the storm" vibe. The settlements in the Metals are deceiving today because they are taken from 12:30 pm rather than 2 or 3 like the rest of the markets. I guarantee you will hear on CNBC today that the "Metals plummet continues again today" (or something of that sort). In actuality though, the Metals might be the strongest Sector along with Energies since 3 pm yesterday and have managed gains rather than losses since that time.
I give better details below, but right now I believe the Euro (and therefore the Dollar) is the key market that will determine what happens over the next week. If the Euro confirms a move below 1.37 then there will likely be another 4 points on the correction with Commodity and Equity prices dragged along with it. However, if the Euro maintains at least a range above 1.37, as it has so far, then the Energies, Equities, and even the Metals look like they have corrected into areas that could support rallies over the short term.
For right now I am going to focus more on a 1 - 2 weeks out approach rather than over the next month or several. Each time that the market provides what appear to be clear and consistent signals we seem to run into either extended consolidation with 2 sided volatility, or a sharp reversal. My general opinion still is constructive markets over at least the next month, but for now I think this idea needs to be taken under a microscope to stay profitable, in the market, and most importantly sane.
Buys to Watch:
Crude Oil- Each time I suggest an entry level in Crude it seems to get run over within the next 24 hours. So, I am going to generalize and say that while the December contract hangs above $84.50 I view Crude as a buy and one of the best markets to hold a long position in. $87.50 has acted as resistance for the last four sessions to stall the market as it has consolidated. The technicals on the daily chart though all still remain in a positive mode and constructive. Yesterday's sharp break may be what the market needed to push out some of the longs and re-invigorate the rally. Intermediate target is still $90 psychological resistance with the longer term objective range from $94.95 - $96.55.
Sells to Watch:
Bonds (Wait until tomorrow for safety)- Yesterday the Bonds established a settlement below the 129.05 reversal breakout level. While the market is seeking a confirmation close today I recommend waiting until tomorrow or at least this evening before looking for entry. All technical indicators are in a negative mode, but there also is very little in the way of resistance for short entry against. Above 129.05, which was the high overnight, there really is not good volume resistance until 129.22 - 129.27. Hopefully today's trade produces some better entry parameters for later. This Bearish breakout also works well cyclically as the last 30 year auction was November 3rd with the next not until December 2nd. After the auctions the Bonds have typically declined for at least 2 weeks, so there is at least another 1 - 2 weeks of fundamental decline ahead. The reversal objective for the Bonds is 123.00 on the dot.
Put on the Radar:
Metals...What to Really Watch...Near a Top- If you are trading Gold, Silver, or any Metal for that matter you need to keep up with the Gold - Silver differential (Gold - Silver/2) and the Gold / Silver ratio (Gold/Silver). In yesterday's notes section I detailed my objectives for these weekly charts saying that these are the charts that will tell when the Metal trade tops, likely within the month and possibly within the week. The outrageous Silver rally in comparison to the smaller Gold rally early yesterday actually moved the Gold - Silver differential to my -$36 objective for the spread (way before I was expecting it to reach). At this point I luckily bought the Gold and Sold the Silver with strong support down to -$50 and what followed was a $100 rally in the spread over the next 3 hours on the $3 Silver break (literally equivalent to a $100 Gold move in 3 hours). I believe that while this was a fast reversal spike we will likely see a bottom form on the trade, which is why I am out and looking for re-entry later. This differential level clearly is "REAL" support on the weekly chart and will probably show when the Metal markets are topping rather than using the flexible technicals or market fundamentals. My guess is that this occurs within the next 2 weeks and that we will not see Silver hang above $30 for long if at all or Gold reach $1500 before there is a large correction. For now I am not suggesting the Metals as a short position, but I would hold off on new long entry for the time being as a reversal looks near based on the relationships.
Currencies (Euro & Yen)- Overnight the Euro tested the 1.37 level that has acted as a bottom on the trading range over the last month. Although the decline in the market has been sharp over the last 3 days I am looking for this level to hold for the time being. Below 1.37 a further correction between 1.32 - 1.33 is in order, which would likely mean further pressure on the supportive markets and a larger correction across the broad market. The Japanese Yen has broken out on a Bearish reversal from its own consolidation range over the same time frame this morning. Below 122.02 the market has a small reversal projection to roughly 119.62 (not a strong pattern). Looking at the Euro/Yen chart it looks like it has room to rally in the range, so it is still possible that the Yen produces this pullback while the Euro holds 1.37.
Notes:
Australian Dollar- With yesterday's set back and today's inability to recover the Aussie is off the Radar and the Buys sections. The Aussie nearly reached its pattern objective of 1.0204 - 1.0237, but proved difficult for entry and position maintenance. I think there are better markets and trades for now.
Grains- Beans up 55 cents, Corn down 8 cents, and Wheat down 14 cents paints the picture from yesterday pretty well. The Bean report was the most supportive and a bigger surprise than the others, but much of this move was relationship based and not on poor Corn or Wheat fundamentals. All of the Grains should be viewed as long term Bullish, but for the next couple months the Corn and Wheat look like the news is priced in the market without strong enough demand to be a Bullish catalyst for now. This means that I am removing my Buy suggestion on both Wheat and the July'11 - Dec'11 Corn Spread for the time being. The Soybean complex will have the best demand story in the coming months and should continue to gain in relation to Corn and Wheat. However, the charts technically have reached most of the objectives with further gains looking difficult and slow in the outright markets for now. The July'11 - Nov'11 Bean spread was a big winner yesterday up 21 cents and settling near 98 cents. This will be a spread to revisit in a couple months, but my 3rd leg objective for the spread is from $1.05 - $1.10. This makes current entry undesirable with heavy resistance at $1.00 and on a risk/reward basis for the trade.
Yesterday
Early stability in the markets held throughout the first half of the day, but an afternoon sell off followed among the supportive markets. The battle over the last 3 days has been a strengthening Dollar versus Commodity and Equity markets that still want to trend higher. The Dollar began a trending rally from 6:30 am that continued throughout the rest of the day and finally toppled the supportive markets around noon. Crude Oil broke $1.75 and the S&P 500 fell 13 points from noon until the close, but none of this compares to what happened in the Metals. The Metals settlement is established at 12:30 pm (CT) each day and is usually followed by dried up volume and volatility. From 12 pm until the 3 pm stock market close though Gold fell $42 from its highs and Silver an astounding $2.93, or exactly a 10% break top to bottom (in less than 3 hours!!!). The supportive markets have held up relatively well throughout the 3 day Dollar rally and I believe this afternoon break was clogged up momentum between the Dollar and Commodity market relationships that was overdue for a correction.
While the Grain Report yesterday morning was constructive for Soybeans, Corn and Wheat, it was only Soybeans that benefited. All three markets opened significantly higher than the previous day's and the 7:15 am close. My opinion going in was that we would see continued support in all 3 markets, but this was quickly dismantled on the open. Both Corn and Wheat plummeted within the first 5 minutes to establish a trend that would continue throughout the day to lower settlements for each market. Beans on the other hand made an impressive close 55 cents higher. Unwinding of Long Corn versus Short Bean and Short Wheat positions contributed to the movement, but the overall fundamental feeling is that the demand over the next several months will be stronger in Beans with much of the story already priced into both Wheat and Corn. More analysis to come in the Notes section.
Today
The supportive markets are relatively unchanged this morning with a "calm after the storm" vibe. The settlements in the Metals are deceiving today because they are taken from 12:30 pm rather than 2 or 3 like the rest of the markets. I guarantee you will hear on CNBC today that the "Metals plummet continues again today" (or something of that sort). In actuality though, the Metals might be the strongest Sector along with Energies since 3 pm yesterday and have managed gains rather than losses since that time.
I give better details below, but right now I believe the Euro (and therefore the Dollar) is the key market that will determine what happens over the next week. If the Euro confirms a move below 1.37 then there will likely be another 4 points on the correction with Commodity and Equity prices dragged along with it. However, if the Euro maintains at least a range above 1.37, as it has so far, then the Energies, Equities, and even the Metals look like they have corrected into areas that could support rallies over the short term.
For right now I am going to focus more on a 1 - 2 weeks out approach rather than over the next month or several. Each time that the market provides what appear to be clear and consistent signals we seem to run into either extended consolidation with 2 sided volatility, or a sharp reversal. My general opinion still is constructive markets over at least the next month, but for now I think this idea needs to be taken under a microscope to stay profitable, in the market, and most importantly sane.
Buys to Watch:
Crude Oil- Each time I suggest an entry level in Crude it seems to get run over within the next 24 hours. So, I am going to generalize and say that while the December contract hangs above $84.50 I view Crude as a buy and one of the best markets to hold a long position in. $87.50 has acted as resistance for the last four sessions to stall the market as it has consolidated. The technicals on the daily chart though all still remain in a positive mode and constructive. Yesterday's sharp break may be what the market needed to push out some of the longs and re-invigorate the rally. Intermediate target is still $90 psychological resistance with the longer term objective range from $94.95 - $96.55.
Sells to Watch:
Bonds (Wait until tomorrow for safety)- Yesterday the Bonds established a settlement below the 129.05 reversal breakout level. While the market is seeking a confirmation close today I recommend waiting until tomorrow or at least this evening before looking for entry. All technical indicators are in a negative mode, but there also is very little in the way of resistance for short entry against. Above 129.05, which was the high overnight, there really is not good volume resistance until 129.22 - 129.27. Hopefully today's trade produces some better entry parameters for later. This Bearish breakout also works well cyclically as the last 30 year auction was November 3rd with the next not until December 2nd. After the auctions the Bonds have typically declined for at least 2 weeks, so there is at least another 1 - 2 weeks of fundamental decline ahead. The reversal objective for the Bonds is 123.00 on the dot.
Put on the Radar:
Metals...What to Really Watch...Near a Top- If you are trading Gold, Silver, or any Metal for that matter you need to keep up with the Gold - Silver differential (Gold - Silver/2) and the Gold / Silver ratio (Gold/Silver). In yesterday's notes section I detailed my objectives for these weekly charts saying that these are the charts that will tell when the Metal trade tops, likely within the month and possibly within the week. The outrageous Silver rally in comparison to the smaller Gold rally early yesterday actually moved the Gold - Silver differential to my -$36 objective for the spread (way before I was expecting it to reach). At this point I luckily bought the Gold and Sold the Silver with strong support down to -$50 and what followed was a $100 rally in the spread over the next 3 hours on the $3 Silver break (literally equivalent to a $100 Gold move in 3 hours). I believe that while this was a fast reversal spike we will likely see a bottom form on the trade, which is why I am out and looking for re-entry later. This differential level clearly is "REAL" support on the weekly chart and will probably show when the Metal markets are topping rather than using the flexible technicals or market fundamentals. My guess is that this occurs within the next 2 weeks and that we will not see Silver hang above $30 for long if at all or Gold reach $1500 before there is a large correction. For now I am not suggesting the Metals as a short position, but I would hold off on new long entry for the time being as a reversal looks near based on the relationships.
Currencies (Euro & Yen)- Overnight the Euro tested the 1.37 level that has acted as a bottom on the trading range over the last month. Although the decline in the market has been sharp over the last 3 days I am looking for this level to hold for the time being. Below 1.37 a further correction between 1.32 - 1.33 is in order, which would likely mean further pressure on the supportive markets and a larger correction across the broad market. The Japanese Yen has broken out on a Bearish reversal from its own consolidation range over the same time frame this morning. Below 122.02 the market has a small reversal projection to roughly 119.62 (not a strong pattern). Looking at the Euro/Yen chart it looks like it has room to rally in the range, so it is still possible that the Yen produces this pullback while the Euro holds 1.37.
Notes:
Australian Dollar- With yesterday's set back and today's inability to recover the Aussie is off the Radar and the Buys sections. The Aussie nearly reached its pattern objective of 1.0204 - 1.0237, but proved difficult for entry and position maintenance. I think there are better markets and trades for now.
Grains- Beans up 55 cents, Corn down 8 cents, and Wheat down 14 cents paints the picture from yesterday pretty well. The Bean report was the most supportive and a bigger surprise than the others, but much of this move was relationship based and not on poor Corn or Wheat fundamentals. All of the Grains should be viewed as long term Bullish, but for the next couple months the Corn and Wheat look like the news is priced in the market without strong enough demand to be a Bullish catalyst for now. This means that I am removing my Buy suggestion on both Wheat and the July'11 - Dec'11 Corn Spread for the time being. The Soybean complex will have the best demand story in the coming months and should continue to gain in relation to Corn and Wheat. However, the charts technically have reached most of the objectives with further gains looking difficult and slow in the outright markets for now. The July'11 - Nov'11 Bean spread was a big winner yesterday up 21 cents and settling near 98 cents. This will be a spread to revisit in a couple months, but my 3rd leg objective for the spread is from $1.05 - $1.10. This makes current entry undesirable with heavy resistance at $1.00 and on a risk/reward basis for the trade.
Tuesday, November 9, 2010
Tuesday 11/9/10 Commodity Ideas
Opening Note:
Yesterday
Concerns over European PIIGS countries default has taken over the spotlight again the last couple sessions. The Euro settled over a full point lower for the second consecutive day leading the Dollar higher and changing the market landscape across the board. With the Euro the stand out laggard market it was not difficult to outperform, but taking into account the Euro sell off the market was actually impressively firm. The other foreign Currencies, Equities, and Energies all ended the day only slightly lower to unchanged, defying the strong inverse correlation between the U.S. Dollar and the supportive markets. The Metals were off in their own universe yet again as Silver settled over 60 cents higher and Gold above $1400 as the entire sector posted impressive gains. Lastly, Wheat led the Grain sector as the market confirmed it's Bullish technical breakout with an impressive close prior to today's report.
Today
Every supportive market is higher this morning as of 7:15 am, but in most cases only slightly. The Euro is again the laggard of the Currencies and possibly the entire market. The Euro consistently seems to find pressure on nearly every rally attempt. The inablility of the Euro to rally has seeped over into the Equity and Energy markets to produce only small gains thus far in markets that, all outside markets neutral, still look like they want to continue higher. The Metals are near Jupiter again. Much is made about Gold, but Silver, Copper, and Palladium are off to the races. Silver is trading over $28 this morning, and if you recall, was trading below $24 for a brief period just Wednesday of last week. Finally, the Grain markets found support overnight on a steady climb higher into this morning's report. The trade definitely is anticipating supportive data as each market and the spreads has made the rally.
Grain Report: The Grain Report is out and I would call it moderately Bullish at least for Corn, Soybeans, and Wheat. Both the Corn and Bean production and yield numbers fell slightly below the average estimate, but still within the range (Bullish). The Soybeans actually are the slightest bit more Bullish than the Corn overall. Ending Stocks for Corn, Beans, and Wheat all fell below the average trade guess, but again still within the range of estimates (Again Bullish). All of these ending stocks numbers imply tightness in the respective markets globally going forward with demand strong.
I expect the grains to get a big boost on the open this morning with Beans and Wheat leading the sector. The Wheat Call spread and the July '11 - Dec'11 Corn spread I suggested the last few days should both see gains throughout the day.
Buys to Watch:
Crude Oil- Although the indicators are nearly unanimously in overbought territory Crude Oil remains in a constructive mode across the board still. The long term range target of $94.95 - $96.55 is still in good standing with intermediate resistance around $90 as a potential rest stop to take profits and reassess. The Metals are the decided leading sector among the market over the last week, but Crude Oil and the Energies are definitely in second over this time period in spite of the Dollar rally. Today there is not a great specific level for new entry, but after finding support near $85.90 on consecutive days I expect higher volume support from $86.46 - $87.10 to hold. This is a good area intraday to enter a long position against with a stop below. Crude Oil has traded in a range over the last 48 hours with $87.40 - $87.50 continuously posing resistance. After this consolidation I expect Crude to finally rally above this range by this afternoon's close.
July'11 - Dec'11 Corn Spread- With confirmed support near 50 cents and the Bullish report this morning the spread now has the base and catalyst to rally. Now that the Dec'10 - Dec'11 Deutsche Bank Corn roll is officially over there will be less resistance on the spread and should unleash some coiling Bullish momentum. I do not have a reasonable guess right now where the spread will open this morning, so providing entry parameters is difficult. I do think that if you buy the open though you will come out a winner by the end of the day. The 3rd leg objective for the spread is $1.10. For today it may also be a better idea to look at buying the Dec'10 - Dec'11 spread. The Dec'10 - July'11 portion of the spread will likely also come in as Bear spreaders doing the roll will likely puke this morning to add a few cents to the position.
Wheat (All of the Grains)- All of the Grains are probably a buy on the open this morning, but technically over the next couple weeks I still like the Wheat chart the most. Yesterday's close above $7.24 confirmed the Bullish triangle pattern and market objective of $8.20. I believe $8.20 is a minimum on the move for the time being. This objective is based just on the smaller portion of the wedge/triangle pattern over the last few weeks and does not take into account the consolidation over the previous month. $8.60 is a reasonable possibility based on this longer term pattern. Buy the open.
Sells to Watch:
Put on the Radar:
Euro- The Euro looks like it could be a chop job over the next couple weeks as Quantitative Easing and European Default Risk battles it out fundamentally. The technicals and volume support/resistance levels have basically been ignored this for the last few days, so I consider the Euro neither a buy nor a sell until there is more clarity. The Euro settled below the Oct. 15th - Oct. 25th triangle pattern breakout trendline yesterday, but looks to have recovered above today's 1.3918 level. Keep an eye on today's settlement, but I recommend staying out of the Euro and focusing elsewhere for today.
Australian Dollar- The Bullish cup and handle pattern has an objective range of 1.0204 - 1.0237 still for the short term move. Yet again today there is not a good setup for new long entry. As the Aussie is now nearing this objective, advising new entry is awfully difficult as well. This is one of those trades where you are right on the move, but can not get in or hold it. Hopefully better luck next time.
Notes:
When Will the Metal Rally End?- Screw the fundamentals. Screw the technicals for the individual charts. Screw the long term Bull Market. I am keeping my eye on 3 charts right now that should provide an accurate picture of when the 3 month rally is ending.
Number one is the Gold- Silver differential weekly chart (Gold - Silver/2 to chart). On August 16th the differential was up near $325 premium the Gold, but as of today has moved all the way to a slight premium Silver. The weekly chart has a large double top that was set off on this fast Silver rally that has a projection of roughly -$36 (meaning premium Silver) for the pattern. As the spread has already moved $325 another $36 is not that big of a move left with a large amount of old support falling from -$50 to $0 to further support this final objective.
Number two is Gold/Silver, again as a weekly chart. A couple months ago the chart set off a continuation triangle pattern in favor of Silver that has supported the move over the last few months. I am again looking for old support from 45 - 50 providing support with the pattern objective of roughly 47.5 adding to the case.
Number three is Gold/Euro. Looking at a daily chart over the last year you can see that the spread bounced off of the longer term trendline for the last year once again. If this trendline is violated then I expect liquidation out of this long term position that has been touted by the likes of Gartman since the beginning of the year.
All of this considered I think that the Metals only have until the end of the month at most (if not only another week). I am looking at $30 in Silver as an area to watch the price action around as this could be the psychological resistance that reverses the rally. For now I am still Bullish for Gold, Silver, and the rest of the Metals technically, fundamentally, and market relationship-based. However, once some of these indicator charts reach there objectives I think it is time to look at the Metals with a bit more skepticism.
Yesterday
Concerns over European PIIGS countries default has taken over the spotlight again the last couple sessions. The Euro settled over a full point lower for the second consecutive day leading the Dollar higher and changing the market landscape across the board. With the Euro the stand out laggard market it was not difficult to outperform, but taking into account the Euro sell off the market was actually impressively firm. The other foreign Currencies, Equities, and Energies all ended the day only slightly lower to unchanged, defying the strong inverse correlation between the U.S. Dollar and the supportive markets. The Metals were off in their own universe yet again as Silver settled over 60 cents higher and Gold above $1400 as the entire sector posted impressive gains. Lastly, Wheat led the Grain sector as the market confirmed it's Bullish technical breakout with an impressive close prior to today's report.
Today
Every supportive market is higher this morning as of 7:15 am, but in most cases only slightly. The Euro is again the laggard of the Currencies and possibly the entire market. The Euro consistently seems to find pressure on nearly every rally attempt. The inablility of the Euro to rally has seeped over into the Equity and Energy markets to produce only small gains thus far in markets that, all outside markets neutral, still look like they want to continue higher. The Metals are near Jupiter again. Much is made about Gold, but Silver, Copper, and Palladium are off to the races. Silver is trading over $28 this morning, and if you recall, was trading below $24 for a brief period just Wednesday of last week. Finally, the Grain markets found support overnight on a steady climb higher into this morning's report. The trade definitely is anticipating supportive data as each market and the spreads has made the rally.
Grain Report: The Grain Report is out and I would call it moderately Bullish at least for Corn, Soybeans, and Wheat. Both the Corn and Bean production and yield numbers fell slightly below the average estimate, but still within the range (Bullish). The Soybeans actually are the slightest bit more Bullish than the Corn overall. Ending Stocks for Corn, Beans, and Wheat all fell below the average trade guess, but again still within the range of estimates (Again Bullish). All of these ending stocks numbers imply tightness in the respective markets globally going forward with demand strong.
I expect the grains to get a big boost on the open this morning with Beans and Wheat leading the sector. The Wheat Call spread and the July '11 - Dec'11 Corn spread I suggested the last few days should both see gains throughout the day.
Buys to Watch:
Crude Oil- Although the indicators are nearly unanimously in overbought territory Crude Oil remains in a constructive mode across the board still. The long term range target of $94.95 - $96.55 is still in good standing with intermediate resistance around $90 as a potential rest stop to take profits and reassess. The Metals are the decided leading sector among the market over the last week, but Crude Oil and the Energies are definitely in second over this time period in spite of the Dollar rally. Today there is not a great specific level for new entry, but after finding support near $85.90 on consecutive days I expect higher volume support from $86.46 - $87.10 to hold. This is a good area intraday to enter a long position against with a stop below. Crude Oil has traded in a range over the last 48 hours with $87.40 - $87.50 continuously posing resistance. After this consolidation I expect Crude to finally rally above this range by this afternoon's close.
July'11 - Dec'11 Corn Spread- With confirmed support near 50 cents and the Bullish report this morning the spread now has the base and catalyst to rally. Now that the Dec'10 - Dec'11 Deutsche Bank Corn roll is officially over there will be less resistance on the spread and should unleash some coiling Bullish momentum. I do not have a reasonable guess right now where the spread will open this morning, so providing entry parameters is difficult. I do think that if you buy the open though you will come out a winner by the end of the day. The 3rd leg objective for the spread is $1.10. For today it may also be a better idea to look at buying the Dec'10 - Dec'11 spread. The Dec'10 - July'11 portion of the spread will likely also come in as Bear spreaders doing the roll will likely puke this morning to add a few cents to the position.
Wheat (All of the Grains)- All of the Grains are probably a buy on the open this morning, but technically over the next couple weeks I still like the Wheat chart the most. Yesterday's close above $7.24 confirmed the Bullish triangle pattern and market objective of $8.20. I believe $8.20 is a minimum on the move for the time being. This objective is based just on the smaller portion of the wedge/triangle pattern over the last few weeks and does not take into account the consolidation over the previous month. $8.60 is a reasonable possibility based on this longer term pattern. Buy the open.
Sells to Watch:
Put on the Radar:
Euro- The Euro looks like it could be a chop job over the next couple weeks as Quantitative Easing and European Default Risk battles it out fundamentally. The technicals and volume support/resistance levels have basically been ignored this for the last few days, so I consider the Euro neither a buy nor a sell until there is more clarity. The Euro settled below the Oct. 15th - Oct. 25th triangle pattern breakout trendline yesterday, but looks to have recovered above today's 1.3918 level. Keep an eye on today's settlement, but I recommend staying out of the Euro and focusing elsewhere for today.
Australian Dollar- The Bullish cup and handle pattern has an objective range of 1.0204 - 1.0237 still for the short term move. Yet again today there is not a good setup for new long entry. As the Aussie is now nearing this objective, advising new entry is awfully difficult as well. This is one of those trades where you are right on the move, but can not get in or hold it. Hopefully better luck next time.
Notes:
When Will the Metal Rally End?- Screw the fundamentals. Screw the technicals for the individual charts. Screw the long term Bull Market. I am keeping my eye on 3 charts right now that should provide an accurate picture of when the 3 month rally is ending.
Number one is the Gold- Silver differential weekly chart (Gold - Silver/2 to chart). On August 16th the differential was up near $325 premium the Gold, but as of today has moved all the way to a slight premium Silver. The weekly chart has a large double top that was set off on this fast Silver rally that has a projection of roughly -$36 (meaning premium Silver) for the pattern. As the spread has already moved $325 another $36 is not that big of a move left with a large amount of old support falling from -$50 to $0 to further support this final objective.
Number two is Gold/Silver, again as a weekly chart. A couple months ago the chart set off a continuation triangle pattern in favor of Silver that has supported the move over the last few months. I am again looking for old support from 45 - 50 providing support with the pattern objective of roughly 47.5 adding to the case.
Number three is Gold/Euro. Looking at a daily chart over the last year you can see that the spread bounced off of the longer term trendline for the last year once again. If this trendline is violated then I expect liquidation out of this long term position that has been touted by the likes of Gartman since the beginning of the year.
All of this considered I think that the Metals only have until the end of the month at most (if not only another week). I am looking at $30 in Silver as an area to watch the price action around as this could be the psychological resistance that reverses the rally. For now I am still Bullish for Gold, Silver, and the rest of the Metals technically, fundamentally, and market relationship-based. However, once some of these indicator charts reach there objectives I think it is time to look at the Metals with a bit more skepticism.
Monday, November 8, 2010
Monday 11/8/10 Commodity Ideas
Opening Note:
Yesterday
A nonchalant reaction to the positive Unemployment report Friday morning set the pace for what proceeded to be an odd yet interesting day for the markets. The Euro's reaction to the Unemployment number was clearly Bearish as the market established itself as the overall laggard early on. As the Euro makes up the largest portion of the Dollar Index this Euro move in turn encouraged a steep Dollar rally. While the consistent trend over the last couple months has been "Dollar down, Commodities up" on a daily basis, the relationship was at least temporarily stretched as the supportive markets did not experience much of a price break. The Metals rallied to settle much higher on the day, Crude Oil and the S&P 500 managed late rallies to settle in the black, and the Aussie and Canadian Dollars were the positive leaders among the Currencies. I believe that a positive Employment report and inflation prospects on the long term horizon was enough to overcome the Higher Dollar for the other markets Friday.
Today
Around 6 pm last evening the Euro took another sharp dive and has not recovered much as of 7 am this morning. This has caused most of the other supportive markets to also trade lower on the day. These other markets are definitely finding a stronger bid though and are not experiencing a decline in prices consistent with the magnitude of the Dollar rally this morning. Cotton is already trading limit up once again with Silver and Palladium the other early leaders.
The market has become so accustomed to the Dollar and Commodity relationship lately that on days the relationship does not fall in line you get a lot of "how can this be?" reactions. First off, taking into account what has happened overnight, it appears that the market is much more concerned about the default possibilities among the PIIGS countries. If this fundamental idea takes over the Euro trade then the Dollar Index will move higher despite Quantitative Easing actions as the Euro dominates the Index movement. Just because the Euro may get pummeled and the Dollar may rally though does not mean that we will necessarily see falling Commodity or Equity prices over the next few months. We are actually receiving some legitimately Bullish pieces of Economic Data that imply growth (even if it is minimal). More importantly, the investment community seems to determined to load up the accounts with risk assets based on the Fed's determination to continue the market's ascension and infuse inflation into the system. The Euro and the fundamental European debt story will have to be monitored closely, but for right now I am not taking weaker Euro and higher Dollar to consequentially mean weaker Equity or Commodity markets.
The Euro has fallen nearly 3 full points since Thursday's settlement, but I am standing strong in my belief that we will see weaker Dollar and stronger supportive markets over the next month. The Euro is testing key technical support this morning so there should be a clearer picture by tomorrow. If this support holds then I still see the technical ability for the Euro to recover on a rally at least to the intermediate objective of 1.445. This Euro weakness may actually provide good opportunities to get in on some of these other supportive markets as well at a discount today.
Note: Extremely light week for Economic Data, but Crop Production and Supply/Demand Reports for the Grain markets tomorrow at 7:30 am. Extreme volatility could follow so make sure you position accordingly.
Buys to Watch: (Euro and Australian Dollar moved to radar)
Crude Oil- The longer term objective for the December contract remains $94.95 - $96.55 with an eye on intermediate profit taking against resistance at $90. Price has wavered for Crude over the last 2 sessions, but consistent support has been found around $86.14. Two tests of this level have already held and are likely forming a temporary base for Crude to continue to new highs. However, if this level fails on a subsequent test over the next 24 hours then looking for long entry in the low volume zone between $85.14 - $85.60 with stop placement below higher volume support from $84.50 - $85.00 is a good entry setup. There is further higher volume support for Crude Oil from $84.50 down to $84, but with the market breakout at $84.45 I think a pullback below this level would be a signal to get out and re-evaluate.
Sells to Watch:
Put on the Radar:
Buy Euro- This morning the Euro is testing the upper trendline from the continuation triangle pattern that it initiated Tuesday of last week. The trend from the high October 15th - October 25th has a value of 1.3932 today. A settlement this afternoon below this level would negate the triangle pattern objective of 1.4456 as well as the 3rd leg objective of 1.51 for now. The Euro appears to at least have a temporary base forming since 5 am this morning with higher volume support from 1.3906 - 1.3868 holding off a further break in the market. Because the Euro is the key to the U.S. Dollar movement I think attention needs to be closely paid to these technical levels. If the Euro projects further losses then it is time to take a closer look at the rest of the supportive markets (like Crude) to see if their individual stories could continue to rally in spite of the Euro. The higher volume support previously mentioned could also be a good level to fade to test a small initial position on this large pullback, but I would recommend executing a long position in the technically stronger Pound or Franc markets based on Euro levels.
Buy Australian Dollar- As the Euro goes so goes the Australian Dollar for now. The Aussie is the 2nd weakest Currency this morning and without a good setup for new entry I recommend staying out of the market until we get more certainty. Short term objective range is still 1.0204 - 1.0237 on the Bullish cup and handle pattern.
Buy Wheat- On Friday the December Wheat contract settled above my Bullish triangle pattern breakout level. Drawn from the high Oct. 11th - Nov. 1st the trend had a value of $7.24 3/4 Friday and a value of $7.24 today. This pattern projects a move almost exactly to $8.20. With the Grain reports tomorrow morning though I believe that entering a long term position at this time is extra risky. I think it is wise to wait until after the report to look for entry if it is still applicable, or to look at the $8/$8.40 call spread as a less risky position to carry into the report.
Buy July'11-Dec'11 Corn Spread- Today is the last day of the Deutsche Bank Dec '10 - Dec'11 roll that has put pressure on the July - Dec spread over the last several weeks. I believe that the spread now has an established base around the 50 cent level, which will produce a 3rd leg rally objective of $1.10 for the next move in the spread. With the Grain reports tomorrow it is risky to hold a position, but this spread along with the Wheat call spread are the two positions with less risk that I would consider. It is unlikely that Corn receives an outlying Bullish surprise tomorrow, but it is conversely unlikely that the number will be very Bearish.
I want to still say that I like the spread a lot, but there are a couple points that have me concerned and are worth noting as the reasons it is still on the radar. Corn export demand continues to fall below expectations as China has focused on Beans for the time being. The spread takes advantage of short term demand and supply issues between the 2010 and 2011 crop, so unless exports pick up in the near term then it is unlikely that the spread has the juice to rally to $1.10. It also seems like July - Dec to at least $1.00 is a consensus rather than even just a majority. You can easily point out that the Nov'10 - Nov'11 Soybeans exploded higher after their own Deutsche Bank roll, but this was supported by the hugely Bullish October Corn number and overflow into the Bean market. I am not expecting as much volatility from tomorrow's report and could actually see a situation where the Corn market "sells the fact" on a Bullish report.
Notes:
Yesterday
A nonchalant reaction to the positive Unemployment report Friday morning set the pace for what proceeded to be an odd yet interesting day for the markets. The Euro's reaction to the Unemployment number was clearly Bearish as the market established itself as the overall laggard early on. As the Euro makes up the largest portion of the Dollar Index this Euro move in turn encouraged a steep Dollar rally. While the consistent trend over the last couple months has been "Dollar down, Commodities up" on a daily basis, the relationship was at least temporarily stretched as the supportive markets did not experience much of a price break. The Metals rallied to settle much higher on the day, Crude Oil and the S&P 500 managed late rallies to settle in the black, and the Aussie and Canadian Dollars were the positive leaders among the Currencies. I believe that a positive Employment report and inflation prospects on the long term horizon was enough to overcome the Higher Dollar for the other markets Friday.
Today
Around 6 pm last evening the Euro took another sharp dive and has not recovered much as of 7 am this morning. This has caused most of the other supportive markets to also trade lower on the day. These other markets are definitely finding a stronger bid though and are not experiencing a decline in prices consistent with the magnitude of the Dollar rally this morning. Cotton is already trading limit up once again with Silver and Palladium the other early leaders.
The market has become so accustomed to the Dollar and Commodity relationship lately that on days the relationship does not fall in line you get a lot of "how can this be?" reactions. First off, taking into account what has happened overnight, it appears that the market is much more concerned about the default possibilities among the PIIGS countries. If this fundamental idea takes over the Euro trade then the Dollar Index will move higher despite Quantitative Easing actions as the Euro dominates the Index movement. Just because the Euro may get pummeled and the Dollar may rally though does not mean that we will necessarily see falling Commodity or Equity prices over the next few months. We are actually receiving some legitimately Bullish pieces of Economic Data that imply growth (even if it is minimal). More importantly, the investment community seems to determined to load up the accounts with risk assets based on the Fed's determination to continue the market's ascension and infuse inflation into the system. The Euro and the fundamental European debt story will have to be monitored closely, but for right now I am not taking weaker Euro and higher Dollar to consequentially mean weaker Equity or Commodity markets.
The Euro has fallen nearly 3 full points since Thursday's settlement, but I am standing strong in my belief that we will see weaker Dollar and stronger supportive markets over the next month. The Euro is testing key technical support this morning so there should be a clearer picture by tomorrow. If this support holds then I still see the technical ability for the Euro to recover on a rally at least to the intermediate objective of 1.445. This Euro weakness may actually provide good opportunities to get in on some of these other supportive markets as well at a discount today.
Note: Extremely light week for Economic Data, but Crop Production and Supply/Demand Reports for the Grain markets tomorrow at 7:30 am. Extreme volatility could follow so make sure you position accordingly.
Buys to Watch: (Euro and Australian Dollar moved to radar)
Crude Oil- The longer term objective for the December contract remains $94.95 - $96.55 with an eye on intermediate profit taking against resistance at $90. Price has wavered for Crude over the last 2 sessions, but consistent support has been found around $86.14. Two tests of this level have already held and are likely forming a temporary base for Crude to continue to new highs. However, if this level fails on a subsequent test over the next 24 hours then looking for long entry in the low volume zone between $85.14 - $85.60 with stop placement below higher volume support from $84.50 - $85.00 is a good entry setup. There is further higher volume support for Crude Oil from $84.50 down to $84, but with the market breakout at $84.45 I think a pullback below this level would be a signal to get out and re-evaluate.
Sells to Watch:
Put on the Radar:
Buy Euro- This morning the Euro is testing the upper trendline from the continuation triangle pattern that it initiated Tuesday of last week. The trend from the high October 15th - October 25th has a value of 1.3932 today. A settlement this afternoon below this level would negate the triangle pattern objective of 1.4456 as well as the 3rd leg objective of 1.51 for now. The Euro appears to at least have a temporary base forming since 5 am this morning with higher volume support from 1.3906 - 1.3868 holding off a further break in the market. Because the Euro is the key to the U.S. Dollar movement I think attention needs to be closely paid to these technical levels. If the Euro projects further losses then it is time to take a closer look at the rest of the supportive markets (like Crude) to see if their individual stories could continue to rally in spite of the Euro. The higher volume support previously mentioned could also be a good level to fade to test a small initial position on this large pullback, but I would recommend executing a long position in the technically stronger Pound or Franc markets based on Euro levels.
Buy Australian Dollar- As the Euro goes so goes the Australian Dollar for now. The Aussie is the 2nd weakest Currency this morning and without a good setup for new entry I recommend staying out of the market until we get more certainty. Short term objective range is still 1.0204 - 1.0237 on the Bullish cup and handle pattern.
Buy Wheat- On Friday the December Wheat contract settled above my Bullish triangle pattern breakout level. Drawn from the high Oct. 11th - Nov. 1st the trend had a value of $7.24 3/4 Friday and a value of $7.24 today. This pattern projects a move almost exactly to $8.20. With the Grain reports tomorrow morning though I believe that entering a long term position at this time is extra risky. I think it is wise to wait until after the report to look for entry if it is still applicable, or to look at the $8/$8.40 call spread as a less risky position to carry into the report.
Buy July'11-Dec'11 Corn Spread- Today is the last day of the Deutsche Bank Dec '10 - Dec'11 roll that has put pressure on the July - Dec spread over the last several weeks. I believe that the spread now has an established base around the 50 cent level, which will produce a 3rd leg rally objective of $1.10 for the next move in the spread. With the Grain reports tomorrow it is risky to hold a position, but this spread along with the Wheat call spread are the two positions with less risk that I would consider. It is unlikely that Corn receives an outlying Bullish surprise tomorrow, but it is conversely unlikely that the number will be very Bearish.
I want to still say that I like the spread a lot, but there are a couple points that have me concerned and are worth noting as the reasons it is still on the radar. Corn export demand continues to fall below expectations as China has focused on Beans for the time being. The spread takes advantage of short term demand and supply issues between the 2010 and 2011 crop, so unless exports pick up in the near term then it is unlikely that the spread has the juice to rally to $1.10. It also seems like July - Dec to at least $1.00 is a consensus rather than even just a majority. You can easily point out that the Nov'10 - Nov'11 Soybeans exploded higher after their own Deutsche Bank roll, but this was supported by the hugely Bullish October Corn number and overflow into the Bean market. I am not expecting as much volatility from tomorrow's report and could actually see a situation where the Corn market "sells the fact" on a Bullish report.
Notes:
Friday, November 5, 2010
Friday 11/5/10 Commodity Ideas
Opening Note:
Yesterday
Nearly every supportive market settled with impressive gains as buying carried over from Wednesday's Fed announcement. Most of the market was already much firmer by the time the U.S. stock market opened though, providing less opportunity for entry on pullbacks and a slow intraday trade. Slow was not the word to describe the Metal Sector however. Money poured into all of the individual markets with Gold settling nearly $50 higher and Silver settling a whopping $1.60 higher (or over a 6% gain). The Equity Indices all posted impressive closes as well with the Dow gaining 210 points. The interesting note about the stock market was that on a day of strength it was actually the Dow that led and the Nasdaq that lagged in contrast to the leader/laggard relationship since September. Other leaders of note were the British Pound, Crude Oil, Cotton, and Wheat.
Today
As of 7 am the macro market is slightly weaker, led by a rally in the Dollar Index overnight. The Euro is actually the weakest Currency on my board this morning and actually the laggard market overall. The Energies and Metals are the leaders thus far as they have managed to hold onto slim gains thus far. Unemployment is set to be released at 7:30 am, so I will provide a late note because the market dynamics will likely shift. I hate writing during Unemployment because the letter often displays bipolar characteristics between the 1st and 2nd half depending on what happens. Poor time-planning...better luck next month.
After rereading yesterday's letter I realize that I practically wrote a book (non-fiction of course). Necessary because there was an important pivot point on Wednesday, but I thought I would give my hands and your eyes a break this morning. I stand strong in my opinion that the QE sell the Dollar and buy EVERYTHING else trade will continue for at least another month. Please refer to yesterday's letter, also posted on my blog, for the schpeel.
Late Note 8am: The Unemployment Report was actually one of the more Bullish we have had in a long time with positive revisions to October, payrolls that beat expectations this month, and a steady 9.6% Unemployment. You would not guess this was the case though from the market reaction thus far. The stock market and Crude Oil got the best initial rally off of the number, but the rally was small and both markets have given back the gains over the last half hour. The real shocker to me was an immediate 75 tick break in the Euro as the U.S. Dollar rallied. I personally stepped into a small Euro position (luckily near the bottom) and have some $89 Dec Crude Oil calls still, but I am not too encouraged on this market reaction and may have a quick ejection button. You can look at a positive jobs report as a Bullish scenario for the Dollar under the pretenses that a better economy means less stimulus. However, this is a contrary move to the market relationship trends over the last couple months.
My guess is that the markets are a bit hungover from yesterday's rally with some indigestion from all the news this week. My Buys and Radar recommendations below still stand as written, but I caution that something feels off in the market today. I think that the critical support will hold, but it could be a saggy day.
Buys to Watch:
Euro- I have not found any pertinent news regarding strictly the Euro this morning, so it is a bit concerning that it is THE laggard market this morning. I still really like the technical setup on the daily chart though and believe that the Euro is still in good standing for rally continuation. The intermediate target based on the continuation triangle pattern is 1.4456, but the Euro is likely on a 3rd leg higher rally that projects to roughly 1.51. The entry setup I suggested yesterday was initiated overnight, but a fast capitulation break this morning took out the stop loss level (my 20 minute brown line commute this morning cost just a little bit more than the standard $2.25 fare). There still is a good new entry level for the Euro though in the low volume zone between 1.4042 - 1.4080 with higher volume support from 1.4000 - 1.4040 for stop placement below. If the Euro trades below 1.40 for more than an hour then I think it would be time to reexamine the market.
Australian Dollar- The Aussie is one of the stronger Currencies this morning and may be a better purchase than the Euro at least for today. The only problem is I do not have a great entry setup based on trade volume for right now, so I think focusing on a 15 minute chart to spot bottoming action is the best strategy at least for today. The shorter term projection for the Aussie is from 1.0204 - 1.0237 based on the cup and handle pattern, but I believe that this is just an initial portion of a much larger move. Based on the individual chart technicals I already have the Aussie completing the 3rd leg on its summer rally. However, although the Aussie and Euro do not necessarily travel in tandem but I believe that if the Euro is on a 3rd leg higher to 1.51 then the Aussie will be on the same time schedule. If the market trades below .9980 for more than an hour it would similarly be time to re-evaluate.
Crude Oil- One of the leader markets this morning, Crude Oil remains my favorite Buy for the time being. Yesterday's higher settlement confirmed the longer term pattern objective range from $94.95 - $96.55. Remember though that $90 will at least provide some temporary resistance as a good place to take profits and re-evaluate the trade. Like the Aussie I do not have a good entry setup based on trade volume. However, if Crude holds a price above $86.10 on a rally continuation then this would be a great sign of strength. A move back to the $84.45 breakout level at this time would be troublesome to the Bullish case, so I would not hold a long position to this point.
Sells to Watch:
Put on the Radar:
Buy Wheat- Just to recap, the triangle pattern I have the Wheat market in is drawn from the high Oct 11th - Nov. 1st and the low Oct 5th - Oct 22nd. This provides an upper value on the triangle of $7.24 3/4 for today. Overnight the market traded to $7.23 on a test of this level, but subsequently reversed to trade lower on the session into this morning. Wheat was the leader of the Grain Sector yesterday (along with Bean Oil) and over the last couple days there has actually been Buying enter on the close while Corn has been sold in a relationship trade. This means that some of the huge interest in the Corn market is shifting to the Wheat market for the Funds and Investment firms. With the Crop Production and Supply/Demand report on November 9th I think that it is now unlikely that Wheat garners the momentum to initiate the Bullish pattern prior to the report. The objective for the pattern would be near the $8.20 level. While I do not recommend carrying a substantial outright position into the number it is possible that this is the catalyst that jump starts the rally. Vol premium has increased leading up to the report and will likely be crushed following the number, but for a lower risk position into the report I still am considering the $8 - $8.40 call spread.
Buy July'11 - Dec'11 Corn Spread- Today is day 4 of the Dec'10 - Dec'11 Deutsche Bank roll for Corn. There will still be Bearish pressure on the July - Dec spread because of this, but I am fairly confident that the spread has found at least a short term base around the 50 cent level already. For the daily chart keep an eye on Stochastics as the indicator is attempting to form a Buy signal crossover for about the 5th consecutive day. If Stochastics settles with a Bullish cross then I believe you can confidently look to at least establish an initial position. The fundamental analysts can break down the numbers better than I can, but the USDA trends and the production estimates do not appear to be too threatening for holding a position in the July - Dec spread through the report (please do your own research into this though). My 3rd leg objective for the spread is $1.10 and along with the Wheat call spread this is the only other position I will consider carrying into the Nov 9th Grain report.
Notes:
Yesterday
Nearly every supportive market settled with impressive gains as buying carried over from Wednesday's Fed announcement. Most of the market was already much firmer by the time the U.S. stock market opened though, providing less opportunity for entry on pullbacks and a slow intraday trade. Slow was not the word to describe the Metal Sector however. Money poured into all of the individual markets with Gold settling nearly $50 higher and Silver settling a whopping $1.60 higher (or over a 6% gain). The Equity Indices all posted impressive closes as well with the Dow gaining 210 points. The interesting note about the stock market was that on a day of strength it was actually the Dow that led and the Nasdaq that lagged in contrast to the leader/laggard relationship since September. Other leaders of note were the British Pound, Crude Oil, Cotton, and Wheat.
Today
As of 7 am the macro market is slightly weaker, led by a rally in the Dollar Index overnight. The Euro is actually the weakest Currency on my board this morning and actually the laggard market overall. The Energies and Metals are the leaders thus far as they have managed to hold onto slim gains thus far. Unemployment is set to be released at 7:30 am, so I will provide a late note because the market dynamics will likely shift. I hate writing during Unemployment because the letter often displays bipolar characteristics between the 1st and 2nd half depending on what happens. Poor time-planning...better luck next month.
After rereading yesterday's letter I realize that I practically wrote a book (non-fiction of course). Necessary because there was an important pivot point on Wednesday, but I thought I would give my hands and your eyes a break this morning. I stand strong in my opinion that the QE sell the Dollar and buy EVERYTHING else trade will continue for at least another month. Please refer to yesterday's letter, also posted on my blog, for the schpeel.
Late Note 8am: The Unemployment Report was actually one of the more Bullish we have had in a long time with positive revisions to October, payrolls that beat expectations this month, and a steady 9.6% Unemployment. You would not guess this was the case though from the market reaction thus far. The stock market and Crude Oil got the best initial rally off of the number, but the rally was small and both markets have given back the gains over the last half hour. The real shocker to me was an immediate 75 tick break in the Euro as the U.S. Dollar rallied. I personally stepped into a small Euro position (luckily near the bottom) and have some $89 Dec Crude Oil calls still, but I am not too encouraged on this market reaction and may have a quick ejection button. You can look at a positive jobs report as a Bullish scenario for the Dollar under the pretenses that a better economy means less stimulus. However, this is a contrary move to the market relationship trends over the last couple months.
My guess is that the markets are a bit hungover from yesterday's rally with some indigestion from all the news this week. My Buys and Radar recommendations below still stand as written, but I caution that something feels off in the market today. I think that the critical support will hold, but it could be a saggy day.
Buys to Watch:
Euro- I have not found any pertinent news regarding strictly the Euro this morning, so it is a bit concerning that it is THE laggard market this morning. I still really like the technical setup on the daily chart though and believe that the Euro is still in good standing for rally continuation. The intermediate target based on the continuation triangle pattern is 1.4456, but the Euro is likely on a 3rd leg higher rally that projects to roughly 1.51. The entry setup I suggested yesterday was initiated overnight, but a fast capitulation break this morning took out the stop loss level (my 20 minute brown line commute this morning cost just a little bit more than the standard $2.25 fare). There still is a good new entry level for the Euro though in the low volume zone between 1.4042 - 1.4080 with higher volume support from 1.4000 - 1.4040 for stop placement below. If the Euro trades below 1.40 for more than an hour then I think it would be time to reexamine the market.
Australian Dollar- The Aussie is one of the stronger Currencies this morning and may be a better purchase than the Euro at least for today. The only problem is I do not have a great entry setup based on trade volume for right now, so I think focusing on a 15 minute chart to spot bottoming action is the best strategy at least for today. The shorter term projection for the Aussie is from 1.0204 - 1.0237 based on the cup and handle pattern, but I believe that this is just an initial portion of a much larger move. Based on the individual chart technicals I already have the Aussie completing the 3rd leg on its summer rally. However, although the Aussie and Euro do not necessarily travel in tandem but I believe that if the Euro is on a 3rd leg higher to 1.51 then the Aussie will be on the same time schedule. If the market trades below .9980 for more than an hour it would similarly be time to re-evaluate.
Crude Oil- One of the leader markets this morning, Crude Oil remains my favorite Buy for the time being. Yesterday's higher settlement confirmed the longer term pattern objective range from $94.95 - $96.55. Remember though that $90 will at least provide some temporary resistance as a good place to take profits and re-evaluate the trade. Like the Aussie I do not have a good entry setup based on trade volume. However, if Crude holds a price above $86.10 on a rally continuation then this would be a great sign of strength. A move back to the $84.45 breakout level at this time would be troublesome to the Bullish case, so I would not hold a long position to this point.
Sells to Watch:
Put on the Radar:
Buy Wheat- Just to recap, the triangle pattern I have the Wheat market in is drawn from the high Oct 11th - Nov. 1st and the low Oct 5th - Oct 22nd. This provides an upper value on the triangle of $7.24 3/4 for today. Overnight the market traded to $7.23 on a test of this level, but subsequently reversed to trade lower on the session into this morning. Wheat was the leader of the Grain Sector yesterday (along with Bean Oil) and over the last couple days there has actually been Buying enter on the close while Corn has been sold in a relationship trade. This means that some of the huge interest in the Corn market is shifting to the Wheat market for the Funds and Investment firms. With the Crop Production and Supply/Demand report on November 9th I think that it is now unlikely that Wheat garners the momentum to initiate the Bullish pattern prior to the report. The objective for the pattern would be near the $8.20 level. While I do not recommend carrying a substantial outright position into the number it is possible that this is the catalyst that jump starts the rally. Vol premium has increased leading up to the report and will likely be crushed following the number, but for a lower risk position into the report I still am considering the $8 - $8.40 call spread.
Buy July'11 - Dec'11 Corn Spread- Today is day 4 of the Dec'10 - Dec'11 Deutsche Bank roll for Corn. There will still be Bearish pressure on the July - Dec spread because of this, but I am fairly confident that the spread has found at least a short term base around the 50 cent level already. For the daily chart keep an eye on Stochastics as the indicator is attempting to form a Buy signal crossover for about the 5th consecutive day. If Stochastics settles with a Bullish cross then I believe you can confidently look to at least establish an initial position. The fundamental analysts can break down the numbers better than I can, but the USDA trends and the production estimates do not appear to be too threatening for holding a position in the July - Dec spread through the report (please do your own research into this though). My 3rd leg objective for the spread is $1.10 and along with the Wheat call spread this is the only other position I will consider carrying into the Nov 9th Grain report.
Notes:
Thursday, November 4, 2010
Thursday 11/4/10 Commodity Ideas
Opening Note:
Yesterday
The Fed announcement yesterday was highlighted by the news that a Quantitative Easing package of $600 Billion progressing with $75 Billion monthly will be enacted. This fell in between the $500 Billion - $1 Trillion range of expectations and above the $500 Billion level that was necessary to hold and continue gains in the supportive markets. For the half hour directly after the announcement the high frequency programs took over to run the market on a volatile ride both higher and lower. Once the volatility settled though the markets fell into agreement as a macro move higher was decidedly in order. The Dollar fell while nearly every supportive market climbed higher into the stock market close. The Bonds, my wild card market yesterday, nose dived without return directly following the announcement. While $600 Billion appears to be enough to keep the Commodity and Equity rally going it looks like the Bond market was positioned for a larger monthly or overall package.
Today
Everything on my board (I mean even Nat. Gas) is higher on the day except for the Dollar Index. Because the Metals settlement is taken at 12:30 pm (prior to the announcement) they appear to be the strength this morning, but since the the announcement the sectors are pretty much stronger in unison. The Bank of England just announced at 7 am (CT) that they will keep rates unchanged, which has actually vaulted the Pound into the leader roll among the Currencies this morning for at least right now.
There still is a lot of sentiment out there that QE and the Elections are baked in the cake already. I was on this side of the argument as recently as a week ago. I think there comes a point in human psychology where skepticism naturally takes over and says it is time to fade or get out of the market. After some serious summer rallies in the Commodity Sectors and 2 straight months of QE rally without much pullback I can understand this urge. What I am seeing though is some very fresh and very strong buy signals across nearly every sector (other than the Fixed Income). Some signals are only shorter term or intermediary projections, but there are many that project 3rd legs and large moves. Whether or not you believe QE will be effective, that the market is ahead of itself, or that the people buying are flat out morons I think it is wise to repress these thoughts for at least another month. Right now there are prime opportunities to get in towards the base level of what I believe will be a 3rd leg and at least another month of continuation higher on the "Sell the Dollar, Buy Everything" trade.
I do not think that you can really stray too wrong by stepping into long positions in almost any of the supportive markets for right now. I do have a few though that I believe are strengths and will continue to outperform at least the other comparable markets. If I were to venture a guess right now I believe that the Energies will show the largest gains over the next month as they catch up to the pack. However, the thinness of the Metals will definitely continue to boost their status, the Nasdaq continues to lead, the Euro looks outstanding, and the Grains still look like they have the powder for another explosion higher. Bottom line, I think you ride the rally and buy the small dips until the market gives a clear sell signal.
Note: Unemployment Report tomorrow at 7:30 am. Personally I have an interest rating of about 3 on a 10 point scale for this number. I believe that, like myself, the rest of the market will glance at the number and return to the QE story unless it is an extreme outlier. Outlier prospects are about 1 on a 10 point scale.
Buys to Watch:
Euro- Despite the volatility yesterday the Euro held above the 1.3974 triangle breakout to confirm the pattern objective of 1.4456. While this is a shorter term target I believe that the Euro is now on a 3rd leg higher on the move. The 3rd leg longer term objective is 1.51. I know that there are still plenty of fundamentalists shorting the market based on the European economy, but for right now the QE trade overrides all and should only use these shorts to squeeze the rally higher. All of the momentum indicators for the market are positive for the daily chart with MACD possibly producing a fresh buy signal today as well. I suspect that this initial rally will provide little in the way of pullbacks so take them when you get them, even if you have to trade smaller based on the risk. From 1.4146 - 1.4186 there is a low volume zone with higher volume support form 1.4094 - 1.4140 for stop placement below. This looks like a great setup if the maket can hold off the rally at least temporarily.
Australian Dollar- Although the Aussie Dollar traded below the breakout level intraday it confirmed the Bullish cup and handle pattern with a settlement above .9916. This confirms the pattern objective range from 1.0204 - 1.0237 for at least the short term move. Like the Euro, all momentum indicators are trending higher for the Aussie with MACD likely producing a fresh buy signal today as well. If the market provides a pullback today there is a low volume zone from 1.0018 - 1.0030 for entry with higher volume support below from .9982 - 1.0014 for stop placement below.
Crude Oil- The energy sector has been subdued over the last 2 months compared to the rest of the Commodity sectors. However, with a fresh, strong rally breakout above the long consolidation range I think that this is all about to change. Likely finding confirmation on the pattern today, Crude Oil settled above the $84.45 breakout level yesterday, producing a longer term objective range from $94.95 - $96.55. Like most of the supportive markets, all momentum indicators are positive for Crude with MACD producing a fresh buy signal as of this morning. If there is a moderate pullback today then the I like looking for long entry in the lower volume zone from $85.14 - $85.60. However, the support below this level consistently extends all the way to $84.10 making risk management difficult on entry today. Expect Crude to find intermediate resistance near the $90 level as the market tends to bracket itself around the $5 psychological levels. I believe that Crude will have the most explosive gains among the supportive markets over the next couple weeks and think that it is a trade that you definitely want to be on.
Sells to Watch:
Dollar Index- The explanation is spoken for by my viewpoint. I prefer to take a long Euro position rather than sell the Dollar Index because I believe the Euro will outperform some of the other Currencies. Just wanted to put this here to reiterate that I do not think you can go wrong looking to sell the Dollar over the next month.
Put on the Radar:
BUY Grains- The Grains are much firmer overnight on QE buying. This may give the market's the momentum they need to at least begin another strong rally leg here, even in advance of the November 9th report. My longer term objective for December Corn is $6.40, January Soybeans is $12.98, and December Oil is 52.25 cents (which I believe is a minimum). Wheat is definitely catching my eye now though as a flagrant triangle pattern is forming. For the daily chart draw trend lines from the high Oct. 11th - Nov. 1st and the low Oct. 4th - Oct. 22nd to produce the formation. A move out of this triangle would produce a 96 cent projection above the daily breakout level, meaning somewhere around $8.20. The breakout level for today is $7.25 3/4, which is unlikely to be reached. My guess is that the market will head towards the upper end of this formation over the next several days and eventually rally above on the morning after the report. Might be a good idea to look at the $8.00 - $8.40 call spread.
Buy July'11 - Dec'11 Corn Spread- It is now the beginning of day 3 of the Deutsche Bank roll for the Dec - Dec spread in Corn. Yesterday the market found support for a 3rd time around 27 - 30 cents before rallying midday and causing a fast puke of the roll bear spreaders. Day 3 or 4 is usually the lowest that you get for the roll and with the bear spread capitulation yesterday I think that it already has a bottom on the move. The pre-roll bear spreading has caused a downward trend in the spread that has coiled momentum as outright Corn has trended higher over the last several weeks. This has formed a possible Bullish wedge pattern that is near initiation. The July'11 - Dec'11 component of Dec - Dec is the inter-crop portion that shows the best gains and is the spread to focus on. I believe that the market is about to embark on a 3rd leg higher with an objective of $1.10 on the move. With the Grain report on November 9th it is possible that gains will be subdued for the rest of the roll up to the report. Along with Wheat though this is my main target going forward among the Grains.
Buy Nasdaq- It goes without saying that the stock market is a buy on the QE rally. For right now if you have limited resources though I like the markets listed in the Buys section more so than the Equities. The Nasdaq is the clear strength among the Indices and is the one that I recommend buying going forward. My new objective for the Nasdaq is 2240, but again may be more of a minimum objective on the longer term. The S&P 500 has entered my weekly chart objective range from 1208 - 1245 this morning, so reassessing a Nasdaq long position if the S&P reaches 1245 is probably a smart idea. It looks improbable this morning, but between 2167.50 - 2172 there is a low volume zone in the Nasdaq that I like for long entry on a small pullback.
Notes:
Metals- The Metal markets were under the Sell column yesterday if the FOMC reaction was Bearish. I wanted to make sure that I cleared up that with the Bullish reaction the Metals are a clear buy now and not a sale. I believe that the Metals could see some of the best gains as a sector over the next month. However, with some of the most over-extended charts, vague market objectives, and extreme intraday and overnight volatility I intend to focus on other markets for now. Palladium is clearly off to the races and I believe that we could see Silver continue to $30 over the next month. I just can not stomach the movement in the markets for right now and would only recommend using the metal markets as a spread or hedge against another sector or market position.
Euro/Yen- When is the last time you heard someone mention the Euro/Yen chart? This was the risk on/risk off darling during the Euro debacle during the first half of the year, but it has fallen off the radar for many people since. This is because it has really kept a tight range throughout the last six months despite the explosion in Commodity and Equity prices and the Dollar plummet. My opinion of the Euro/Yen is that it is the risk on/risk off gauge for the market that eliminates a lot of the stimulus and market noise to focus on the bare state of the market. This means that if you take out QE, government intervention, all of the crap, that the real risk appetite and economic condition has only crawled higher rather than the impressive stock market gains. If this cross spread is able to rally a bit higher it looks like it could produce a sizable rally leg over the next several months, which is another positive sign for the supportive markets. Quantitative Easing...Base level gains for the market...sounds like a real Bullish recipe for now.
Yesterday
The Fed announcement yesterday was highlighted by the news that a Quantitative Easing package of $600 Billion progressing with $75 Billion monthly will be enacted. This fell in between the $500 Billion - $1 Trillion range of expectations and above the $500 Billion level that was necessary to hold and continue gains in the supportive markets. For the half hour directly after the announcement the high frequency programs took over to run the market on a volatile ride both higher and lower. Once the volatility settled though the markets fell into agreement as a macro move higher was decidedly in order. The Dollar fell while nearly every supportive market climbed higher into the stock market close. The Bonds, my wild card market yesterday, nose dived without return directly following the announcement. While $600 Billion appears to be enough to keep the Commodity and Equity rally going it looks like the Bond market was positioned for a larger monthly or overall package.
Today
Everything on my board (I mean even Nat. Gas) is higher on the day except for the Dollar Index. Because the Metals settlement is taken at 12:30 pm (prior to the announcement) they appear to be the strength this morning, but since the the announcement the sectors are pretty much stronger in unison. The Bank of England just announced at 7 am (CT) that they will keep rates unchanged, which has actually vaulted the Pound into the leader roll among the Currencies this morning for at least right now.
There still is a lot of sentiment out there that QE and the Elections are baked in the cake already. I was on this side of the argument as recently as a week ago. I think there comes a point in human psychology where skepticism naturally takes over and says it is time to fade or get out of the market. After some serious summer rallies in the Commodity Sectors and 2 straight months of QE rally without much pullback I can understand this urge. What I am seeing though is some very fresh and very strong buy signals across nearly every sector (other than the Fixed Income). Some signals are only shorter term or intermediary projections, but there are many that project 3rd legs and large moves. Whether or not you believe QE will be effective, that the market is ahead of itself, or that the people buying are flat out morons I think it is wise to repress these thoughts for at least another month. Right now there are prime opportunities to get in towards the base level of what I believe will be a 3rd leg and at least another month of continuation higher on the "Sell the Dollar, Buy Everything" trade.
I do not think that you can really stray too wrong by stepping into long positions in almost any of the supportive markets for right now. I do have a few though that I believe are strengths and will continue to outperform at least the other comparable markets. If I were to venture a guess right now I believe that the Energies will show the largest gains over the next month as they catch up to the pack. However, the thinness of the Metals will definitely continue to boost their status, the Nasdaq continues to lead, the Euro looks outstanding, and the Grains still look like they have the powder for another explosion higher. Bottom line, I think you ride the rally and buy the small dips until the market gives a clear sell signal.
Note: Unemployment Report tomorrow at 7:30 am. Personally I have an interest rating of about 3 on a 10 point scale for this number. I believe that, like myself, the rest of the market will glance at the number and return to the QE story unless it is an extreme outlier. Outlier prospects are about 1 on a 10 point scale.
Buys to Watch:
Euro- Despite the volatility yesterday the Euro held above the 1.3974 triangle breakout to confirm the pattern objective of 1.4456. While this is a shorter term target I believe that the Euro is now on a 3rd leg higher on the move. The 3rd leg longer term objective is 1.51. I know that there are still plenty of fundamentalists shorting the market based on the European economy, but for right now the QE trade overrides all and should only use these shorts to squeeze the rally higher. All of the momentum indicators for the market are positive for the daily chart with MACD possibly producing a fresh buy signal today as well. I suspect that this initial rally will provide little in the way of pullbacks so take them when you get them, even if you have to trade smaller based on the risk. From 1.4146 - 1.4186 there is a low volume zone with higher volume support form 1.4094 - 1.4140 for stop placement below. This looks like a great setup if the maket can hold off the rally at least temporarily.
Australian Dollar- Although the Aussie Dollar traded below the breakout level intraday it confirmed the Bullish cup and handle pattern with a settlement above .9916. This confirms the pattern objective range from 1.0204 - 1.0237 for at least the short term move. Like the Euro, all momentum indicators are trending higher for the Aussie with MACD likely producing a fresh buy signal today as well. If the market provides a pullback today there is a low volume zone from 1.0018 - 1.0030 for entry with higher volume support below from .9982 - 1.0014 for stop placement below.
Crude Oil- The energy sector has been subdued over the last 2 months compared to the rest of the Commodity sectors. However, with a fresh, strong rally breakout above the long consolidation range I think that this is all about to change. Likely finding confirmation on the pattern today, Crude Oil settled above the $84.45 breakout level yesterday, producing a longer term objective range from $94.95 - $96.55. Like most of the supportive markets, all momentum indicators are positive for Crude with MACD producing a fresh buy signal as of this morning. If there is a moderate pullback today then the I like looking for long entry in the lower volume zone from $85.14 - $85.60. However, the support below this level consistently extends all the way to $84.10 making risk management difficult on entry today. Expect Crude to find intermediate resistance near the $90 level as the market tends to bracket itself around the $5 psychological levels. I believe that Crude will have the most explosive gains among the supportive markets over the next couple weeks and think that it is a trade that you definitely want to be on.
Sells to Watch:
Dollar Index- The explanation is spoken for by my viewpoint. I prefer to take a long Euro position rather than sell the Dollar Index because I believe the Euro will outperform some of the other Currencies. Just wanted to put this here to reiterate that I do not think you can go wrong looking to sell the Dollar over the next month.
Put on the Radar:
BUY Grains- The Grains are much firmer overnight on QE buying. This may give the market's the momentum they need to at least begin another strong rally leg here, even in advance of the November 9th report. My longer term objective for December Corn is $6.40, January Soybeans is $12.98, and December Oil is 52.25 cents (which I believe is a minimum). Wheat is definitely catching my eye now though as a flagrant triangle pattern is forming. For the daily chart draw trend lines from the high Oct. 11th - Nov. 1st and the low Oct. 4th - Oct. 22nd to produce the formation. A move out of this triangle would produce a 96 cent projection above the daily breakout level, meaning somewhere around $8.20. The breakout level for today is $7.25 3/4, which is unlikely to be reached. My guess is that the market will head towards the upper end of this formation over the next several days and eventually rally above on the morning after the report. Might be a good idea to look at the $8.00 - $8.40 call spread.
Buy July'11 - Dec'11 Corn Spread- It is now the beginning of day 3 of the Deutsche Bank roll for the Dec - Dec spread in Corn. Yesterday the market found support for a 3rd time around 27 - 30 cents before rallying midday and causing a fast puke of the roll bear spreaders. Day 3 or 4 is usually the lowest that you get for the roll and with the bear spread capitulation yesterday I think that it already has a bottom on the move. The pre-roll bear spreading has caused a downward trend in the spread that has coiled momentum as outright Corn has trended higher over the last several weeks. This has formed a possible Bullish wedge pattern that is near initiation. The July'11 - Dec'11 component of Dec - Dec is the inter-crop portion that shows the best gains and is the spread to focus on. I believe that the market is about to embark on a 3rd leg higher with an objective of $1.10 on the move. With the Grain report on November 9th it is possible that gains will be subdued for the rest of the roll up to the report. Along with Wheat though this is my main target going forward among the Grains.
Buy Nasdaq- It goes without saying that the stock market is a buy on the QE rally. For right now if you have limited resources though I like the markets listed in the Buys section more so than the Equities. The Nasdaq is the clear strength among the Indices and is the one that I recommend buying going forward. My new objective for the Nasdaq is 2240, but again may be more of a minimum objective on the longer term. The S&P 500 has entered my weekly chart objective range from 1208 - 1245 this morning, so reassessing a Nasdaq long position if the S&P reaches 1245 is probably a smart idea. It looks improbable this morning, but between 2167.50 - 2172 there is a low volume zone in the Nasdaq that I like for long entry on a small pullback.
Notes:
Metals- The Metal markets were under the Sell column yesterday if the FOMC reaction was Bearish. I wanted to make sure that I cleared up that with the Bullish reaction the Metals are a clear buy now and not a sale. I believe that the Metals could see some of the best gains as a sector over the next month. However, with some of the most over-extended charts, vague market objectives, and extreme intraday and overnight volatility I intend to focus on other markets for now. Palladium is clearly off to the races and I believe that we could see Silver continue to $30 over the next month. I just can not stomach the movement in the markets for right now and would only recommend using the metal markets as a spread or hedge against another sector or market position.
Euro/Yen- When is the last time you heard someone mention the Euro/Yen chart? This was the risk on/risk off darling during the Euro debacle during the first half of the year, but it has fallen off the radar for many people since. This is because it has really kept a tight range throughout the last six months despite the explosion in Commodity and Equity prices and the Dollar plummet. My opinion of the Euro/Yen is that it is the risk on/risk off gauge for the market that eliminates a lot of the stimulus and market noise to focus on the bare state of the market. This means that if you take out QE, government intervention, all of the crap, that the real risk appetite and economic condition has only crawled higher rather than the impressive stock market gains. If this cross spread is able to rally a bit higher it looks like it could produce a sizable rally leg over the next several months, which is another positive sign for the supportive markets. Quantitative Easing...Base level gains for the market...sounds like a real Bullish recipe for now.
Wednesday, November 3, 2010
Commodity Ideas Wednesday 11/3/10
It has been a week since my last letter with a lot of shifting market action to take into account over this time. Because I have more to cover and can not go into as much detail as usual I decided to change the letter's format today. The aim is to look at today's FOMC announcement as a pivot point that should confirm and establish a macro direction over at least the next few weeks. I hope that the format is easy to follow, but email me if you have any questions or wish to discuss the markets.
My intention is to proceed from today with the daily morning letter as usual. However, as I am still writing the letter free of charge as an individual I have to prioritize my time to focus on my own trading, sleep, and health first for the time being. This means that there will be sporadic days that I can not write the letter without notice. If this is a problem for you let me know, but otherwise I plan on continuing to write to the best of my abilities.
Opening Note:
What I Have Seen Over the Last Week
When I last wrote I was moderately leaning towards the opinion that there was topping action in the macro market with an ensuing break on the horizon for the supportive markets. While this opinion seemed to be profitable every other day for a 2 week period (like an eerie clockwork), the supportive markets have moved higher over the last week in general. Over the last several days the momentum has taken a surely Bullish tone with the Euro, Metals, Energies, and Equities all proceeding with consecutively higher sessions. There was a several week period where the markets appeared in a range, a point 4 days ago when they looked on the verge of a Bearish breakout, but now most of the technicals and relationships are decidedly Bullish among the supportive markets.
What Will Make an Impact
Yesterday was Election Day, today is the FOMC announcement, and Friday is the monthly Unemployment Report. With all of this critical data released over such a short time frame there is a lot to digest and take into account. The election results are basically in with the Republicans taking control of Congress yet the Democrats retaining majority control of the Senate, despite relinquishing a few seats. There is no real shocker here and the markets had very little reaction to the news. Friday's Unemployment Report is important as far as data goes, but over the last two months the markets have given only the concessionary short term reaction before continuing on with the real business. I expect little change in the reaction this month and venture that the number will remain rather steady (I have little interest in the number until we have moved a 1/2% in either direction). With both of these numbers seemingly "ho-hum" I, as well as the rest of the market, is pretty much focused solely on the Fed announcement today and the market reaction.
The guesses range from $500 Billion to $1 Trillion for the Quantitative Easing announcement today, but pretty much the entire market is banking on The Fed announcing this package today. There are a lot of different variables among this equation, but the consensus opinion for now is that a $500 Billion plan would be enough to at least hold the markets steady in reaction if not rally them. I am not in the business of breaking down the $500 billion and deciding its effectiveness, so I am more concerned with how the market reacts to the news more than what the actual news is. There are those that believe the announcement will continue the "Bearish Dollar, Bullish Everything Trade" and there are those that believe the "QE and Elections are Baked in the Cake". Instead of Buys and Sells today I laid out the markets that I am interested in Buying if the FOMC reaction is Bullish or Selling if the FOMC reaction is Bearish.
"Baked in the Cake" Seems Oversold to Me
I wrote my night time "Bullish Momentum Is Shifting" rant back on October 6th when I first felt that the QE trade was slowing. If you recall this was a warning of shifting momentum rather than an announcement to sell everything. Up until just last Friday this still looked fairly accurate as most of the highlighted markets travelled sideways. Over the last week though the macro relationships and technicals have shifted more towards a Bullish continuation scenario. The Euro, Australian Dollar, and Crude Oil have or are on the verge of establishing strong Bullish continuation breakouts that should lead the supportive markets higher overall. This "Baked in the Cake" or "Sell the Fact" idea has also garnered a lot of support over the last month making it much less of a minority opinion.
The Funds and Investment Money are already extremely long the "Buy Everything, Sell the Dollar" trade, so if there was a sell the fact reaction coming up I would expect that these positions would be lightened in advance to today's announcement. Not only are they not lightening up, but they are adding to their positions over this week and pushing the Bullish momentum. It is not often that you catch the entire market this off guard, so a "sell the fact" move could look more like a flash crash. The Fed knows what the market is expecting and has provided some veiled warnings to not expect too much (meaning $1 Trillion), but they are pretty much stuck in a scenario where they need to come up with this QE package today. I believe they will not disappoint and that these fresh technicals and Bullish momentum will continue to squeeze the "sell the fact" shorts over the next several weeks. This means that my finger will be on the Buy trigger rather than the Sell as the announcement occurs.
I am going into the FOMC this afternoon with no positions. I believe the trade today will be mostly preparation chop, so all recommendations below are strictly after and in reaction to the announcement.
Buys if FOMC Bullish:
I expect that we will see all of the supportive markets rally on a Bullish announcement. This means you probably can not go wrong as long as you stay out of the Softs or Nat. Gas. I have highlighted the markets with clear patterns though that I believe will perform the best.
Euro- I have the Euro establishing a Bullish breakout yesterday on a continuation triangle pattern. To form the triangle draw trend lines from the High Oct. 15th - High Oct. 25 and the Low Oct. 20th - Low Oct. 27th. Yesterday the market settled above the 1.3988 upper range value and is looking for confirmation this afternoon. Today's trend value is 1.3974 with a close above this level providing an objective of 1.4456. The Euro is the highest correlated Currency on an inverse to the Dollar Index. If there is a Bullish reaction you can bet that the Dollar gets pummelled and the Euro skyrockets. With a clear continuation pattern already in motion this makes the Euro one of the easier buys.
Australian Dollar- Yesterday the Australian Dollar settled above the Bullish cup and handle breakout of .9916 that provides a target range of 1.0204 - 1.0237. The Aussie is sitting just above this breakout level today and will likely remain there for the rest of the day. The settlement is what matters though, so if the reaction is Bullish into the close the Aussie is my second favorite Currency buy to the Euro.
Crude Oil- Crude was on my Bearish watch list and sell list for most of the last 2 months, but I became disenchanted with the market once it posted a 2nd Bearish breakout failure and the open interest receded. Over the last several sessions though Crude has become a leader among the macro market. December Crude Oil could initiate a Bullish pattern above $84.45 that would provide a target range of $94.95 - $96.55 with two consecutive closes above this level. This morning the market is already trading above $84.45 as the overall macro strength again. Wait until after the announcement, but if it appears Crude will hold and rally above $84.45 then I think it is safe to jump on an initial long position. Throughout the recent range for the daily chart RSI has maintained a Bullish range while MACD would likely produce a buy signal with a higher close today. Expect Crude's next move to be to $90 as a temporary stalling point on the larger move.
Nasdaq- The Nasdaq reached and has advanced through my long term weekly chart objective range from 2080 - 2135. However, I now have an extended objective for the market near 2240 if it can maintain its current Bullish trend without a significant pullback. The Nasdaq has continually outperformed the rest of the Equity Indices and there is no reason to expect this trend to disappear. My weekly chart objective for the S&P 500 still is from 1208 - 1245, so this is another level to use as an indicator on Nasdaq purchases.
Sells if FOMC Bearish:
Like the Buys, I believe that if the FOMC reaction is Bearish there will be a sell off among all of the supportive markets. I have isolated markets with the best technical setups and patterns that are potentially Bearish and still have tops on their ranges. The Euro will likely be a good sale, but I think that the Metals will be the better position in the event of a sell off.
Copper- While some of the Currencies, Energies, and Equities have rallied above their ranges Copper has sat relatively idle. As long as Copper maintains a price below the $3.90 recent high then the market could be setting up a Bearish head and shoulders pattern on the daily chart. A breakout below the neckline near $3.69 produces a target near $3.48. Because Copper is also a thin market it tends to have more volatile moves making it a good trade to jump on for directional continuation.
Gold & Silver- Silver continues to gain in relation to Gold nearly everyday on a relentless trend. This relationship move is a Bullish indicator for the economy as well as the supportive markets. But, when the supportive markets do break Silver usually lags to the Gold. Both markets maintain highs (other than a couple Silver spikes) on the recent range from a couple weeks ago. Either Bearish double top or head and shoulders patterns could be formed on a poor FOMC reaction. While these look like the better markets as sales on this poor reaction I would like to note that they are only sales if the announcement is Bearish. Both Gold and Silver's technicals and momentum point towards continuation higher for the time being with all else in the outside markets neutral. The fact that they have maintained their range and have pattern potential is what makes them the better sale.
Dow or S&P 500- The Nasdaq tends to be the strength and the weakness among the Equities directionally. If there is a Bearish reaction though either the Dow or S&P 500 is the safer sale if you wish to execute in the Equities. I believe that the Metals and probably even the Currencies are a better sale, but I imagine that severe damage would be done to the stock market.
Radar & Notes:
Bonds- Bonds are my wild card market here. The Bonds have shown little to no consistency in their relationship to Equities or the other outside markets lately. In times of gut reaction the Bonds can be a run to safety from falling supportive markets. Other times though, like if the Fed announces a large QE package, Bonds will also be bought along with the Equities to front run the Fed's later purchase. I believe that Bonds are forming an intermediate top after a 3 leg Bullish advance throughout the summer. A break below 129.05 in the market projects a move to 123.00, but recently the market found support on a test of this level. Now the down trend over the last several weeks has been negated, both RSI and MACD for the daily chart are producing buy signals, and Bonds look like a potential buy over the short term. There is still another round of 30 year auctions in a couple weeks and the Bonds have moved cyclically with 2 weeks up followed by 2 weeks down around the auctions. This is the middle of the 2 week up portion of the cycle now. I think the Bonds will remain in a range between 129 - 135 for the time being, but there are a number of different scenarios that could produce a Bond rally this afternoon. Keep them on your radar to go with the Bullish momentum.
My intention is to proceed from today with the daily morning letter as usual. However, as I am still writing the letter free of charge as an individual I have to prioritize my time to focus on my own trading, sleep, and health first for the time being. This means that there will be sporadic days that I can not write the letter without notice. If this is a problem for you let me know, but otherwise I plan on continuing to write to the best of my abilities.
Opening Note:
What I Have Seen Over the Last Week
When I last wrote I was moderately leaning towards the opinion that there was topping action in the macro market with an ensuing break on the horizon for the supportive markets. While this opinion seemed to be profitable every other day for a 2 week period (like an eerie clockwork), the supportive markets have moved higher over the last week in general. Over the last several days the momentum has taken a surely Bullish tone with the Euro, Metals, Energies, and Equities all proceeding with consecutively higher sessions. There was a several week period where the markets appeared in a range, a point 4 days ago when they looked on the verge of a Bearish breakout, but now most of the technicals and relationships are decidedly Bullish among the supportive markets.
What Will Make an Impact
Yesterday was Election Day, today is the FOMC announcement, and Friday is the monthly Unemployment Report. With all of this critical data released over such a short time frame there is a lot to digest and take into account. The election results are basically in with the Republicans taking control of Congress yet the Democrats retaining majority control of the Senate, despite relinquishing a few seats. There is no real shocker here and the markets had very little reaction to the news. Friday's Unemployment Report is important as far as data goes, but over the last two months the markets have given only the concessionary short term reaction before continuing on with the real business. I expect little change in the reaction this month and venture that the number will remain rather steady (I have little interest in the number until we have moved a 1/2% in either direction). With both of these numbers seemingly "ho-hum" I, as well as the rest of the market, is pretty much focused solely on the Fed announcement today and the market reaction.
The guesses range from $500 Billion to $1 Trillion for the Quantitative Easing announcement today, but pretty much the entire market is banking on The Fed announcing this package today. There are a lot of different variables among this equation, but the consensus opinion for now is that a $500 Billion plan would be enough to at least hold the markets steady in reaction if not rally them. I am not in the business of breaking down the $500 billion and deciding its effectiveness, so I am more concerned with how the market reacts to the news more than what the actual news is. There are those that believe the announcement will continue the "Bearish Dollar, Bullish Everything Trade" and there are those that believe the "QE and Elections are Baked in the Cake". Instead of Buys and Sells today I laid out the markets that I am interested in Buying if the FOMC reaction is Bullish or Selling if the FOMC reaction is Bearish.
"Baked in the Cake" Seems Oversold to Me
I wrote my night time "Bullish Momentum Is Shifting" rant back on October 6th when I first felt that the QE trade was slowing. If you recall this was a warning of shifting momentum rather than an announcement to sell everything. Up until just last Friday this still looked fairly accurate as most of the highlighted markets travelled sideways. Over the last week though the macro relationships and technicals have shifted more towards a Bullish continuation scenario. The Euro, Australian Dollar, and Crude Oil have or are on the verge of establishing strong Bullish continuation breakouts that should lead the supportive markets higher overall. This "Baked in the Cake" or "Sell the Fact" idea has also garnered a lot of support over the last month making it much less of a minority opinion.
The Funds and Investment Money are already extremely long the "Buy Everything, Sell the Dollar" trade, so if there was a sell the fact reaction coming up I would expect that these positions would be lightened in advance to today's announcement. Not only are they not lightening up, but they are adding to their positions over this week and pushing the Bullish momentum. It is not often that you catch the entire market this off guard, so a "sell the fact" move could look more like a flash crash. The Fed knows what the market is expecting and has provided some veiled warnings to not expect too much (meaning $1 Trillion), but they are pretty much stuck in a scenario where they need to come up with this QE package today. I believe they will not disappoint and that these fresh technicals and Bullish momentum will continue to squeeze the "sell the fact" shorts over the next several weeks. This means that my finger will be on the Buy trigger rather than the Sell as the announcement occurs.
I am going into the FOMC this afternoon with no positions. I believe the trade today will be mostly preparation chop, so all recommendations below are strictly after and in reaction to the announcement.
Buys if FOMC Bullish:
I expect that we will see all of the supportive markets rally on a Bullish announcement. This means you probably can not go wrong as long as you stay out of the Softs or Nat. Gas. I have highlighted the markets with clear patterns though that I believe will perform the best.
Euro- I have the Euro establishing a Bullish breakout yesterday on a continuation triangle pattern. To form the triangle draw trend lines from the High Oct. 15th - High Oct. 25 and the Low Oct. 20th - Low Oct. 27th. Yesterday the market settled above the 1.3988 upper range value and is looking for confirmation this afternoon. Today's trend value is 1.3974 with a close above this level providing an objective of 1.4456. The Euro is the highest correlated Currency on an inverse to the Dollar Index. If there is a Bullish reaction you can bet that the Dollar gets pummelled and the Euro skyrockets. With a clear continuation pattern already in motion this makes the Euro one of the easier buys.
Australian Dollar- Yesterday the Australian Dollar settled above the Bullish cup and handle breakout of .9916 that provides a target range of 1.0204 - 1.0237. The Aussie is sitting just above this breakout level today and will likely remain there for the rest of the day. The settlement is what matters though, so if the reaction is Bullish into the close the Aussie is my second favorite Currency buy to the Euro.
Crude Oil- Crude was on my Bearish watch list and sell list for most of the last 2 months, but I became disenchanted with the market once it posted a 2nd Bearish breakout failure and the open interest receded. Over the last several sessions though Crude has become a leader among the macro market. December Crude Oil could initiate a Bullish pattern above $84.45 that would provide a target range of $94.95 - $96.55 with two consecutive closes above this level. This morning the market is already trading above $84.45 as the overall macro strength again. Wait until after the announcement, but if it appears Crude will hold and rally above $84.45 then I think it is safe to jump on an initial long position. Throughout the recent range for the daily chart RSI has maintained a Bullish range while MACD would likely produce a buy signal with a higher close today. Expect Crude's next move to be to $90 as a temporary stalling point on the larger move.
Nasdaq- The Nasdaq reached and has advanced through my long term weekly chart objective range from 2080 - 2135. However, I now have an extended objective for the market near 2240 if it can maintain its current Bullish trend without a significant pullback. The Nasdaq has continually outperformed the rest of the Equity Indices and there is no reason to expect this trend to disappear. My weekly chart objective for the S&P 500 still is from 1208 - 1245, so this is another level to use as an indicator on Nasdaq purchases.
Sells if FOMC Bearish:
Like the Buys, I believe that if the FOMC reaction is Bearish there will be a sell off among all of the supportive markets. I have isolated markets with the best technical setups and patterns that are potentially Bearish and still have tops on their ranges. The Euro will likely be a good sale, but I think that the Metals will be the better position in the event of a sell off.
Copper- While some of the Currencies, Energies, and Equities have rallied above their ranges Copper has sat relatively idle. As long as Copper maintains a price below the $3.90 recent high then the market could be setting up a Bearish head and shoulders pattern on the daily chart. A breakout below the neckline near $3.69 produces a target near $3.48. Because Copper is also a thin market it tends to have more volatile moves making it a good trade to jump on for directional continuation.
Gold & Silver- Silver continues to gain in relation to Gold nearly everyday on a relentless trend. This relationship move is a Bullish indicator for the economy as well as the supportive markets. But, when the supportive markets do break Silver usually lags to the Gold. Both markets maintain highs (other than a couple Silver spikes) on the recent range from a couple weeks ago. Either Bearish double top or head and shoulders patterns could be formed on a poor FOMC reaction. While these look like the better markets as sales on this poor reaction I would like to note that they are only sales if the announcement is Bearish. Both Gold and Silver's technicals and momentum point towards continuation higher for the time being with all else in the outside markets neutral. The fact that they have maintained their range and have pattern potential is what makes them the better sale.
Dow or S&P 500- The Nasdaq tends to be the strength and the weakness among the Equities directionally. If there is a Bearish reaction though either the Dow or S&P 500 is the safer sale if you wish to execute in the Equities. I believe that the Metals and probably even the Currencies are a better sale, but I imagine that severe damage would be done to the stock market.
Radar & Notes:
Bonds- Bonds are my wild card market here. The Bonds have shown little to no consistency in their relationship to Equities or the other outside markets lately. In times of gut reaction the Bonds can be a run to safety from falling supportive markets. Other times though, like if the Fed announces a large QE package, Bonds will also be bought along with the Equities to front run the Fed's later purchase. I believe that Bonds are forming an intermediate top after a 3 leg Bullish advance throughout the summer. A break below 129.05 in the market projects a move to 123.00, but recently the market found support on a test of this level. Now the down trend over the last several weeks has been negated, both RSI and MACD for the daily chart are producing buy signals, and Bonds look like a potential buy over the short term. There is still another round of 30 year auctions in a couple weeks and the Bonds have moved cyclically with 2 weeks up followed by 2 weeks down around the auctions. This is the middle of the 2 week up portion of the cycle now. I think the Bonds will remain in a range between 129 - 135 for the time being, but there are a number of different scenarios that could produce a Bond rally this afternoon. Keep them on your radar to go with the Bullish momentum.
Monday, October 25, 2010
Monday 10/25/10 Commodity Ideas
Opening Note:
Yesterday
Friday's trade finally broke the string of 5 straight days of back and forth volatility. Although the supportive markets crept higher into the stock market open there was not much in store for the rest of the day as a quiet, tight range emerged across most of the markets. The Grain markets settled lower on the day as Soybeans pegged the higher volume $12.00 strike and Corn the $5.60 strike for November option expiration. It was also noteworthy that the Metals found support Friday and held off further liquidation after Thursday's poor price action.
Today
Nothing new was established from the G20 conference so any market weakness that preceded the meeting is being compensated for this morning. Every market on my board, other than the Dollar Index and Natural Gas, is higher this morning with many trading significantly stronger as of 7 am. The Metals and Foreign Currencies stand out as the strength sectors this morning and are uniformly much higher. Cotton is trading limit up again so far on 5 cent expanded limits. It is interesting that much of this advance was made during the first half of yesterday evening. Most of the market has actually fallen back a bit since the European open overnight, so expectations for continued buying on the open's this morning and the rest of the day should be tempered.
Today the Equity Indices, Copper, Palladium, Mexican Peso and the Australian Dollar are all on tests or rally breakouts above the 2 week consolidation range they have traded in. Some have only created spikes so far, but settlements above the range could foretell advances in the other supportive markets to follow. This also illuminates the stock market strength as a sector in comparison to the others.
Today seems like more of a go-with day early rather than one to fade the rallies. However, I still believe that we are seeing topping signs on the QE trade both technically and among the inter-commodity relationships. The Energies are again the weakness among the sectors and one of the better short positions still. I believe that the both Gold and Silver are in the process of setting up a fast liquidation move as well that should lead the markets at least slightly lower within the next couple weeks on an overdue pullback. Two sided volatility is absent from today's session, but I expect continued choppiness until the November 3rd fundamental pivot point. Focusing on shorter term trades by taking profits and looking to get back in later is still a smart strategy.
Buys to Watch:
Grains (Corn still the best)- On Friday Corn pegged $5.60 and Soybeans $12.00 for the November contract option expiration, leading the Grains lower. Although this made the Grains a noticeable weakness for the day they have rebounded well during today's session. In order of buying preference I still have longer term targets (meaning within the next month) of $6.40 for December Corn, 52.25 cents for December Bean Oil, and $12.86 for November Soybeans. This morning Bean Oil is the strength of the Grains by a mile, with the rally in the Oil Share (Bean Oil - Soy Meal) that I described last week now reaching its target.
With the relationship of Corn versus Soybeans still holding a daily chart trend in Corn's favor (Beans - Corn*2) I believe that Corn is the best buy among the Grains going forward. My suggestion last week of buying against support from $5.59 1/2 - $5.65 technically worked, but with Corn literally trading a low of $5.59 1/2 and settling at $5.60 I know that I did not hold a long position myself over the weekend. Corn settled at $5.70 3/4 this morning on the 7:15 am close though as it reestablished Bullish momentum overnight. There is now higher volume support left from $5.63 - $5.68 that is a good level to buy against this morning with stop placement below. If Corn is going to be good right now then I believe $5.63 should hold.
Sells to Watch: (Silver Moved to the Radar)
Put on the Radar:
Sell Silver- Silver is trading over 60 cents higher already today. I thought this was a possibility after Friday's trade failed to continue the liquidation weakness in the market. With a move above the $23.40 temporary breakout level Silver has now negated its Bearish reversal pattern and is not currently a sale. The market was setting up either a fast liquidation or a larger top, with the latter now looking more probable. Today prices are testing the recent downtrend for the daily chart at $23.805. This level does not need to hold though for Silver to possibly make a top. It would just be another indicator to watch if it held.
Both Gold and Silver have option expiration tomorrow and it looks like Gold could peg the higher volume $1350 strike price with Silver possibly pegging $24.00. The price action in the market over the next 30 hours could be odd and is possibly setting up the right shoulder rally for the reversal pattern that I believe is forming for Silver. I am keeping my eye on a lower volume zone from $24.00 - $24.20 with higher volume resistance from $24.20 - $24.50 as a potential area where the Silver market reverses. I still expect a rather sharp break in the near future down to roughly $21.50, so after option expiration tomorrow is the time to start looking at Silver for selling opportunities.
Buy Gold vs Sell Silver (Gold - Silver/2)- Like outright Silver I think it is a good idea to wait until after option expiration tomorrow afternoon prior to entering this differential trade. Although the spread violated the Bearish trend for the daily chart from the high August 24th to the high October 4th it has travelled back below this line at $159.3 today. The differential is likely creating a reversal base for the move that I expect to $210.
Crude Oil...Not as Good of a Short- I have had Crude Oil in the Sells section or radar for much of the last month, but I have to admit that my interest in the market as a sale is diminishing. The Crude market had a powder keg setup to trap two separate bubbles of large long positions into liquidation with a sharp move, but the nearby bubble has deflated. There was a good opportunity to set off running liquidation following the break on October 15th or October 19th, but in both cases the market found support. Over the choppy price break the last week open interest has continued to decline leaving only about 1/3rd of the long position above $82 that was there and "trapped" one week ago. This means that the ammo is not there right now for a real violent move that catches the longs off guard. There still is around 150,000 longs that have entered from $75 or above, but again there does not appear to be the Bearish momentum right now to really catch the longs from this level off guard. I still believe that Crude is a better sale than buy for the time being, but I am not as excited about the market right now and prefer looking for opportunities in Silver.
Notes:
December Cocoa a Buy?- My track record in the Softs for the newsletter is pretty brutal, so I am keeping this idea in the Notes section to bring attention to it but allow you to individually evaluate the opportunity. Today December Cocoa is trading above the recent $2904 swing high. A close above this level today would initiate a Bullish cup and handle pattern with an objective of $3083. Definitely wait until after the close today, but the technical setup for the pattern looks great. I only mention the trade because all signs point to go right now, so if it still looks good tomorrow morning it could be worth a small position.
Yesterday
Friday's trade finally broke the string of 5 straight days of back and forth volatility. Although the supportive markets crept higher into the stock market open there was not much in store for the rest of the day as a quiet, tight range emerged across most of the markets. The Grain markets settled lower on the day as Soybeans pegged the higher volume $12.00 strike and Corn the $5.60 strike for November option expiration. It was also noteworthy that the Metals found support Friday and held off further liquidation after Thursday's poor price action.
Today
Nothing new was established from the G20 conference so any market weakness that preceded the meeting is being compensated for this morning. Every market on my board, other than the Dollar Index and Natural Gas, is higher this morning with many trading significantly stronger as of 7 am. The Metals and Foreign Currencies stand out as the strength sectors this morning and are uniformly much higher. Cotton is trading limit up again so far on 5 cent expanded limits. It is interesting that much of this advance was made during the first half of yesterday evening. Most of the market has actually fallen back a bit since the European open overnight, so expectations for continued buying on the open's this morning and the rest of the day should be tempered.
Today the Equity Indices, Copper, Palladium, Mexican Peso and the Australian Dollar are all on tests or rally breakouts above the 2 week consolidation range they have traded in. Some have only created spikes so far, but settlements above the range could foretell advances in the other supportive markets to follow. This also illuminates the stock market strength as a sector in comparison to the others.
Today seems like more of a go-with day early rather than one to fade the rallies. However, I still believe that we are seeing topping signs on the QE trade both technically and among the inter-commodity relationships. The Energies are again the weakness among the sectors and one of the better short positions still. I believe that the both Gold and Silver are in the process of setting up a fast liquidation move as well that should lead the markets at least slightly lower within the next couple weeks on an overdue pullback. Two sided volatility is absent from today's session, but I expect continued choppiness until the November 3rd fundamental pivot point. Focusing on shorter term trades by taking profits and looking to get back in later is still a smart strategy.
Buys to Watch:
Grains (Corn still the best)- On Friday Corn pegged $5.60 and Soybeans $12.00 for the November contract option expiration, leading the Grains lower. Although this made the Grains a noticeable weakness for the day they have rebounded well during today's session. In order of buying preference I still have longer term targets (meaning within the next month) of $6.40 for December Corn, 52.25 cents for December Bean Oil, and $12.86 for November Soybeans. This morning Bean Oil is the strength of the Grains by a mile, with the rally in the Oil Share (Bean Oil - Soy Meal) that I described last week now reaching its target.
With the relationship of Corn versus Soybeans still holding a daily chart trend in Corn's favor (Beans - Corn*2) I believe that Corn is the best buy among the Grains going forward. My suggestion last week of buying against support from $5.59 1/2 - $5.65 technically worked, but with Corn literally trading a low of $5.59 1/2 and settling at $5.60 I know that I did not hold a long position myself over the weekend. Corn settled at $5.70 3/4 this morning on the 7:15 am close though as it reestablished Bullish momentum overnight. There is now higher volume support left from $5.63 - $5.68 that is a good level to buy against this morning with stop placement below. If Corn is going to be good right now then I believe $5.63 should hold.
Sells to Watch: (Silver Moved to the Radar)
Put on the Radar:
Sell Silver- Silver is trading over 60 cents higher already today. I thought this was a possibility after Friday's trade failed to continue the liquidation weakness in the market. With a move above the $23.40 temporary breakout level Silver has now negated its Bearish reversal pattern and is not currently a sale. The market was setting up either a fast liquidation or a larger top, with the latter now looking more probable. Today prices are testing the recent downtrend for the daily chart at $23.805. This level does not need to hold though for Silver to possibly make a top. It would just be another indicator to watch if it held.
Both Gold and Silver have option expiration tomorrow and it looks like Gold could peg the higher volume $1350 strike price with Silver possibly pegging $24.00. The price action in the market over the next 30 hours could be odd and is possibly setting up the right shoulder rally for the reversal pattern that I believe is forming for Silver. I am keeping my eye on a lower volume zone from $24.00 - $24.20 with higher volume resistance from $24.20 - $24.50 as a potential area where the Silver market reverses. I still expect a rather sharp break in the near future down to roughly $21.50, so after option expiration tomorrow is the time to start looking at Silver for selling opportunities.
Buy Gold vs Sell Silver (Gold - Silver/2)- Like outright Silver I think it is a good idea to wait until after option expiration tomorrow afternoon prior to entering this differential trade. Although the spread violated the Bearish trend for the daily chart from the high August 24th to the high October 4th it has travelled back below this line at $159.3 today. The differential is likely creating a reversal base for the move that I expect to $210.
Crude Oil...Not as Good of a Short- I have had Crude Oil in the Sells section or radar for much of the last month, but I have to admit that my interest in the market as a sale is diminishing. The Crude market had a powder keg setup to trap two separate bubbles of large long positions into liquidation with a sharp move, but the nearby bubble has deflated. There was a good opportunity to set off running liquidation following the break on October 15th or October 19th, but in both cases the market found support. Over the choppy price break the last week open interest has continued to decline leaving only about 1/3rd of the long position above $82 that was there and "trapped" one week ago. This means that the ammo is not there right now for a real violent move that catches the longs off guard. There still is around 150,000 longs that have entered from $75 or above, but again there does not appear to be the Bearish momentum right now to really catch the longs from this level off guard. I still believe that Crude is a better sale than buy for the time being, but I am not as excited about the market right now and prefer looking for opportunities in Silver.
Notes:
December Cocoa a Buy?- My track record in the Softs for the newsletter is pretty brutal, so I am keeping this idea in the Notes section to bring attention to it but allow you to individually evaluate the opportunity. Today December Cocoa is trading above the recent $2904 swing high. A close above this level today would initiate a Bullish cup and handle pattern with an objective of $3083. Definitely wait until after the close today, but the technical setup for the pattern looks great. I only mention the trade because all signs point to go right now, so if it still looks good tomorrow morning it could be worth a small position.
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