Commodities Preparing For Summer Bull Run?
Monday, May 4, 2009
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
With many major commodities looking to gain some traction, the oil market seems to have found a pretty solid support level near the $40 per barrel mark.
As you can see from the chart, it hasn’t broken below that level for any sustainable period of time since drifting down there towards the end of 2008.
With the price currently trading around $54, the market seems locked in a tug-of-war between large supplies and slack demand, versus the decreased output that the OPEC oil cartel has pledged.
That means we should continue to see the oil market trade in this wide current range of $35-$60. However, the upside seems to be the path of least resistance at this point and if the market can rise convincingly above $55, we could see a quick run to $70.
Not Much Gas In This Market… Which Bodes Well For Long-Term Bulls
Despite our long-term bullish outlook, the natural gas market has yet to respond and continues to trade in a rather stubborn range.
With trading in the commodity somewhat muted, due to the financial crisis, many of the bullish speculators have exited the market. And coupled with large underground supplies in storage, we could see the market remain on the defensive for a short while longer.
If you take a look at the chart, though, you can see that the lackluster market did finally manage to finish the past week on an upswing - something that hasn’t happened since mid March.
If natural gas prices can get above the 20-day and 50-day moving averages, then there’s a good chance that the end of the long downswing might be over, and we can see the start of the new bull run.
Right now, however, the current low levels make a longer-term bullish position that much more attractive. And if you want to take advantage, consider natural gas futures options on the NYMEX, or a position in either the stock or options on the market’s main ETF - the United States Natural Gas Fund (NYSE: UNG).
With A Thirsty Summer In Store For The Grains, Prepare For Higher Prices
Although it seems a long way off for some soggy parts of the United States at the moment, the prospect of a summer drought is just around the corner.
That’s bad news for the grains market, with water so critical for corn, wheat, and soybeans. If this scenario plays out, it could easily push up food prices for these three commodities.
In fact, having found near-term support, all three look to be headed for their annual springtime run in preparation for this, as speculators gear up for summer weather issues.
Over the past week alone, soybean futures have rallied by almost $1.50 a bushel from low to high. Plus, the market has convincingly moved above its 200-day moving average.
Similarly, corn and wheat futures have moved to the top of their recent ranges and could be ready to mirror soybeans’ move.
The bottom line with the grains is that with the potential for a summer drought, be prepared for some added volatility and higher prices as a result.
Gold And Silver Holding Steady… But A Move Back To The Highs Is Coming
We wrap up this issue with the metals market - specifically, gold and silver.
The technical levels that we’ve mentioned over the past few issues (you can check out the “Commodities Corner” archives here) have held up pretty well. Unsurprisingly, both gold and silver have benefited from the stock market’s rollercoaster ride since October 2008, with investors flocking towards the safety of metals as stocks have melted down.
This year, we’ve seen gold top the $1,000 an ounce mark, with silver climbing close to $15 per ounce. And while both have pulled back over the last few months, neither has ventured lower than the support levels we’ve pegged.
Gold has held its support around the $860 an ounce range, while silver has held each pullback at $12 an ounce.
From here, we believe both gold and silver will once again test those $1,000 and $15 levels, respectively.
In the same way as natural gas, you can take a bullish position on these metals either through futures options on the NYMEX, or through the ETFs that track the price performance - the SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV).
That’s all for this edition.
Lee Lowell
Read more articles by Lee Lowell
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