Commodities Corner: Downward Trends Continue But For How Much Longer?
Monday, August 4, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Welcome to another installment of our bi-weekly round-up of what’s been happening in the world of commodities. Once again, there’s been no shortage of wild action, so let’s get right to it.
The energy markets continue on with their newly found downtrend. I believe that a good portion of the recent uptrend was attributed to large funds getting involved in the markets. By no means were they the sole drivers of the run-up, but when the funds want to exit, they do so en masse. This is why we are probably seeing such a dramatic move down in such a short period of time.
Oil Approaches More Reasonable Level
Crude oil futures topped out at $147.90 /barrel (September futures contract) on July 11, and as I type, the oil market is down another $4/barrel today to $121.00. This has knocked about $27/barrel off its all-time high price, and equates to a dollar value of $27,000 move on one futures contract alone. If the downtrend continues over the next few weeks, it looks like the next support area could be at $107/barrel.
http://futuresource.quote.com/charts/charts.jsp?s=CL%20U8
Following Suit, Natural Gas Takes A Dive
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Oil isn’t the only commodity smarting right now. Natural gas, the other major energy player, is still getting hit as well to the downside, which is another 900 points lower since the last time I wrote here. That’s another $9,000 move on one futures contract and an unbelievable $50,000 move from its high price from July 2.
There could be more downside to go on the September futures contract as some are calling for a fall to the $7.50/mmbtu level (from its current $8.72 level). As I said last time, we are right in the middle of hurricane season in the Southeastern U.S., so this market still could pop back up at anytime if a few storms start to emerge.
http://futuresource.quote.com/charts/charts.jsp?s=NG%20U8
Grains Weathered It Out
It looks as though the grain markets (corn, wheat, soybeans) are also still on the downtrend path. The devastating rainstorms early in the summer that swept through the Mid-West don’t seem to have had as bad effect on the crops as some predicted. Corn and soybeans are currently hitting limit-down levels today and breaching long-standing support levels. If buying doesn’t emerge soon, these markets could fall a lot more.
http://futuresource.quote.com/charts/charts.jsp?s=ZC%20U8
The New Green, Weather Depending
Another weather market that is in play is the orange juice market. Much attention is focused on orange juice at this time of the year because of the potential hurricanes as well. You would think that this market would be propped up due to the speculation alone for severe crop damage, but the orange juice futures are also currently in a massive downtrend. Sometimes things don’t make sense, but when you least expect it, this market could pop. Keep an eye on this one as it could be getting close to oversold levels.
http://futuresource.quote.com/charts/charts.jsp?s=JO%20U8
That’s all for this edition. I’ll catch you back here in a couple of weeks.
Lee Lowell
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