Prepare To Buy These Two Hurricane-Hating Commodities
Monday, April 13, 2009
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Having etched out new lows a few months ago amid the worldwide financial crisis, many commodity sectors appear to be doing their best impression of planes hovering over a busy airport: In a holding pattern.
While long-term commodity prospects are dictated by supply and demand, weather factors and long-term fundamentals, the short-term outlook is sprinkled with volatility. Some commodities have hit levels not seen in some time, reinforcing a new trend of late: The relationship between commodities and the general stock market.
It hasn’t always been the case that commodities and stocks moved in the same direction, but nothing is immune to a price shock these days. And when one domino moves, it can take many others with it.
We don’t foresee much change in this inter connected stocks-commodities relationship until all the recent government intervention takes a strong foothold.
So let’s turn to some commentary…
The Macroeconomic And Technical Outlook For Oil
Over the past three weeks, we’ve seen crude oil futures trade in a wide range between $47 and $54 per barrel.
Macroeconomically, we still have the issue of dwindling worldwide demand versus over-supply. The OPEC oil cartel has tried to arrest the latter by cutting supplies recently, but this trend could keep a lid on prices for the time being.
Although many market participants don’t give much credit to OPEC these days in terms of following through on their commitments, the psychological impact of better days ahead due to the U.S. government intervention can cause quick pops to the upside.
Technically, the oil market has support at the $47.75 area, right around the 50-day moving average. And if the price can break out above $55 convincingly, we could see some clear sailing for oil, possibly up to the $70 per barrel range.
For now, expect to see crude oil trade in a large range between $30 and $60.
As Natural Gas Drifts Lower, Our Optimism Rises Higher
The natural gas market keeps slowly eroding away to lower and lower levels.
Each week, we hear the Energy Administration Information report that that there’s an abundance of underground storage supplies of natural gas - and this, in combination with slack demand, is what’s keeping natgas heading south.
However, the lower this market gets, the greater the buying opportunity will be. We’ve been bullish on the natural gas market for a few months now, and although it’s moved against us recently, we continue to like it for the long-term - particularly with hurricane season around the corner.
I’ve consequently implemented a special options strategy in my Instant Money Trader service that enables investors to get into natural gas at even lower prices than current levels. For more information on how you can join in, click here to read a short guide on the service.
Gold And Silver Nail Our Support Levels… And Bounce Higher
In my column two weeks ago, I noted:
We don’t see the front-month gold futures (June contract) trading much below $870 an ounce after the current pull-back is over, and silver shouldn’t see anything much below $12 an ounce (May contract).
Right on cue, June gold futures tagged a low price of $865 an ounce last week and have since bounced off the very reliable 200-day moving average. The price jumped over $35 an ounce to hit $901 just this morning.
It’s a similar story in the silver market. The metal tagged support just above the $12 per ounce level and has rebounded almost a full dollar to its current level of $12.80 an ounce.
Now that the recent pullback seems to have ended right at those support levels, we have more reason to maintain our longer-term bullish stance on gold and silver. And the current area looks to be a great spot to dip into long positions.
Other than looking at limited-risk option strategies from the COMEX futures options market (where gold & silver futures options trade), you can buy outright shares of the gold and silver ETFs that track the price performance - the SPDR Gold Trust (NYSE: GLD) and iShares Silver Trust (NYSE: SLV) respectively.
Has This Hurricane-Hating Commodity Touched New Lows?
Lastly, we’re continuing to track the longer-term orange juice charts, as the price flirts with multi-year lows not seen since before hurricanes tacked on huge weather premiums to the price in 2004.
It looks like the market may have touched its near-term lows - and with a decent bullish move over the past two weeks, it could now be gearing up for the psychological and speculative fever that comes with the onset of hurricane season.
The best way to take advantage of this situation is through limited-risk bullish trades on orange juice futures options.
Catch you next time.
Lee Lowell
Editor - Triple-Zone Profit Trader
Read more articles by Lee Lowell
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I am extremely bullish on copper. For the past two months I have held a small, well-managed copper Canadian miner whose stock price has increased by 160% in that time. It is Taseko Mines. They are a low cost producer, plan to double production by the end of 2009, and are in the process of permitting a huge new copper/gold mine in BC. A pure cash cow that is flying below the radar. Every serious investor should take a look.