Commodities Weekly (03-12-2021)

From the desk of Steve Strazza @Sstrazza and Ian Culley @IanCulley

In this week’s Commodity Report, we saw a continuance of many of the same themes that we've been pounding the table on for months now.

Mainly, strength in the procyclical areas of the market like Energy and Base Metals. This fits with what we’re seeing in Equity Markets as the rotation out of Mega-cap growth and into more cyclical sectors takes hold.

However, Crude Oil and Copper aren’t the only Commodities catching a bid right now. We’re also seeing strength in the grain markets. 

One of the charts that caught our attention this week was Palm Oil Futures.

Palm Oil is one of the most important Commodities in Asia and combined with Soybean Oil it accounts for roughly 63% of the global production of vegetable oils. Its uses vary from cooking and producing processed foods to personal care products like soaps and fragrances. It also plays a key role as feedstock for biofuel production.

While it's important to understand what we're trading and to always know what we own, we're more concerned with identifying and betting on the strongest trends and most favorable risk/reward opportunities… and right now Palm Oil is a shining example of just that.

Here's a look at the weekly chart.

After carving out a 3.5-year base, Palm Oil reclaimed its 2017 highs late last year and followed through with a swift move toward our initial target of 4205.

Yesterday, that target was hit as price broke out of its recent consolidation. Here's a closer look at this action on the daily chart.

Since it's already spent the better part of the year consolidating just beneath our risk level, we think Palm Oil is ready to make its next leg higher. As long as we’re above 4205 we want to bet on continued strength and remain long with a target of 5710 over the next 2-4 months. 

It's also worth noting that the recent price action in Soybean Oil is supportive of these new highs in Palm Oil.

After taking out a similar key resistance level at its 2016 highs last December, Soybean Oil has gone parabolic, tacking on over an additional 40% gain in the time since.

Soybean Oil has led the Bean Complex throughout this bull market and is showing little signs of slowing down any time soon.

We think this bodes well for the breakout in Palm Oil and see no reason it shouldn't follow a similar path higher in the coming weeks and months.

Do you think we have this right? Let us know!