The Commodity Sector’s “Big Four” Say “Sayonara” To The Selloff… Here’s The Next Action
Monday, September 22, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Oil… natural gas… gold… and silver.
When it comes to the commodities world, these four markets are the main drivers of the sector’s activity. And since they’re also the biggest movers at the moment and attract the most investor interest and media attention, we’re going to focus on them.
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.
This is an important point, as many believe that Wall Street firms roiled by the credit crisis have contributed heavily to the liquidating phase in the commodities markets.
So let’s take a closer look, starting with oil…
A $57,500 Move In Two Months
In our last column, crude oil futures were trading around $106 a barrel – and headed south.
That southerly trend then continued, with the price dropping to a low point of $90.50 a barrel. It was the lowest price since February and the first time since April that oil has traded below $100. But oil has rallied a again and the price currently sits around $121 after a record one-day spike of $16 today.
Based on the oil point multiplier, the top-to-bottom move from oil’s all-time high near $148 a barrel in mid July to its recent low of $90.50 equates to an equity move of $57.50 a barrel – or $57,500.
For a bigger chart click here.
With the possibility of Wall Street receiving a massive government bailout, totaling some $700 billion, it will be interesting to see how the oil market performs from here. We may have seen a market bottom for the near future.
Let’s mosey on over to the energy market’s other big player…
Natural Gas Takes A Breather… And Prepares For Launch?
In my previous column, natural gas was in the middle of a rather brutal downside pounding. The slump was so intense that the market had given up all the gains it had made in 2008.
Following the massive 6,800-point loss it’s suffered since hitting a high back in early July, it looked as if the market was going to take a breather and digest the move.
For a bigger chart click here.
And over the past two weeks, that’s exactly what has happened, as the price has consolidated its trading range around the $7.500 mark. As I noted in the just-released October issue of the Xcelerated Profits Report, (where I issued a specific recommendation on the natural gas market), this could be an area of great value for natural gas – and a possible launchpad for the next move higher. Keep your eye on this one.
Moving to metals…
Metals Set To Continue On Their Upward Track
As usual, gold and silver are still taking their cues from the oil and U.S. dollar markets. While they follow the oil market directionally, they move to the inverse of the dollar.
With the walloping that the stock market received early last week, these metals once again became the safe havens that many investors seek out when they’re craving some stability.
After a relentless selloff over the past month-and-a-half, we may have finally seen the bottom in gold and silver now. In addition, with the oil market rediscovering some strength and the dollar getting hit again, they’ve both seen some decent spikes over the past week.
For example, gold has rallied $150 an ounce from its low point – as you can see on the chart.
For a bigger chart click here.
Although silver has performed much weaker, it’s still managed to tack on a nice gain of $3 an ounce. That’s a dollar move of $15,000 for each market on one futures contract.
For a bigger chart click here.
There’s a possibility we could continue to see sustained upside moves in these markets for now.
Juicing Up
Lastly, I just want to give you a quick update on the orange juice market. Although this commodity doesn’t garner much volume or attention, it still gets noticed every summer when the hurricane season rolls into South Florida.
Since a good portion of oranges are harvested in Florida, we can usually expect a decent amount of interest in orange juice trading during the August-October periods.
Even though we’ve had a few hurricanes sweep through Florida this season, none of them caused any damage to the orange trees. If you look at the daily chart (the first one) and monthly chart (the second one) below, you can see the downward momentum in orange juice futures, as there is no reason to be buying.
For a bigger chart click here.
And the monthly chart shows how orange juice futures have come down since the beginning of 2007.
For a bigger chart click here.
That’s all for this edition.
Lee Lowell
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One Response to “The Commodity Sector’s “Big Four” Say “Sayonara” To The Selloff… Here’s The Next Action”
[...] always, the energy market tends to dominate the commodity sector. When I last wrote to you two weeks ago, crude oil futures had rallied almost $20 a barrel - from near $90 to the recent high of [...]