Search the Community

10Jan The possibility of Chinese intervening to spur economic growth and Fitch’s less negative outlook on Europe underpinned yesterday’s rally in most of the physical markets we track. However, they are lagging our Overbot Equity sector while the EuroFX is looking lonely, extending its stay on our Oversold list. This week’s light US economic calendar turns attention to GOP primaries and any news coming out of Europe. Currencies: 10Jan What started out as a stronger day across most of the majors faded as the session wore on. The “Commodity Currencies” benefiting most from speculation that Chinese intervention may help spur demand. Volumes are inching their way back to pre-holiday levels. With the exception of the weaker tone in the Euro, we note the wide consolidation ranges that have been in place since the summer, but these patterns are running out of time. If there is a resolution that emerges on higher Volume, in keeping with traditional technical analysis, the moves could be enormous. Below average Volatility may be telling us that an “uncoiling spring” may be in the offing… Aussie: 10Jan Testing the pivot/fulcrum nature of the March 200-day Moving Average at 103.55, but still in a wide, symmetrical triangle consolidation pattern in place since August that is bound by 9900-10420. All of our technicals are pointing higher and the market is not yet Overbot. This currency, along with the Canadian, has been highly correlated to the physical commodities’ action. Seasonal Snapshot: Divergence between all three patterns until mid January: 30yr down, 15 yr up and the 5yr consolidates. After rallying until 22Jan, the 30yr then joins the 5&15 yr in a move down until the end of the month. British: 10Jan Respecting rising trend line support that forms the lower end of our symmetrical triangle that has been in place since August. With most tracked US denominated FX contracts lower on the day after the US Jobless number, it seems increasing likely that the Sterling is destined to test support in the 1.5350 area. Most of our signals indicate a broadening weakness with some residual strength stemming from safe-haven to the Euro’s issues. Additionally, the 200-day Moving Average is falling and the market is still well below that level. Seasonal Snapshot: The 15&30yr move down until 10Jan followed by choppy consolidation in all three patterns until Feb. Canadian 10Jan Today’s rally tests the upper end (98.50) of the symmetrical triangle formation that has been in place since August. There has been high correlation to the Aussie$ and physical markets. The 200-day moving average lies well above at 100.55 Seasonal Snapshot: The 5yr pattern declines precipitously from 08-22Jan. The 5&15yr patterns arrive late to the party (14Jan), but stay longer (28Jan). Dollar Index 10Jan Watch the EuroFX, as it seems to be trumping the other major currencies in underpinning the Dollar Index since November. The resulting rising channel is bound by 80.30-83.00. The market is leaning Overbot, but a test of the upper boundary of the channel may be in the offing. 80.00 will continue as strong support, with a new, higher support levels at the obvious 81.00 and also at about 81.30. Seasonal Snapshot All three patterns rise until 20Jan. On 24Jan, the 15yr breaks away from the ensuing consolidation and rallies again until the end of the month. Euro-FX 10Jan Watch the round pennies on either side of the market for support and resistance. The falling channel in place since late October that is bound by 125.70-130.25. The lower end coincides with the August 2010 low. Oversold somewhat, but not showing signs of turning. Seasonal Snapshot A decidedly weak tone until the end of Feb. Yen 10Jan The Yen is struggling with the mid November highs. Near-term Momentum seems to have eased off since peaking on Wednesday. Look for a near term test of the 129 support area. Be careful if the Yen rallies, as intervention has loomed large around the 130.00 level. 12810 shows as strong support. Seasonal Snapshot Mild weakness in all three patterns ends 07Jan and strengthens until 23Jan. Energies: 10Jan Initial support from the possibility of Chinese intervention on weak data wore a bit thin throughout the session. That said, all three Petro markets we track have positively tilting technicals. But the very high correlation to “outside forces” has us concerned. Crude is lagging the Overbot conditions that is presenting the rest of the Petros. Seasonal Snapshot All three tracked Petro markets’ are exhibiting a mixed to negative bias until about Jan 10th Crude: 10Jan Major resistance is still offered at 104.00. Old resistance at 101.75 is offering new support for the time being. Watch the Euro and the Equities for a resumption of highly correlated action. NatGas: 10Jan Spring-like weather in the upper Midwest keeps the pressure on the market. Watch both Momentum and RSI as these 2 indicators have not been able to seriously shift to a higher dynamic for some time. If they do, it has a good chance of staging a possible reversal rally. A move back to near 3.50 would be necessary to make that a reality. Of utmost importance, though, is the storage market has not had a sizable draw yet and we’re already into January. If this persists, look for continuing weakness. Seasonal Snapshot A mixed historical picture for the next week, but generally negative action until month end. Equities: 10Jan Light, declining Volume lends some suspicion to today’s rally. Our noted gaps below last week’s lows in S&P and Dow have been filled, but Mar NASDAQ still has a gap open down to 2284 that was left open after the New Year’s Day holiday. Mar Dow has violated its late Oct highs (12230), whereas the S&P is still capped there (1290) and NASDAQ has some catching up to do (2408). Indicators might point higher, but all three markets we track are historically Overbot... the most since last July. Keep track of the Volatility, which has been Low. Seasonal Snapshot S&P is a mixed bag until mid-Jan where a weeklong material downdraft is in place. From that point on, look for a general Trend to higher prices until Feb 1. The Dow has some modest pressure higher for the next 2-3 days, then enters a negatively biased period until Jan 22. The NDX Trends modestly higher until Jan 14. At that point all indicators head lower for a week. Grains: 10Jan South American Weather concerns still weigh on pricing but today’s action was a reversions from yesterday’s rallies. Markets are unlikely to see material new directional bias as Thursday’s USDA report looms. Post-Christmas gaps still exist below the current market prices and should provide a drag on any rising momentum until filled. Corn: 10Jan Current months were basically unchanged as the market readies itself for Thursday’s USDA report. Today’s action was consolidative with reasonable but lower volume. The Doji day speaks to the day’s directionless action. Positive Momentum continues to wane, but today’s action in RSI reverts back to positive so the reading is mixed. RSI is coming off recent peaks near 87. Volatility is low and falling. Seasonal Snapshot The 5yr pattern leads the choppy 15&30yr patterns gently higher until the end of February. Soybeans: 10Jan Doji day speaks to directionless close. Not an inside day like Corn, but no new highs. Momentum and RSI at cross-purposes. Volatility in Soybeans is near the 1st Standard Deviation higher which is our measure of High. However, it is going sideways at this point. The 200-day Moving average is still falling. Seasonal Snapshot All three patterns display a choppy downward bias. The 5yr ends 29Jan; 15yr 01Feb; 30yr 07Feb. Wheat 10Jan Like Corn and Soybeans, Wheat’s Momentum and RSI are moving in opposite directions which is again showing mixed signals. Unlike Soybeans, its Volatility so on the Low side of Average and falling. Its 200-day Moving Average is also falling though. Seasonal Snapshot The 5yr pattern displays pronounced weakness until 16Jan, whereas the 15&30 yr patterns’ weakness are less pronounced, but last until the end of Jan. Interest Rates: 10Jan Both bonds and Tens exhibited further strength as they bounced off lower levels. Bonds rallied off a clear support level at 142. With relative lack of economic data, long-dated Treasuries are directionless but holding at levels that go back several months. No meaningful or sustained weakness. The Bonds and Tens are bumping up against overhead resistance that goes back 3-4 months. Mixed bag technicals muddy the waters. Both longer dated contracts have held their rising Trend lines that date back to early Oct. The upshot, however, is that for the past 4 months or so, both have essentially gone sideways with volatility. Rising trend line support is close to being tested. Mar Bonds 142-00 Mar 10yr 130-00 Fairly significant support levels remain in place for long-dated instruments Mar Bonds- 140-00 Mar 10-Yr- 129-00 Mar 5-Yr - 122-16 (untracked) Mar Bund- 133.30 Seasonal Snapshot 5, 15 & 30 yr patterns in long-dated maturities’ US Treasury instruments have a short, mild upward bias until Jan 15. The 5-year then heads generally but modestly lower until mid-Feb. The 15 and 30 yr patterns head generally sideways until the contract changes in late Feb. However, about Jan 21 or so, there is a relatively sharp, quick downdraft, but that recovers about a week later. The 2yr has a positive bias until Jan 22, a which point its tendencies vary from modestly to sharply lower. Metals: 10Jan Gold again failed to make new highs so its recent downtrend remains in place. Its technical picture is mixed, so no real forecast is noted. Copper is deep into the flag/triangle formation. This lessens the odds of a major breakout. Indicators point to lower action at this point. Both Volumes were reasonable but did declines from Friday’s levels at first glance. Check back with tomorrow’s figures. Gold: 10Jan After a few consolidation sessions, Gold has extended its bounce off our noted rising trend line (1523) going back to Oct 2008... nearly to the dollar. This is casting doubt over the resolution of both our previously noted bear flag formation and our symmetrical triangle pattern: the first projects a move down to 1390; the second down to 1325. That said, while the much talked about 200-day moving average at 1635 is offering resistance on today’s rally, on a longer-term basis, there is evidence of a descending triangle formation, which is bearish. This formation focuses our attention on falling trend line resistance from back to September’s highs at the psychological 1700 area. A sustained break below the horizontal trend line, the triangle’s lower boundary at previous low of 1523 on much higher Volume would lend credence to the formation and ultimately target the 1150 area. Volume has been rising, but is still muted compared to pre-holiday levels. Seasonal Snapshot: The 30yr whipsaws down then up during the first two weeks of January, followed by consolidation. The 5&15yr patterns consolidate for the first half of the month, then rally well into Feb. Copper: 10Jan Our technicals present a confused picture as Trend and Momentum flip back and forth. Our Overbot/Oversold indicator has been middling for a month after getting moderately Oversold. However, the pattern of lower highs and higher lows since late September is still in place and keeps the market in a symmetrical triangle formation, currently bound by 325.00 and 355.00. Watch for a break out on higher Volume for a hint at longer-term direction. Seasonal Snapshot: All three patterns consolidate until year-end. The 15yr turns higher from 04Jan through 13Jan while both the 5 & 30yr consolidate until the end of Jan. Softs : 10Jan Orange Juice’s (untracked) huge freeze driven rally is a dominant Softs story and may be adding to the bullish sentiment in the Sector. Pay attention tot the individual markets’ dynamics and look for opportunities to take advantage of Overextended situations. Cocoa also had another huge upside day, but the Sugar and Cotton markets were indecisive. Cocoa: 10Jan Lack of rain and Nigerian strikes have Cocoa breakout out above the last month of trading ranges. Continued physical quality and supply concerns out of the major supplier Cote d’Ivoire again sparked buying that have bid Cocoa up through Overhead resistance and though the 2300 level. Watch for sudden snapbacks and pay attention to the news flow. Momentum and trend are now firmly positive and RSI is mid level and heading higher. Volatility is off the chart. Be wary if you’re in a new position. Seasonal Snapshot General modest lower bias for next week or so then the 2 shorter term patterns point higher until late Feb. Longer term pattern just heads sideways with some volatility. Coffee 10Jan March is threatening to test the 230 resistance area. Momentum and RSI reasserting its positive bias. Trend has been positive since turning in mid-Dec. However, Volume is indecisive. An increase would have added validity to today’s material move higher. Seasonal Snapshot The 5-yr and 15-yr both Trend higher until Jan 13. The 30-yr is just sideways. Cotton: 10Jan Yesterday’s bearish Hanging Man still sitting out there and today’s action is the same. Momentum is till waning, though the RSI remains quite Overbot and turned modestly higher today. Trend is definitely rising, but Volume dropped materially today. If the OJ rally is dragging the NYBOT markets higher, look for a correction if the OJ runs out of steam. 96.50 will function as a support level. USDA reports on Thursday AM will be closely watched. Volatility is still on the Low side for taking new long side Option positions. Seasonal Snapshot Mixed signals until Jan 10. Then a modest general uptrend until for a few days, then mixed again. Pay attention to near-term fundamentals. Sugar 10Jan March Sugar is still making a base at about 22.75-2300. If this level fails to hold, look for a test of the 21.00 support level. Momentum continues to wane. Volatility has dropped from High to Average in just 2 sessions.Watch the Petro market for the Energy components’ dynamic. Seasonal Snapshot Modestly higher bias for rest of the week. Next week’s action points to a longer term Trend down and the short term 5-yr has a short negative then gently rising until near month-end. By Providio Trading Consultants Disclaimer: There is risk in trading futures and options. One's financial suitability should be considered carefully before placing any trades. Past performance is not indicative of future results.

Energies A violent near term bottom was set in oil and rbob on Tuesday, following an FOMC statement that had the markets whipsawing into a rally. The bad news is out? Hardly, but the reality is the market needed a dead cat bounce after crude oil’s 25% freefall in just over two weeks, and that’s exactly what happened during a four day 15% rally. Those chasing this rally will likely experience a hard reality this week as the oil market turns south to retest the Tuesday lows. The volatility presents a unique opportunity to play short condors. Financials The stock market had what some might view as a capitulation event (mass exodus thereby removing all the sellers) on Tuesday, rebounding dramatically following a horrendous Fed statement. This was not capitulation in my book as there are plenty of potential sellers left here. This is wave number 1 of possibly 3 waves down. The current technicals are indicating a Mound Ladle Formation developing which means a move to 1260 is possible before a violent retest of the lows. A close above 1199 on the S&P indicates a likely move to 1260, otherwise I remain bearish and expect continued pressure and volatility in this sector. The Fed’s announcement that rates will remain unchanged through to 2013 should not be a surprise and I suspect it is the tip of the iceberg of what is to come in the way of monetary policy shocks that illustrate just how bad things are getting. One interesting side effect of the announcement is the possibility that loans will be more accessible as investors seek out opportunities to acquire debt since they know the intermediate term prospects are not there for rising rates. This could create spending and help out the situation near term, but it will be difficult to see this impact the market for several months. Bonds, on the other hand, have limited upside and I would consider there to be equal-weighted risk on the buy and sell side. Volatility and choppy trade should remain, but for those with high risk tolerance a short strangle is worth a look. The dollar is choppy but remains bullish and I suspect this week will offer a strong rally as the euro currency experiences some pressure while Asian currencies chop. The Canadian and Australian dollars remain strong sells. The Aussie crumbled nearly 10% off the highs in a matter of days, showing the potential collapse that awaits this market. The Swiss Franc had one of the most impressive currency moves I have ever seen, as an FOMC play sparked an 8% rally in a day but was met with even more impressive selling as a clear top was put in. This market could see some impressive liquidation in the coming days. The Japanese yen performed as anticipated, erasing the intervention selloff in a matter of days. Following recent history the likelihood is for a chop around this 130 price range before heading higher. Expect a range between roughly 127-132 but don’t let the choppy trade scare you out of the long as I remain confident in my forecast that: The Japanese Yen futures will hit 140 before it hits 80 or I will quit writing the Weekend Commodities Review...forever. Past performance is not indicative of future results. Charts courtesy of Gecko Software's TracknTrade Grains This past week’s WASDE and crop production reports led to an extremely volatile and whipsaw Tuesday, but a reality is likely to soon set in for this sector. Oil prices have topped, already breaking 35% from the highs in just over 3 months. This affects ethanol demand which thrives when price extremes exist in oil but crumbles when oil prices retrace. Overall the commodity markets are susceptible to declining global demand, with grains seemingly lagging this outlook and sustaining prices amid a shift in demand outlook. Sell corn and beans while using long wheat as a spread against either (1 to 1). Rice is worthy of a put play here. Meats Cattle is fast approaching topside resistance on the Dec contract, and I anticipate strong selling to come in early this week. Put plays are recommended. Delivery hogs for August have continued to scorch higher, but back months are not seeing the same support. December hogs broke key trendline support but rebounded dramatically late in the week, and I recommend waiting for a fresh low on the December to reestablish a short. In case you missed the final oinks from the pit, pork bellies can now rest in peace as the CME put that futures market to bed permanently, begging the question as to what market is next to walk the plank? Metals During the panic of the past couple of weeks the flight to quality in gold has been strong, but the increased volatility prompted the CME to raise margins once again. The margin increase and a rush of profit taking coincided with a bounce in the stock market to bring a bit of selling to end the week. Volatility premium is thru the roof, but naked option selling is too risky a proposition in these markets at the moment, so look to sell an ITM call spread to pay for two OTM bear put spreads on an even money skewed option play to position for a volatile downside move. Copper remains a strong cyclical sell with straight puts. Softs Orange juice is in a freefall, collapsing on strong supplies and weakening demand with no crop-destroying hurricane in sight. More downside is expected. Coffee is chopping around while quietly establishing fresh lows every few weeks. I recommend puts here with increased downside momentum expected shortly. Cocoa broke key support at 2868 but recovered quickly late last week. I believe there is a high likelihood of a crash in this market in the next few weeks, but on a purely technical level the market is a near term buy with a double stop reversal below last week’s low. Cotton remains a sell on bounces, along with sugar. ---------------- James Mound *Disclaimer: There is risk of loss in all commodities trading. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. Past Performance is not indicative of future results. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Options do not necessarily move in lock step with the underlying futures movement. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC.