Sunday, October 26, 2014

Commentary Update: Daily and Weekly Charts

A lot of this weeks commentary will focus on the 'false bottoms' that are being put in place across many commodities. It's difficult to just sit on the sidelines while they all bounce but I believe the downtrend will continue so play where appropriate and have trailing stops please.

My belief is that in the long run most commodities will sooner or later assume a pattern similar to copper since there has been, one, a decline in demand due to the dour international market, and two, is only now being priced appropriately in the open market given the rehypothecation scandal in China (covered most recently by Zero Hedge). Some agricultural equities are a notable exception to this as the sell off going into the bumper harvest this autumn has been overdone.

My strongest recommendations going forward:
  • Short natural gas (UNG)
  • Short aluminum (JJU)
  • Short timber (CUT)
  • Long wheat (WEAT)
Secondary recommendations include:
  • Short coal (KOL, long term)
  • Short coffee (JO)
  • Short copper (JJC)
  • Short cotton (BAL)


Agriculture: DBA
DBA is showing a bit of imminent weakness at the moment, so hopefully next week we'll see prices firm up along the dotted supper line. Additionally an inverse head and shoulders pattern may be forming on the daily charts. The weekly chart shows much more promise. Momentum indicators are moving in a positive direction, StochRSI indicator has moved away from the oversold area and the KST indicator looks like it is about to crest in the coming weeks. Right now EMA's on both charts are bearishly positioned so let's just watch this decline continue, likely to firm up around $24.50.


Aluminum: JJU
Will JJU be the only metal to buck the trend of decline seen elsewhere and survive the price gouging? In a word, no. There are a lot of thing to like about JJU. For one, all the EMA's are bullishly positioned. The KST indicator however has crossed downwards on the weekly chart which means this is the beginning of a long-term trend. Next week we should see the EMA's catch up to this downward trend.


Coal: KOL
Long term I really don't like coal so I don't care what it's doing now (except putting in a false bottom). Coal has been taken in by the rehypoethecation scandal as well and like it's sister commodity copper this has got further downwards to go (long term). Short term this bounce will continue to play out and may even go as high $17.50 but another breakdown will occur. 


Coffee: JO
I need some more time to think about JO but this large ascending channel doesn't look like it's going to hold. We already have to bounces on the lowermost support line and my KST indicator is hinting at a continuation pattern. The horizontal channel it has been stuck in for is likely the boundary of it's movement for some time to come but my guess is JO is going to down. 


Commodities: DBC
No comments need to be made that haven't already been made above. The 'false bottom' has been illustrated whereupon trading will happen within a tight range above it before breaking down.


Copper: JJC
The trend hasn't change since July so would now be any different?


Corn: CORN
CORN has looked really good for a few weeks after coming into contact with the lower support line. If there are profits I'd take them off-the-table. The crossover on the daily EMA's looks good along with the converging MA(144). I want to continue watching CORN because I think it'll be a good buy in the long run but I am not recommending a "long" buy on CORN until I see a bullish engulfing pattern on the monthly chart.


Cotton: BAL
BAL is in a continuation pattern almost identical in appearance to UNG which means sooner or later this thing is going to breakdown. Nothing about either the daily or weekly charts looks positive.


Crude Oil: USO
Several weeks ago I speculated that oil might fall to about $78 and it has now found a 'false-bottom' just above that. It's current support level is a low that was found in the first quarter of 2013. As one can see from the weekly chart there are a lot of strong dark descending bands in a very narrow steep channel so I'm actually happy that USO has found a bit of support. What I did notice happen this week however was a bearish engulfing pattern that took USO right back to support in one day! I would guess that we are witnessing the creation of another continuation pattern.


Gold: GLD
Sorry that wasn't able to show the daily chart for GLD but I accidentally deleted it and now the stockcharts server is down. Support found in early October is holding  and I believe another test of the upper resistance at about $125.00 is coming, however with "deflation" being such a buzzword these days I'm not sure GLD is serving any purpose. I don't think the EMA's on the weekly chart will cross with a test at $125.00 meaning another move lower occur could follow (this is the scenario I'm leaning towards long term). There are however three previous taps on this upper resistance limit, and you what they say about the fourth one!


Lithium: LIT
Beautiful beautiful LIT. Such a shame! I love LIT long term simply because our demand for rechargeable batteries is insatiable and few people understand that there is a finite supply of it in the world!

The pattern it has currently assumed bears a striking resemblance to USO and like USO it too has found a 'false support.' I think another continuation pattern is "in the works" and it's descent will continue once the declining channel has widened a bit.


Livestock: COW
COW is still bullishly configured and looking good on both the daily and weekly charts. If COW is meant to continue climbing a move through $33.00 before it hits the internal support line at $31.75 should happen (weekly chart). The overall pattern however is strikingly similar to coffee (JO) which as I stated earlier is poised for another breakdown so maybe COW will follow.


Natural Gas: UNG
I've been short UNG and thank-goodness. A critical support was broken this past week at around $19.60 which surprised me with the heating season so close. A report was released stating that a warmer-than-expected autumn was approaching which probably explains this fall. UNG is oversold and I am now expecting support to be just below $19.00 on the weekly charts. If that fails all hell is going to break lose.
 

Palladium: PALL
PALL, PPLT, and SLV are all looking suspiciously similar. They have currently found a temporary bottom but examining all of their weekly charts I'm convinced these have further to fall once the oversold conditions have resolved. I expect continuation patterns or descending triangles to form in the coming weeks (most likely the former since that's what everything else has formed).


Platinum: PPLT
PALL, PPLT, and SLV are all looking suspiciously similar. They have currently found a temporary bottom but examining all of their weekly charts I'm convinced these have further to fall once the oversold conditions have resolved. I expect continuation patterns or descending triangles to form in the coming weeks (most likely the former since that's what everything else has formed).


Silver: SLV
PALL, PPLT, and SLV are all looking suspiciously similar. They have currently found a temporary bottom but examining all of their weekly charts I'm convinced these have further to fall once the oversold conditions have resolved. I expect continuation patterns or descending triangles to form in the coming weeks (most likely the former since that's what everything else has formed). 


Soy Bean: SOYB
SOYB has had a great week but it's not quite there. I won't be comfortable recommending a 'long' on SOYB until I have seen it come close or contact the rather erroneously formed low back in June of 2012. Like many commodities it's found itself in no-man's-land with oversold conditions, so as I have been saying with the other commodities let's have this rebound run it's course and we'll enter when things are positioned a little better (the weekly EMA's need to converge).


Steel: SLX 
Zero Hedge put steel in the same category as coal and copper in terms of global commodities shaking off the rehypothecation scandal and a decelerating world economy. SLX is also taking a breather from it's oversold state so a short position should be on-deck soon.


Sugar: SGG
Sugar is in the same category as just about every other commodity discussed today except that although SGG may have a little further to fall, what the other commodities don't have is a declining channel coming up on two massive support lines from 2008 and 2010 (according to the monthly chart shown below). According to the monthly chart we should a bottom beginning to form, but a real one this time, and if the events of 2008 and 2010 are any guide this could be the real deal. I am not issuing a long term buy on sugar but goodness we're close! This could be a killer stock if we purchase it at just the right time, likely in the next month or two somewhere around $40.00. What's unique about sugar is that unlike other commodities it's decline has been much more protracted and so I think it will be the first to emerge for the commodities sell-off starting in 2010.


Timber: CUT
Look at the weekly chart for CUT, just look at it! If that doesn't scream "short" I don't know what does. For this I have also included the monthly charts.


Uranium: URA
Presented without comment.


Wheat: WEAT
Wheat is a "buy" on the daily charts! A little like CORN I want to see a bullish engulfing pattern for October before I begin to get excited, September was an awful month. 



Jakob Richardson © 2014