Summer Has Started… And Commodities Are Heating Up
Monday, June 1, 2009
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
If you’ve noticed price spikes at the gas pump lately, it’s not just because of the recent Memorial Day holiday or the onset of summer.
It would appear that the energy market has finally found its bull horns and its ready to charge forward.
Let’s take a look, starting with the key driver - oil…
Close To $70… With $80 In Its Sights
Over the past couple of weeks, crude oil futures have embarked on a solid upside run. The price is now getting very close to reaching our projected target of $70 from my last issue.
But this could just be the beginning…
The current front-month crude oil futures contract is now July - and it’s continued on the upside path after the June 2009 contract expired.
Looking at the daily chart below, you can see how it’s met its current upside target of $66.50 a barrel, which is where the 200-day moving average rests (green line).
We might still see a breather here, or even a pullback, but if the oil market moves convincingly above the current area, we could see prices shoot up towards the $80 level just as easily.
If you’re considering playing the oil market, check out United States Oil (NYSE: USO), a very liquid and very popular ETF that mimics the moves of the crude oil futures you’d find on the NYMEX.
And because it’s an ETF, you can trade it in a normal stock brokerage account. It also has options contracts available. It currently trades around $36.30 - up from the $32 area when I last wrote you - and is a great “cheaper” alternative to the high-priced arena of futures and futures options, while still following the same movement as the oil market.
Hurricane Season Could Blow A Bull Market Our Way
As the first tropical storm forms in the Atlantic, it’s a clear reminder that the natural gas market could also be set to blow into action.
In fact, the market has already been volatile. It shot from a low of $3.400/MMB/tu to a high of $4.690/MMB/tu and back down to $3.500/MMB/tu again - all within the space of a month!
That kind of volatility doesn’t seem to be going anywhere anytime soon. After the government released its weekly supply numbers last Thursday, which showed a less-than-expected buildup of natural gas supplies, we saw another crazy climb of over 300 points to its current level of $4.020/MMB/tu.
If you look at the daily chart below, the technicals show that we’re reaching a critical juncture. This is the first time since July 2008 that the 20-day moving average has crossed over the 50-day moving average line. If it continues, it could just foreshadow an end to this monster downtrend and usher in a more permanent change in market direction.
I’ve foreseen natural gas moving higher for some time now, and between the chart patterns and hurricane season, I believe it should start in earnest anytime now.
You can participate in this market by using United States Natural Gas (NYSE: UNG), the natural gas ETF that reacts just like the futures and futures options. It offers options contracts if you want to go that route, too.
Metals Set For A Summer Run, Too
Just because I haven’t mentioned the metals over the last few issues doesn’t mean I haven’t been keeping a close eye on them. And what they’ve been telling me is that my predictions and technical levels have worked out quite well, as gold and silver put on their rally caps back towards the end of 2008 and haven’t given a significant glance back since.
Back on May 4, I wrote that: “Gold has held its support around the $860 an ounce range, while silver has held each pullback at $12 an ounce. From here, we believe both gold and silver will once again test those $1,000 and $15 levels, respectively.”
Sure enough, gold - now at $980 an ounce - is still gunning for the $1,000 level that it tagged back in February.
As for silver, it’s already surpassed my prediction at $15.50, although it could face a selloff before continuing on another run. We could see a price as high as the $20 level it reached last summer.
You can trade both gold and silver with the NYMEX futures options, as well with the gold & silver ETFs - the SPDR Gold Shares (NYSE: GLD) and iShares Silver Trust (NYSE: SLV).
Good trading.
Lee Lowell
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One Response to “Summer Has Started… And Commodities Are Heating Up”
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The thing about NG is that there is SO MUCH of it and that seems to be why it has totally lost its peg to crude. I want to buy UNG but I think it will retest the 3.50 level in the coming weeks… Crude may hit $80 and I am banking on it BUT I will probably go short near that level…if GS is right and it hits $85 I definitely short it as it is too much for the strapped consumer to handle and I would probably short the stock market with crude at those levels as it is not good for consumer spending with 2/3 of GDP linked to it. I like DTO as a short play on crude in the 83 range and hold until crude retraces to 65 or less and then use a stop…,as it could go to 55 easily after summer peak. UNG at the right price ..but the fact is it swings from 13.80 to 15 + regulary lately…so I guess low 14’s would not be a bad entry and cost average down with bigger buys … 3 total if it drops imho YOUR thoughts ?