Commodities Countdown

Commodities Are Creating Some Great Trades

Greg Schnell

Greg Schnell

Chief Technical Analyst, Osprey Strategic

There is some variety showing up in the commodity charts. Gold had a strong day on Thursday after a wild, multi-reversal week. I covered Gold, Oil and Natural Gas more thoroughly on the Commodities Countdown Webinar 20160310. If you like fast moving areas of the markets, the commodity related trades have been really moving.

Here is GLD, the Gold Tracking ETF, on a 30-minute intraday chart. From shortly after the opening bell on Monday, say 10 AM EST, to Thursday's close the gold price is almost flat as shown by the blue arc. The swings within the metal have not been large (less than 2%) but the response in the miners has been huge. 


 Traders in the regular miners ETF, GDX, have seen 10% surges down and up. Below is the regular GDX.

Aggressive traders trading the 3x gold miners had 25% moves each way over 3 days! Here is the 3x - NUGT just as an example of volatility. $70 to $52 and back to $66.

So considering the price of the metal is unchanged (up 1%) for the most part, it has been a trip to talk about this week! The weekly chart of $GOLD is shown below, with the highest close. We'll need Friday's data to close here to lock it in on a weekly chart.

While the weekly chart makes it look smooth, the ability to hold through it all has been courageous.

Conversely, Oil has been a week of passive investing. Not! The intraday ranges in the price of oil itself have been over 5% daily! Yesterday was almost calm with a 3.5% range. Where did we close Thursday? Almost right on Monday's closing value around $38. With these wild directional swings, it is very difficult to be a buy-and-hold investor. Especially when the primary trend on this chart is top left to bottom right. I have placed a blue horizontal line showing the support and resistance level that crude is working against right now. While a lot of people are trying to get short oil and the oil companies right here, there could be a surge up to $43.50. This is also the location of the 200 DMA as well as the most tested support/resistance line in 2015. 

My suspicion would be that if oil traders can force the short positions to cover above $38, there might be enough buying power to push the price to this $43.50 level. As we head into next week, we have Vix Options expiring Wednesday on Fed day, the extra-large Quarterly Options expiration on Friday and the rolling of oil futures contracts to the May front month on Monday the 21st. If you are looking for short-term trading, there are some opportunities in the commodities and the stocks related to the commodities. For long-term investors, this couldn't be more unsettling.

$NATGAS has been on my radar over the last few weeks. The primary reason for that was the test of the $1.68 intraday low in December and the 20-year chart history suggesting the low $1.60-$1.65 levels as being a potential technical level. Bottom line, when you are this close to major lows, it might be worth watching.

Monday had a reversal candle on what could best be described as an exhaustion of sellers.

I covered off so much more on the webinar, which can be viewed by following this link. Commodities Countdown Webinar 20160310.

On the webinar, we also covered off MLP's, Bullish Percent Indexes, Summation Indexes and why I think the $SPX might still make it up to the 2030 level. The bottom line, If you are trying to seek out a market return of 10% this year, the volatility in the commodity space might help you work towards that. I would be cautious with respect to the 'new bull market' as the Don't Ignore This Chart article I did on Coca-Cola (KO) also includes a list of the companies who made new highs sometime this week. It is still dominated by the defensive sectors. If we were going to rotate to a new bull market, these defensive areas should be waning and the offensive growth related sectors should be taking over the leadership. 

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Enjoy the March madness!

Good trading,
Greg Schnell, CMT, MFTA

 
Greg Schnell
About the author: , CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More