Commodities Calm Before The Champagne Pops
Monday, December 29, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Welcome to the final installment of “Commodities Corner” for 2008.
As the year plods through its final few days and investors look forward to flipping the calendar to 2009, it comes as oil prices continue to march downward.
Over the past few issues, we’ve noted how the price of crude oil has blasted down through the $50 per barrel level and then down through the $40 barrel level. Just last week, it even managed to sink to the $32.50 a barrel level - a price we haven’t seen in over four-and-a-half years and miles away from the high of $147 just five months ago.
And true to its volatile nature, oil is currently trading back around $40 a barrel today.
So where next for the black stuff?
On December 17, the OPEC oil cartel held a major meeting and decided to cut oil production by two million barrels per day. But the market expected the move and oil has continued to sell off since then.
It looks like there might be a little more liquidation in store, so we might not have seen the bottom yet. Some of the major investment houses that boldly called for $200 oil not that long ago have now done a 180-degree turn and are now saying $25 oil is around the corner.
Based on the 200-month moving average technical indicator, oil stopped right on the mark, as that indicator can usually be counted on as a major support area. Will it hold or blast down through it? The early New Year trading will give us more clues.
Destination: $5.000
If you’ve read my past couple of columns, we’ve been looking for natural gas futures to edge down to a longer-term support area at the $5.000 per MMBtu level.
We almost got there last week when the price nailed a low of $5.210 per MMBtu, but has since bounced back above $6.000 per MMBtu.
What next? We may have seen the near-term low for now, but we’d like to see some more price action before we call a bottom here. Holiday trading tends to be very thin, so the market movements can be exaggerated.
Over the past six years, the $4.500 to $5.000 per MMBtu area has proved to be solid support for natural gas. In fact, the last time prices traded under $4.500 per MMBtu on a consistent basis was in early 2002.
Just As Predicted… The Metals Dig In And Move Up
“The old theory of precious metals being in high demand during times of economic turmoil might finally be coming back into play.”
“It seems that gold and silver have washed out all the weak bullish speculators, with both metals enjoying decent technical bounces and possibly regaining some upside momentum.”
“Gold has already made solid upside moves over the last two weeks and silver looks like it might be able to break out of the narrow trading channel that has trapped it for the past two months.”
That’s what we said in our last issue two weeks ago - and our stance hasn’t changed since then. If you take a look at the charts below, both gold and silver have actually followed through on what we said back then, managing to gain some upward traction and appearing to enter a solid bullish phase.
“The Ags” Are Stuck In The End-Of-Year Mud
As end-of-year trading volume dwindles, many of the other commodity markets that we track are treading water.
For now, the “softs” (coffee, sugar, cotton and orange juice) appear to be following a more downward path, while the grains (corn, wheat and soybeans) have enjoyed a bump higher over the last week.
You can see a snapshot of this activity in the wheat and orange juice charts below. Again, we’ll have a better gauge of the way forward for these markets once 2009 gets underway and volume returns to more normal levels.
That wraps things up for 2008. Wishing you a very happy and prosperous 2009…
Lee Lowell
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