Commodities Continue Their Late Summer Swoon
Monday, September 8, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
It’s been three weeks since our last update, as we took time off for the Labor Day holiday last week.
In my last column, I mentioned that most of the commodity sectors have seen selling over the past few weeks, with many falling from multi-year, or all-time highs. And it looks as though that selloff still remains in force for now until something causes it to turn around.
We’ll start with the crude oil first…
Oil Slides Below 200-Day Moving Average… More Downside To Come?
In our last report (on August 18), crude oil futures were trading in the vicinity of $115 a barrel (the October futures contract). Since then, the price has continued to move to the downside and currently sits around $106.50 a barrel. That’s $42 lower than its high, set on July 11. That equates to a dollar value change of $42,000 move on one futures contract.
A few weeks ago, we’d pegged the 200-day moving average area of about $110 a barrel on the daily charts as a level of potential support. But that has now been breached, we could see more downside to come. One thing is sure: You never want to write off this market, as many of the events that had propped it up in the first place are still lurking in the background.
Gas Gets Pounded
The energy sector’s other major player - natural gas - has suffered a relentless downside slump recently. It’s been mashed so much that it’s given up all the gains it made for 2008.
So what next? We may be nearing a final support area, as the charts have become very oversold and the hurricanes rumbling through the Gulf of Mexico are keeping many of the short sellers at bay for now.
The October futures contract has currently lost about 500 points since our last update - with an even lower level seen just a few days before that. That 500-point move equates to a dollar value of $5,000 on one futures contract - and an unbelievable $63,000 move from its high price on July 2.
Whether the hurricanes cause any real damage and disrupt supplies is yet to be seen, but it looks like we could finally be getting to a stable support area for natural gas.
Lastly, let’s take a look at the metals market…
These Metals Have Lost Their Shine
For the most part, silver and gold are still taking their cues from the oil and dollar markets. These physical commodities follow the oil market directionally, but move to the inverse of the dollar.
Right now, silver is by far the weaker of the two metals, as it just can’t seem to muster up a sustained rally for some reason. It continues to trade at the low end of its recent range.
The December futures contract currently trades around $12.10 an ounce, which is well off its last high of $19.70 an ounce on July 15. This equates to a dollar change of $7.60 an ounce, or $38,000 with the silver point multiplier. That’s a big chunk of change in that short period of time.
From a technical perspective, silver is still oversold, but it’s hard to pick a bottom from here. What we can say is that if the dollar starts to sell off and the oil market starts to move back up, we could see a nice rebound for silver.
Gold has also continued to move in a similar pattern to silver: Lower. However, not to the same extent. December gold futures are currently near the $807 an ounce level and holding above its lows of $778 an ounce from a few weeks ago.
Since both metals move in tandem, when one goes down, so does the other. Gold topped out right near $1,000 an ounce back on July 15 and has given up roughly $200 an ounce since then - a $20,000 move in equity.
As with the other commodities, that’s a big swing. And just like silver, gold is oversold and could see just as impressive a bounce if people start to pile in.
That’s all for this edition. Good trading.
Lee Lowell
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8 Responses to “Commodities Continue Their Late Summer Swoon”
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The conditions since the big run started in Metals of debt building and it downflowing effects on overall economic has not chance but has in fact worsting in the credit leverging markets.The battle in the latter market in GSE’s/MBS’s is coming to a head within the next few weeks and should send off wild downsiding in general market{dow/Naq/SP}sending the big monies back to metals as all debt sector’s show their ugly heads ablances sheets!
I still look for a few hundred banks and investments houses who are now borrowing between 30 -60 billion dollars A DAY OFF FEDS{see USTODAY Aug 1,2008 ed. sect “B”} to still get bail out by feds and for metals to see their tops of July by end of year!
I think all energy stocks [including alternative] will go a little lower and then have a nice rebound.
I also the precious metals will follow the same pattern.
Taking into account the current downswing in the world (apart from china) economy,can gold reach 2000,and what about copper how low can it go.If you were given s choice which one would you buy?
I think this was a very good report, there should be more info on commodities.
Thanks
Commodities or STUFF will be important no matter what the world financial state exists in. Fluff is for trading , stuff is for investing.
I think Gold and silver is huge bargain now. Yes, Gold will go eventually to $2000. Demand is up and supply from South Africa has been reduced. I know traders are pushing Gold down, just like they pushed oil to $140. Eventually, it will blow in their face and they will be force to cover their short position in Gold. Result, much higher Gold price. Both Copper and Gold are good. But, I think Gold may be better choice due to its hedge against paper money.
what is new rats crude oil and gold
[...] As I mentioned here two weeks ago, many commodities have endured big selloffs after achieving multi-year and/or record highs. Not only that, these selloffs have happened quickly, with commodities appearing to get caught up in some of the stock market’s current mayhem too. [...]