Don’t Just Wear It… Buy It: This Commodity Is Inching Towards An Excellent Buy Level
December 1, 2008
Monday, December 1, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
When I last wrote to you two weeks ago, I noted that the majority of the commodity markets that we follow were entering into a consolidation phase, with the possibility of bullish action to come.
Well, we were right on most of those market, but some have stubbornly continued their bearish slide.
“Route 66″ For Oil
When oil prices rocketed to $147 in July, you’d have been committed for suggesting that the price would dip back down to the $50 per barrel level - a 66% slump.
But the big news is that oil has wiggled its way under the $50 a barrel mark - a price we haven’t seen on a front-month futures contract since May 2005.
The current futures contract (January 2009) hit a low price of $48.25 a barrel on November 21. In these tough economic times, the lower price of oil provides a much-needed bright spot for consumers, as the national average price per gallon of gasoline is around $1.82.
For the moment, crude oil is still trading in tandem with the stock market in that it moves higher when stocks go up (as it did for part of last week), and moves lower when stocks decline.
The OPEC oil cartel held an informal meeting this weekend, where the ministers opted to hold off on production cuts until their formal meeting later this month. The cartel believes the ideal price of oil should be around $75 a barrel, as that would greatly help their economies.
We’ll see what kind of power the cartel still wields in these markets, but unless it makes dramatic cuts, it looks like the price of oil is at the mercy of normal market forces.
Natural Gas At $5 = Buy
We mentioned last time that the natural gas futures had hit a level just above the $6.000/mmbtu area - a level we haven’t seen since February 2005.
Since then, the price is still waffling around those lows, but hasn’t traded below them. Right now, we’re still above the $6.600 per mmbtu level, as the commodity continues to search for some direction.
We still believe that if natural gas slips to the low $5.000 per mmbtu range, it could prove to be a great buying opportunity. Hopefully, we’ll get that chance again over the next few weeks or months, but the winter season should influence the price.
December Dip For The Metals
Not a good start to December for gold and silver.
Having enjoyed some bullish action last week - and looking set to finally turn the corner and start the next upward run - both metals hit a brick wall today, and have been pounded back down to almost the same levels from where they began the move last week.
From a $90 per ounce climb for gold and $1.50 per ounce rise for silver, gold has handed back about $45, while silver had shed $1.10.
It seems traders are only willing to hold onto gains for a very short period of time, as they’re never sure when more bad news will hit the newswires. Still, we still believe the metals can regain the bullish momentum, but it might not happen until after the holidays.
Close To A Major Buying Opportunity On Cotton
As for the other markets, our last edition focused on the cotton market, since it was getting very close to long-term support levels.
The lowest price for cotton came in 2001 when the futures contracts tagged the area of $.28/pound. This was based on information spanning back to 1979.
On November 20, the current front-month cotton futures contract (March 2009) dipped under the $.40 per pound level and has since climbed to its current level of $.47 per pound.
We’d like to see if it will hold here, but if cotton decides to move lower again, keep the $.25 to $.30 per pound area in sight as a potential huge buying opportunity.
Until next time…
Lee Lowell
Sphere: Related ContentAmid The Gloom, These Commodities Could Offer Some Great Buying Opportunities
November 17, 2008
Monday, November 17, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Welcome to another installment of “Commodities Corner.”
I’m filling in today for my colleague, Jim Stanton, who’s taking a well-earned vacation. His bi-weekly “Sector Watch” column will return next Monday.
Having the chance to write to you for two straight weeks comes at a good time. There’s plenty to talk about - and heck, the news isn’t all bad either! Certainly a refreshing change.
In fact, we finally might be getting a welcome break from the massive selling that has smothered the commodity world over the last few months. In the dozen or so markets that we track, we’re beginning to see some sideways trading. And since that’s the first step in building a solid base in prices, that’s a good sign.
Beware, though…
Caveat Emptor… The Bear Still Lurks
Before you get too excited, we still have to exercise caution because in technical analysis, sideways trading on the charts can either lead to another bearish wave or a move upward. So until we see a definitive upward push from here, we can’t get too bullish. However, since prices have already fallen so heavily, I’m more inclined to believe this is the beginning of a future upside movement. And about darn time, too!
With Many Speculators Washed Out and Another Potential Production Cut From OPEC, Oil Gets Closer To A Bottom
Last week, I wrote about how the price of oil was flirting with the $60 a barrel mark - a level not seen since January 2007. But “flirting” doesn’t appropriately describe the plunge it took from there. By the time Friday came around, it had bottomed out at around $54.70 - a price last recorded in June 2005.
Travel across the country, and you’ll see signs for $2 a gallon gasoline or less. With the sharp plunge in prices, we’ve seen a good washout out of much of the speculative money that fueled oil’s historic run up to $147 a barrel back in July.
Even though oil is reaching oversold territory on a technical analysis level, that doesn’t always mean we’ve hit bottom and it still might have further to fall. However, it does mean that we’re getting closer.
The OPEC oil cartel has tried to stabilize prices twice this year and reports indicate that it might be leaning towards doing that again. You see, while the average American might be enjoying much lower gas prices, OPEC is most decidedly not - a complete reversal of the situation we saw in the summer, when Americans were miserable and OPEC loved the extra cash. The cartel is desperate to keep oil from sliding below $50 a barrel.
Time will tell what moves OPEC will make, but as 2008 draws to a close, I wouldn’t be surprised to see trading slow down considerably. If that happens, prices will meander along without stretching too far in one direction or another until after we’ve rung in the New Year.
Natural Gas Closing In On Optimal Buying Price
Natural gas carved out another new low last week as well, barely stopping above the $6.000 per mmbtu level - an area we haven’t seen since February 2005. Since hitting that low, it’s bounced higher to its current price of $6.500 per mmbtu.
Just like crude oil, we may be getting very near to a bottom in prices as the chart is getting somewhat oversold. And if history is any guide, we’re nearing a great buying opportunity. Since 2003, any price of natural gas in the low $5.000 per mmbtu range has turned out to be an excellent time to get in on the action.
I’ll keep both eyes on the situation in case that chance does come up in the near future, however, again, we might not see that happen until after the holiday season is officially over.
Stock Activity Is The Trigger For Metal Movement
If it’s a hearty dose of sideways trading action you want, gold and silver are mirroring their energy-based commodities.
But because they’re more inter-connected with the stock market than physical commodities, they’re susceptible to more influence from the stock market’s gyrations. So if stocks can somehow sustain any sign of bullish life, the metals have a strong likelihood of winning out.
The Fabric Of Our Lives Could Be Setting Up To Make Us A Pretty Penny
Last but not least, we turn to the grains and softs markets.
One of the most interesting charts here is cotton. If you haven’t been tracking the market, then let me tell you that prices are getting very close to lows that we haven’t seen since 2001. And since I only have data that spans backs to 1979, I don’t know when it touched a lower amount before then.
Cotton is getting very close to long-term support levels, and the 2001 low of roughly $0.28/pound could be in our sights. If we get down to that area and it holds, we could possibly have one helluva buying opportunity, using limited-risk option strategies of course! I’ll keep you posted.
Good trading.
Lee
Sphere: Related ContentThe Commodities Buzzword Of The Moment: Support
November 10, 2008
Monday, November 10, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Never has there been a time where the stock market has influenced the commodities markets so much.
Last time I checked, the price of soybeans, cocoa or orange juice had absolutely no relationship to whether Microsoft (Nasdaq: MSFT), Disney (NYSE: DIS), or Google (Nasdaq: GOOG) declined in price.
But these days, we’ve got a serious blurring of the lines between global marketplaces. In addition, the prevalence and ease of electronic trading, coupled with well-capitalized hedge funds, means we’re seeing all kinds of different markets having an affect on one another.
Not so long ago, it used to be that money typically flowed from one asset class to another - for example, from stocks to commodities. But that isn’t happening now as most players have either bailed out of everything completely, or are selling assets to meet margin calls.
For commodity-watchers like me, I’ve looked on in surprise (as well as a little frustration) as commodities head the same way as stocks and pickings are slim. All the different commodities have suffered a hammering over the past few months, as the stock market’s mess spills over.
The selling wave has taken all the major commodities to new lows for the year, with most markets giving back all their gains for 2008 and more. Let’s see if we can pinpoint the next moves…
Oil’s Slippery Downward Slope… Have We Hit Support?
There’s no question that the oil has dominated the commodity headlines this year, topping out at $147 a barrel back in July.
But somewhat quietly amid the financial crisis, stock market slump, and bailout talk, oil has bounced down to around $60 a barrel. In turn, this has resulted in gasoline prices declining to the $2 a gallon level.
Although there might be more downside to come, it seems we may have hit a temporary support area here.
Natural Gas Could Be Nearing A Bottom… But We Need More Evidence
Oil’s partner in crime - natural gas - has also endured a vicious selloff. Having topped out in July, it’s given up just as much ground as crude oil, with the December 2008 futures contract dropping a solid 8100 points from top-to-bottom. That’s a whopping $81,000 change in equity.
Like crude oil, natural gas seems to have found a temporary support level as prices have consolidated a bit over the past two weeks and remained in the same area. In order to feel confident about a support level, prices have to tread water for a while without giving up more ground. We’re going to watch the price action for a while, but we could be getting near a bottom here.
Even The Safe Havens Are On Shaky Foundations
Ask most folks to name which markets are usually the beneficiaries of an unstable financial market… and you’ll likely get the resounding answer: “Gold and silver.”
Nine times out of ten, they’d be right. But not today. Even amid the economic turmoil, the safe haven hard asset metals can’t muster up any bullish action.
Sure, they got caught up in the bullish frenzy over the summer, just like the other markets. But when the music stopped, investors decided to bail out of the metals, too.
However, take a look at the charts and you can see that they’ve joined oil and natural gas in trying to establish some support. We can see evidence of this in the fact that neither metal has made a new low over the past two weeks. If the stock markets can find their footing here, then the metals may move up just the same.
As you can see, the December silver futures currently sit at $10.40 an ounce, while the December gold futures are trading around $753 an ounce - a far cry from their highs this year of $19.70 an ounce and $1,000 an ounce respectively.
If the market feels confident that the Federal Reserve’s bailout plan will work, investors could start dipping their toes into the long side of the market. If so, that could result in gold and silver moving higher. Until that happens, however, remain cautious, as it doesn’t take much for widespread selling to rear its ugly head again.
It seems that “support” is the word of the moment for the commodities sector. The rest of the markets (corn, wheat, soybeans, coffee, cocoa, sugar, orange juice, and cotton) are all trying to find a foothold and establish some support.
Having been torn apart in the nasty selloff over the past few months, though, it may take some time. Remember, if you’re going to play these markets, stick to limited-risk option strategies like credit option spreads. I’ve written a few previous articles on the subject and you can find them here:
How Option Credit Spreads Give You a Better Chance to Win
Three Out of Four Chances to Win With A Credit Spread
How To Be Wrong… And Still Win On Your Trades
Lee Lowell
Sphere: Related ContentBear Attack Spares None As Mauling Continues
October 20, 2008
Monday, October 20, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Welcome to another roundup of the latest action in the commodities world. The tumultuous ride that began months ago continues unabated, so let’s get right to it…
Over the past couple of weeks, we’ve seen the wild stock market gyrations continue, with moves of over 700 points seen on more than one occasion for the Dow Industrials and levels that we haven’t seen since March 2003.
We’ve since bounced off those lows, but don’t expect the uncertainty surrounding the economy to go away any time soon. We could see the current volatility continue for the next few months until the government’s interventions take more effect and can be judged better.
This backdrop explains why there’s been no let up in the commodities selloff. Nothing is safe in this panic, with every major commodity, including the usually safe metals, falling victim to the downturn.
Oil Barrels Down Again
We hit a major milestone in the energy sector with the price of oil dipping under $70/barrel for the first time since roughly August 2007.
Just last week, the front-month crude oil futures contract (November contract) hit a low of $68.92 - $80 lower than its high price of $148.60 a barrel from July 11 this year. That corresponds to a change in equity of $80,000 on a single contract!
There’s been some talk that OPEC will try to reduce supply at its next scheduled meeting, which is causing a temporary pop back in the market. Oil futures have since bounced to its current level of $75.50 a barrel.
Look For Natural Gas To Hit Support Levels
In other energy news, natural gas continues its seemingly never-ending slide, which started back in July.
If you thought the move in crude oil was big, then feast your bearish eyes on natural gas. The front-month futures contract (November) has lost a staggering 8500 points, which translates into a change in equity of $85,000 on one futures contract.
Currently, natural gas futures sit at $6.820/mmbtu and have fallen as low as $6.500/mmbtu just last week, a drop from its July high of $14.000/mmbtu. Long-term value levels are getting very close for natural gas, since $5.000 is historically a good support area to keep an eye on.
Precious Metals Aren’t Doing What They Should
You’d think that metals would be doing well right now, especially gold. But if you’re betting on the market acting rationally right now, you’re likely to be disappointed for the time being.
Up until about two weeks ago, it looked as though gold & silver could be the only commodities that were actually bucking the bearish trend. That was until last week when both metals took it on the chin and fell hard. Silver dropped to new yearly lows, with gold almost matching its yearly low.
Silver currently sits at $9.70 an ounce, having touched a low of just above $9 an ounce last week. This is a drop of roughly $12.50 from its high point of $21.55, which it hit in March this year. That’s an equity move of over $62,000 per contract.
For a little while there, gold looked like it was going to come through and be the last savior for the metals group by hitting a high price of $936/ounce. It even had experts betting on whether it could launch itself to $1000/ounce.
While that is still a possibility, immediate hopes were squashed when the Dow went on its sell-off, causing gold to get knocked down to $772/ounce. That was a quick $160/ounce move lower for gold.
As Bear Rages, Grains and Softs Get Devoured
The rest of the commodities sector has faced the same bear attack. All the grains (corn, wheat, soybeans) have made new yearly lows, as well as the softs (coffee, sugar, cocoa, cotton & orange juice).
In fact, orange juice has retraced all the way back down to November 2004 levels, which are areas last seen just before the four devastating hurricanes ripped through the state of Florida.
We will see bottoms and value levels reached at some point, maybe sooner than we think. All these markets have come down a long way from their peaks. But remember, if you’re going to play these markets, stick to limited-risk option strategies.
Lee Lowell
Sphere: Related ContentStock Market Massacre Trickles Down To Commodities… But These Two Are Holding Up Well
October 7, 2008
Tuesday, October 7, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Unless you’ve been living under a rock these past few weeks (and many investors probably do want to crawl under one), you’ll know all about the incredible market action - both in the U.S. and around the world.
Many countries and almost all sectors have suffered, as the ripple effect from the battered American stock market spreads across the globe.
That includes investments that typically have little correlation to stocks. Like commodities…
Commodities Crushed
Every area of the commodities arena has taken a hit, some of which have absorbed multiple blows.
When the stock market falls, we usually see some sort of upward bump in physical assets, as investors flock to so-called “safe havens.” It’s part of the “rolling” process out of one market (in this case, stocks) and into another commodities.
But not this time. The only commodities that have seen any kind of climb lately are gold and silver - the most traditional safe havens. But both metals also suffered nasty selloffs in the weeks prior to this latest round of stock market turmoil.
Metals Outshine
Scan your eyes across the commodities sector and you’ll see that silver and gold are currently the only commodities not getting whacked. At least as badly as everything else anyway.
Gold has held up pretty well, still trading above the lows it made back on September 11. In times of turmoil, gold is usually the asset of choice. But when everyone is selling across the board, even stable assets like gold can stay suppressed.
As for silver, although it’s performed weaker than gold, it’s still trading above its September lows, too. If the stock market starts to turn around and the U.S. dollar moves lower, we should see the metals pop up even more.
Oil Suffering From Financial Fallout
As 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 $110.
But not surprisingly, the story has changed again, and oil has dropped all the way back down, even trading as low as $87.56 a barrel on Monday for the front-month futures contract.
Talk about volatility! That’s a $20,000 move in equity on the way up and the same amount going right back down. Hope you like Tums! There’s no doubt we’ll continue to see this massive volatility.
With that in mind, if you’re brave enough to play this market right now, stick with limited-risk option strategies.
Natural Gas Takes Its Cue From Oil
Natural gas looked like it had been building a base of support after its long slide downward since July 2008.
But like its fellow commodities, the market hasn’t been able to stand up against a wave of selling. As you can see on the chart, the front-month futures contract is now below $7 per mmbtu - a level it hasn’t seen since the beginning of the year.
We’re seeing this type of activity in a lot of markets now, where the gains for the year get totally wiped in just a few short weeks in some markets. As with crude oil, natural gas will be part of the volatility and likely to continue to see large moves.
I’ve seen more volatility in recent weeks than I have in my entire 17 years of trading. It’s a rough ride that makes the trading environment very difficult. But try to keep a cool head and avoid panicking until the dust clears. It’ll pay off in the end.
Catch you in the next edition in two weeks.
Lee Lowell
Sphere: Related ContentThe Commodity Sector’s “Big Four” Say “Sayonara” To The Selloff… Here’s The Next Action
September 22, 2008
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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Sphere: Related ContentCommodities Continue Their Late Summer Swoon
September 8, 2008
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
Sphere: Related Content“Commodities Corner”: Commodities Take More Hits, But Fay Could Change That
August 18, 2008
Monday, August 18
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Here’s our latest bi-weekly roundup of the commodities markets – with yet more wild action, and a hurricane on its way to Florida as I write.
In stark contrast to the situation just a couple of months ago, the last two weeks have featured extreme selling across the board. No commodity has been spared.
Without a doubt, the energy and metals markets have endured the hardest hits. As I mentioned in the last update, I believe many commodity funds have been liquidating and we’re probably seeing the latecomers to the commodity bull market finally giving up, too.
Late entrants to a market are known as the “weak hands,” because they decide to jump in after a market has already made most of its moves. And once the market turns around against them, they end up bailing quickly.
Another reason for the downslide we’re seeing is the state of the U.S. dollar. When the dollar does well, it usually has an adverse reaction on commodities – a scenario we’re seeing at the moment. So we have a few things working against the commodity bulls.
Oil And Gas Ready For A Short-Term Fuel Up On Fay?
With Tropical Storm Fay making its way towards the southern tip of Florida, we’re going to start with the energy markets this week, since a big chunk of oil and natural gas supplies are located near this area in the Gulf of Mexico.
Last we checked, the crude oil September futures contract topped out at $147.90/barrel on July 11. But as you probably know, it’s dropped like a rock, down to its current level around $114 a barrel – $34/barrel from its high.
That equates to a $34,000 move on one futures contract alone. There’s a possibility it could fall further, but not surprisingly, we’ve seen some volatile action today, as Fay swirls towards south Florida.
However, current projections have the storm steering clear of the major oil platforms in the Gulf of Mexico. And when the short-term dust settles, the downward move could end with oil landing at the $108 area. That would put it right at the 200-day moving average line, which would be its last hope for a bounce.
A Six-Week, $55,000 Move For Natural Gas
Recent action has seen natural gas getting whacked to the downside, losing another 1,500 points or so since our last update.
That equates to a $15,000 move on one futures contract and an unbelievable $55,000 move from its high price on July 2. We’re getting very close to possible support levels here, as the market has now given up all its gains for 2008.
Tropical Storm Fay could have an impact here, as the first potential hurricane to hit Florida. And with more storms likely on the way, this should help possibly prop up the natural gas market.
Gas Chart
Last, but not least, the metals…
Metal Mauling Almost Over?
At the moment, both silver and gold are taking their cues from the oil and dollar markets, just like everything else.
Last week, for example, silver endured a nasty intraday selloff of more than $2 an ounce. Although it bounced during the day, much of the damage held. A $2 move in silver is equal to a $10,000 change in equity – huge for one day’s worth of trading. And this is on top of the large drop it endured the two weeks before that.
This mass liquidation means silver really is extremely oversold from a technical perspective. If the dollar starts to sell off and the oil market starts to move back up, we could possibly see silver have a very nice rebound.
Because both gold and silver tend to move in tandem, the gold market has dutifully followed silver downward.
The yellow metal topped out near $1,000 an ounce back on July 15 and has since shed $200. That’s a $20,000 move in equity – and yet another big swing.
Where to from here? Well, just like silver, gold is way oversold and could also see an impressive bounce if investors start to pile in.
That’s all for this edition. I’ll catch you back here in a couple of weeks.
Lee Lowell
Sphere: Related ContentCommodities Corner: Downward Trends Continue But For How Much Longer?
August 4, 2008
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
Sphere: Related ContentCommodities Corner: No Rest For The Wicked…Or Gas, Corn and Silver
July 21, 2008
Monday, July 21, 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.
Oil Resting For The Moment
The energy markets took a much-needed breather and retracement over the last few sessions. Since the oil market was reaching unsustainable heights, this was bound to happen, and it did.
Whether it continues to regain its lost ground and make newer all-time highs is yet to be seen, but it is still driving all the other commodities markets at this time.
Crude oil topped out at $147.27 /barrel (August futures contract) on July 11 and hit a low of $128.23 on July 18, knocking $19/barrel off its price. That equates to a dollar value of $19,000 on one futures contract. It currently sits at the $130.50 mark and is looking to make some consolidation here.
This chart shows it all.
http://futuresource.quote.com/charts/charts.jsp?s=CL%20Q8
Forget The Atkins Diet. Natural Gas Loses Weight All At Once
The other major energy player-natural gas-got walloped over the last week, shedding over 3000 points on the front-month futures contract. That equates to an astounding $30,000 on just one futures contract.
Just to give you a sense of the enormous amount of money flowing back and forth, keep in mind that there are traders out there controlling hundreds of these contracts at a time.
But while there could be a little more downside to go on this contract, it is getting close to an oversold level. Remember, we are right in the middle of hurricane season in the Southeastern U.S., so natural gas could pop back up at anytime.
Check out the chart below to see exactly what I mean.
http://futuresource.quote.com/charts/charts.jsp?s=NG%20Q8
Looking On The Bright Side
In our last update I commented on the current high price of corn futures due to the devastating rainstorms the Mid-West experienced last month. Well it seems that the damage might not have been as extensive as everyone originally thought, as the price of the nearby futures contract has taken quite a hit.
The U.S. government data and private farmers’ current assessments give the crop somewhat of a better chance of survival this season. In turn, this has sent the price of corn down over $1.75/bushel in the last two weeks. This is a dollar value of $8750 per single futures contract.
Of course, like any crop, corn prices are still very susceptible to weather factors, so any more disruptions to normal conditions can cause the prices to go right back up.
I’ve provided this chart for a closer look at its movement:
http://futuresource.quote.com/charts/charts.jsp?s=ZC%20U8
Hi Ho Silver; This One Is Going To Be Moving
And then there’s silver. Currently, the shiny substance-along with gold-is taking its cues from the oil market, just as everything else is.
But from a purely technical perspective, the charts show silver sitting on the 20-day moving average line and looking like it wants to keep going right on past its current breakout.
The luck of the Irish wasn’t with silver, as it had a very nasty fall right around St Patrick’s Day this year where it shed $5/ounce. While that might not sound like much, in dollar terms, that $5 move equates to a $25,000 change in equity.
Since that fall, silver has meandered in a $2/ounce range until we saw a recent breakout up to the $19.50/ounce level in just the last few trading sessions.
If the oil market gets back on its bullish horse, then we can possibly see silver take out that near-term high of $19.50/ounce. And it might possibly go even higher.
Keep an eye on that market and if you’re looking for bullish opportunities, stick with limited-risk option strategies.
You can see it edging its way upward again below.
http://futuresource.quote.com/charts/charts.jsp?s=SI%20U8
That’s all for this edition. I’ll catch you back here in a couple of weeks.
Lee Lowell
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