THINKING OUT LOUD

Commodity Newsletter – November 2019

by Rob Zdravevski

20 November 2019

It's from my comments and views on traded commodities that you can also develop a thesis or strategy about the effect or prospects of selected equities, whether its food producers, oil corporations, power utilities, automobile manufacturers or mining companies.

Energy
Across all time frames (short, medium and long) the price of Oil (Brent, $60.91 & West Texas Intermediate, $55.28) is trendLESS. There isn’t a definitive direction and at these moments there is no merit “forcing a trade” when the price is simply digesting and meandering along.
Though, if forced to make a call, the embryonic (short-term) bias is lower, though reiterating there is no obvious trend nor any strength evident either way.
Brent looks like it’ll test $57.50 and WTI to potentially visit the $52.70 area
Heating Oil ($1.85) is in a similar sideways patten as Crude Oil, though its early inkling is for a move lower, but again this is with little conviction and no strength in the trend.
Natural Gas ($2.55) is acting in a constructive manner and should firm through the Northern Hemisphere winter. A taker of a longer term position would place their (trailing) stop commencing from the $2.28 – $2.32) mark, with the current price being an attractive entry point as it marks a 50% Fibonacci retracement of the advance which started in late October
Softs
Notwithstanding that I’d expect a  short-term pullback, due to its 10% spike last week, Cocoa ($2,653) is off and running higher.
The price of Soybeans ($9.11) seem prone towards weakening in the short term, although there isn’t a compelling trade in this commodity at the moment.
The decisive upward move in the price of Coffee ($106) has created a base for the beginning of a longer term rise. It should encounter some resistance at $115, although its troughing across its previous multi-year lows makes for a good picture that the $93-$94 floor looks like holding.
Damn it….even more expensive cappuccino’s.
Sugar ($12.69), similar to the price of Coffee, has been digesting and meandering along multi-year lows and has commenced a new upward trend. I would look at $11.90 as my preferred entry point.
Wheat ($5.14) is building a positive picture for some higher prices. Generally, the “Softs Complex” are turning bullish.
And finally, there isn’t a clear call to make in Corn ($3.79). Stay away for now.
Metals
Copper ($2.65) is trading at the beginning of a new downtrend yet to confirm any strength.
A break below $2.59 would help this case and a fall past the $2.52 – $2.49 mark would certainly confirm it.
For those who like being early, you’d be short with a stop at $2.71 and forfeit the right to being whipsawed.
This view on Copper also coincides with the sideways-to-weaker view on broader hard commodity prices and their correlated currency group.
The Price of Tin looks dreadful. I have no trading view on this commodity other than to say “look out below”. Although, one may want to look as lower input costs benefitting packaging companies ?
Precious Metals
Mixed signals in Gold (currently $1,466). Short-term it looks like going lower, (only slightly back to $1,414 – $1,437 region. Medium term support is around $1,358 ( ~ $10 either side). And bigger support surrounds the $1,268 area.  Nothing compelling enough to risk money in.
Silver ($17.14), similar to Gold, is likely to weaken in the short term, although my signals suggest that Silver that $16.70 – $16.35 could prove to be an attractive entry point within a developing medium and longer term rising price trend.
And my Single Best Idea in Commodities…..
Long Platinum ($898) – I think its providing speculators and longer term “position takers” with another opportunity around this price level. The price action is constructive and is the supply/demand equation.
Livestock
Hogs (Pork) prices (currently $63.20) are set to move lower. I’m looking forward to my Christmas Ham and Pork Mince being cheaper ?
Cattle ($125) prices have climbed a stupendous 26% over the past 2 months, thus as a financial commodity trade, they are in no-man’s land and best left alone at this stage. They could trade up to either $131 or down to $102 in the short term (2-5 months) and thus the risk/reward scenario isn’t of interest to me.
Currencies
The U.S. Dollar is range-bound lately, with a slight and weak uptrend barely intact in the short-term.
This means commodity base currencies are trading in the same vain, with a reciprocally, weak negative slant.
Watch and wait……
More on other currencies and Equity Indices in the next newsletter.
This is General Advice and Commentary. Please see my disclaimer, so that no one gets hurt.
http://karriasset.com.au/disclaimer/