The DeCarley Perspective Trading Newsletter

Is it now or never for the commodity markets?

This commodity trading newsletter was emailed to DeCarley futures brokerage clients on August 27th, 2015.

Futures Trading Newsletter by DeCarley Trading

It has been a rough year for commodity bulls, but things can change quickly.

 

As a commodity broker, it has been particularly painful to see the value of commodities depreciate in sympathy to a stronger U.S. Dollar. However, it has been almost unbearable to see weakness continue to plague the commodity markets in the face of a downturn in the greenback. The lack of a response to changes in the currency markets, is a clear sign of horrific market sentiment.

No longer do investors yearn for allocation into long only commodity funds; which, by the way, played a big part in their over-valuation several years ago. Instead, investors have spent the last year liquidating their holdings; most of them licking their wounds.

We will be the first to admit that we didn’t see the entire commodity complex getting this “cheap”. Further, sometimes even cheap markets get cheaper. Nevertheless, on a long-term scale we are confident traders will look back on this in the same way they do the 2008 commodity melt-down; as a missed bullish opportunity.

It is no surprise that the major driving force behind the most recent bout of selling has been weakness in Chinese economic data, but conceivably volatility in the Chinese equity market simply bled into the commodity markets. We don’t know enough about Chinese equities, to try to call a bottom there but we do know that the Bank of China has few limits on the measures it can take to stabilize its country’s financial system. In addition, although they sometimes mislead us, we know charts….let’s take a look at a few we find interesting.

Goldman Sachs Commodity Index Technical Analysis

The GSCI is dramatically oversold, but those that have tried to pick the bottom in commodities will tell you it has been that way for several months. Further, being oversold doesn’t automatically translate into buying interest. Despite that, it is hard to ignore the upside potential. Both the Relative Strength Index (RSI), and Williams Percent R (W%R) are hovering at rarely seen discounted levels, and the chart is suggesting a possible double bottom.

GSCI Goldman Sachs Commodity Index Chart

 

Australian Dollar Futures Technical Analysis

It is no secret we started getting bullish in the Australian dollar a little early, but at this point we are still of the belief that eventually the currency will find footing. If China can find a way to get its house in order, or at least the appearance of such (which is more likely than a true fix), the Aussie should catch up with the other currencies in regard to appreciation against the greenback. After all, Australia is highly dependent on commodity prices, and weaker demand expectations from China has held the currency hostage.

The Slow Stochastic technical oscillator has dipped into oversold territory on a weekly chart and appears to be trying to turn the corner. Similar patterns in the past, which date back to mid-2012 have resulted in sizable rallies. If we get a repeat, we suspect the low 80s will be possible on a quick short squeeze.

 australian dollar currency futures

 

FXI (Chinese Stock ETF)

The Chinese stock market is primitive in that it tends to experience much bigger booms and busts that a more developed equity market might. Further, it is governed by aggressive and unconventional tactics. However, it has managed to develop stable trend-lines and a pattern of rebounding from an RSI reading of 30 or less. If history repeats itself, stability could be right around the corner.

Chinese Stock Market Crash and Commodities

The Bottom Line on Commodity Trading Going Forward

The commodity complex as a whole is likely yielding aggressive investors historically attractive alternatives. Nevertheless, that doesn’t mean you should bite off more than you can chew; the risks of participating are real, and each commodity should be assessed individually.

 

Share

DeCarley Trading on Twitter

Carley Garner Trading Books

  • Higher Probability Commodity Trading, new Carley Garner book

    Higher Probability Commodity Trading, new Carley Garner book

    According to Phil Flynn, Fox Business News contributor, this is Carley Garner's "masterpiece"! Order from Amazon today! "A great read for both beginner and advanced commodity traders. Carley nails the seemingly impossible task of leveling the playing field by imparting vital concepts in easy to digest bites ...she doesn't leave out the harsh realities and heartbreak many overzealous speculators face." -- JON NAJARIAN, co-founder NajarianFamilyOffice.com "I love the book... it's an MBA in trading for the
    Read More
  • Commodity Options the Book

    Commodity Options the Book

    It isn't free, but it's close! If this book saves you 2 ticks, you've recouped your investment.   Commodities are hot, as Jim Rogers would say.  Stagnant stocks and the massive bull rally in raw commodities have lured much of the attention away from Wall Street and toward down-town Chicago.  It is difficult to turn on the television or open the newspaper without being reminded of the impact that commodity prices have on our daily lives.   Traders
    Read More
  • A Trader's First Book on Commodities

    A Trader's First Book on Commodities

    The Simple, Practical, 100% Useful How-To Guide for New Commodities Traders   Before you trade commodities, you'll need significant practical knowledge of the associated risks and market characteristics. That's where this book comes in. You won't find boring theory or bewilderingly complex trading strategies here. Instead, you will find specific guidance on accessing commodity markets cost-effectively, avoiding common beginners' mistakes, and improving the odds of successful trades. Drawing on her extensive experience teaching traders, Garner shows how to
    Read More
  • Currency Trading in the FOREX and Futures Markets

    Currency Trading in the FOREX and Futures Markets

    Get a copy of Carley Garner's latest book at Amazon.com, or any major outlet! "Once again, Carley Garner demonstrates her ability to boil down complex concepts for individual traders. Trading Currencies in the FOREX and Futures Market will put budding currency traders ahead of the curve with its unique blend of the basics and some refreshingly unexpected material." ~ Karris Golden, Traders Press® "Carley is a smart trader and broker; she understands the markets and the importance of
    Read More

Newsletter Trial