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Amid The Gloom, These Commodities Could Offer Some Great Buying Opportunities
Monday, November 17, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Welcome to another installment of “Commodities Corner.”
I’m filling in today for my colleague, Jim Stanton, who’s taking a well-earned vacation. His bi-weekly “Sector Watch” column will return next Monday.
Having the chance to write to you for two straight weeks comes at a good time. There’s plenty to talk about - and heck, the news isn’t all bad either! Certainly a refreshing change.
In fact, we finally might be getting a welcome break from the massive selling that has smothered the commodity world over the last few months. In the dozen or so markets that we track, we’re beginning to see some sideways trading. And since that’s the first step in building a solid base in prices, that’s a good sign.
Beware, though…
Caveat Emptor… The Bear Still Lurks
Before you get too excited, we still have to exercise caution because in technical analysis, sideways trading on the charts can either lead to another bearish wave or a move upward. So until we see a definitive upward push from here, we can’t get too bullish. However, since prices have already fallen so heavily, I’m more inclined to believe this is the beginning of a future upside movement. And about darn time, too!
With Many Speculators Washed Out and Another Potential Production Cut From OPEC, Oil Gets Closer To A Bottom
Last week, I wrote about how the price of oil was flirting with the $60 a barrel mark - a level not seen since January 2007. But “flirting” doesn’t appropriately describe the plunge it took from there. By the time Friday came around, it had bottomed out at around $54.70 - a price last recorded in June 2005.
Travel across the country, and you’ll see signs for $2 a gallon gasoline or less. With the sharp plunge in prices, we’ve seen a good washout out of much of the speculative money that fueled oil’s historic run up to $147 a barrel back in July.
Even though oil is reaching oversold territory on a technical analysis level, that doesn’t always mean we’ve hit bottom and it still might have further to fall. However, it does mean that we’re getting closer.
The OPEC oil cartel has tried to stabilize prices twice this year and reports indicate that it might be leaning towards doing that again. You see, while the average American might be enjoying much lower gas prices, OPEC is most decidedly not - a complete reversal of the situation we saw in the summer, when Americans were miserable and OPEC loved the extra cash. The cartel is desperate to keep oil from sliding below $50 a barrel.
Time will tell what moves OPEC will make, but as 2008 draws to a close, I wouldn’t be surprised to see trading slow down considerably. If that happens, prices will meander along without stretching too far in one direction or another until after we’ve rung in the New Year.
Natural Gas Closing In On Optimal Buying Price
Natural gas carved out another new low last week as well, barely stopping above the $6.000 per mmbtu level - an area we haven’t seen since February 2005. Since hitting that low, it’s bounced higher to its current price of $6.500 per mmbtu.
Just like crude oil, we may be getting very near to a bottom in prices as the chart is getting somewhat oversold. And if history is any guide, we’re nearing a great buying opportunity. Since 2003, any price of natural gas in the low $5.000 per mmbtu range has turned out to be an excellent time to get in on the action.
I’ll keep both eyes on the situation in case that chance does come up in the near future, however, again, we might not see that happen until after the holiday season is officially over.
Stock Activity Is The Trigger For Metal Movement
If it’s a hearty dose of sideways trading action you want, gold and silver are mirroring their energy-based commodities.
But because they’re more inter-connected with the stock market than physical commodities, they’re susceptible to more influence from the stock market’s gyrations. So if stocks can somehow sustain any sign of bullish life, the metals have a strong likelihood of winning out.
The Fabric Of Our Lives Could Be Setting Up To Make Us A Pretty Penny
Last but not least, we turn to the grains and softs markets.
One of the most interesting charts here is cotton. If you haven’t been tracking the market, then let me tell you that prices are getting very close to lows that we haven’t seen since 2001. And since I only have data that spans backs to 1979, I don’t know when it touched a lower amount before then.
Cotton is getting very close to long-term support levels, and the 2001 low of roughly $0.28/pound could be in our sights. If we get down to that area and it holds, we could possibly have one helluva buying opportunity, using limited-risk option strategies of course! I’ll keep you posted.
Good trading.
Lee
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