Comments on Commodities

I received an email from Jon Nones, Financial Writer for Resource Investor, asking for comments on the commodities markets. Jon wanted my thoughts on which markets I thought were leaders and laggards in the first leg of this secular bull market in the commodities markets and which might lead the markets higher from here. The following are excerpts from my response to Jon which was sent on July 22, 2006. Take note of my comments on Natural Gas which has skyrocketed since I wrote these comments.

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The Energy complex: LEADER. You certainly have to rank this group as a leader in the current bull market in commodities. But what some have missed is the fact that NaturalGas, after record highs in 2005, has now fallen 50%. Did Nat Gas make a bottom recently and is now ready to retest the highs of 2005? It's too early to tell from a strictly technical view but I wouldn't be surprised if a major bottom is in place in this market. So I might be tempted to BUY NAT GAS and SELL CRUDE or UNLEADED GAS at this juncture because the fundamentals simply don't support Crude at these levels and I think that market could see the same kind of retracement that Nat Gas experienced.

The Precious metals: LEADER. These markets are a tough call right now. I had no choice but to declare the Bull market over recently when Gold closed below its 100-day MA on 6/13. Of course we now know that Gold bottomed the following day and was able to regain nearly 68% of the decline before turning lower again recently. When Gold failed to break the previous low at 546.00 I got far less bearish on the market. That was a significant level on the chart and the market held. Now, the market is once again sitting right above the 100-day MA (619.90). I'd be willing to wager that, if the market closes below this level a second time that we'll see the market move below 546.40, the recent low in June. Silver is in the same boat. Copper is approaching trendline support. If it breaks, sayonara to Copper in the near-term.

Grains: LAGGARD. Here's an area that is very interesting to me. I love to trade the grains because I've probably been trading them longer than any other group. I think this could be a group to watch because Corn has traded sideways all year long. It's not going to do that forever. Ditto for the bean market. Wheat may have made a major low in March and could be the market to lead the entire complex higher from here.

Meats: BIPOLAR. You never know what you're going to get trading these markets. That's why I don't trade them.

Softs: MIXED BAG. There have been some great moves in these markets and there have been some duds. FCOJ and Sugar have been stellar performers until this year. Are they consolidating or are they ready to tumble? I think it's too early to tell. Cotton could be a surprise over the next 12 months. With the recent break below 50 cents, this market looks like it could roar into 2007. Cocoa is interesting. If it hold the previous lows at around 1400 it could reverse quickly and move back to the upper end on the trading range near 1900. But I think this market could break the previous lows and this would start the beginning of an ugly slide back below 1000. Coffee is near 2 1/2 year lows. The same holds true for Coffee as it does for Cocoa. If the market breaks 90 cents it could go to 50. Lumber has been puking its guts out and that's a very good sign that there's big trouble in the housing sector.
Which leads me to my "financial apocalypse" scenario that I've been touting for as long as I can remember. 75% of the economy is based on housing. Housing is going to be bloodied over the next few years and it's going to take the US Economy with it. Just look at Lumber if you don't believe me. When this house of cards really starts to fall it's going to be ugly. Ben Bernanke wanted to be the Chairman of the FED. It could be the biggest mistake of his life.

Dale F. Doelling
Chief Market Technician
Trends In Commodities

More comments on the DOW

Here's where the near-term market direction should become quite clear. With the DOW futures eclipsing the 100-day MA of 11258 (11275 intraday high) we now must wait and see how the market is able to finish. The last time the DOW closed above the 100-day MA was on July 6th. The market was only able to close above the MA one day before it fell over 500 points in the next 6 sessions. Do chart patterns repeat themselves? Very often they do. If the market closes above 11258 then Monday will be the day that should tell us whether the DOW continues on its merry way or it takes another nosedive. Stay tuned!

Dale F. Doelling
Chief Market Technician
Trends In Commodities

Sunday evening observation (9:05 PM EDT): The Dow futures broke through near-term resistance on Friday but was unable to maintain those levels and ended the day below the 100-day MA closing at 11254. With the market down 10 in the early going this could be a great time to SHORT the Dow or BUY PUTS on the DOW or other stock indexes. I'll update this blog on Monday morning after the market opens at 9:30 AM EDT.

DOW Update

Here's the deal. The Dollar is getting hit hard this morning after a much weaker-than-expected GDP number but, so far, it's holding right at trendline support at around the 114.90 Yen level. Now, some of you may be asking yourselves, "What's the Dollar got to do with the DOW?" A lot, actually. If you were to place a chart of the Dollar over top of a chart of the DOW futures you would see that their relationship is inverse and fairly consistent. So, here's where it gets interesting. If the Dollar is able to hold trendline support and rally off of today's lows we should begin to see the DOW turn lower. Also, the Dollar is reaching fairly significant OVERSOLD levels just as the DOW is getting into OVERBOUGHT territory. We'll keep watching this pattern to see if it holds.

Dale F. Doelling
Chief Market Technician
Trends In Commodities

It's looking pretty good so far!

The DOW futures were able to move above the trendline resistance but failed to reach the 100-day MA that I mentioned in my previous entry. Now the market is failing miserably and those of you who got SHORT near the 11200 level are looking pretty good so far. It's still too early to tell if a top in in place but I won't be surprised if 11225, today's high in the $5 DOW, is the high for this retracement rally in this long-term bear market in the Stock Index futures.

Dale F. Doelling
Chief Market Technician
Trends In Commodities

Picking tops and bottoms

It's always tough to pick retracement tops and bottoms and the DOW futures are proving, once again, just how tough a task it can be. The market is higher this morning as it presses toward resistance at the 11200 level represented by the trendline drawn from the MAY/JULY highs. So, this may be a very good place to lightly SELL the DOW keeping in mind that there's a decent chance that the DOW might just make a run at the 100-day MA at 11254. Shorting the DOW here would give you about a $300-$400 risk per contract and that should be tolerable for most traders. Consecutive closes above the 100-day MA would negate this whole scenario and probably push the DOW sharply higher. I'll be very surprised if that comes to pass.

Dale F. Doelling
Chief Market Technician
Trends In Commodities

"I've seen this before."

Mondays, I have found, always hold the most potential for surprise from the perspective of a market trader. Take today for example. Last week, the Stock markets remained strongly entrenched in their long-term downtrends with the NASDAQ hitting a 14-month low. But what a difference a (Mon)day makes! The DOW has ripped a limb off of the bears today with a near 200 point advance. I sometimes feel like Chance the gardener in the movie "Being There". Chance wasn't the brightest bulb in the drawer but he would occasionally say something brilliant. "I've seen this before" he would say. And just in case you've never seen the movie, do yourself a huge favor and go to your local Hollywood Video and rent it.

What I'm trying to say here is that these rallies are all intended to bring hope back to the masses of investors who wouldn't know how to SHORT the markets if they had a gun to their heads. So, lo and behold, we have a rally underway and hope springs eternal! What we'll probably see is an hour or two of buying tomorrow and the resumption of the downtrend. In other words, we have another great opportunity to get SHORT the Stock Index futures. I've been SHORT since May and I've done well. Could the market rally last longer than just a day? Of course it could but I'm betting it won't. Never be afraid to bet your conviction.

Dale F. Doelling
Chief Market Technician
Trends In Commodities