From the Desk of Ian Culley @IanCulley
In late September, we highlighted the prior-cycle highs for the top commodity contracts.
The question was whether these levels would hold as support. So far, they have. But it’s two months later, and we’re asking the same question as those 2018 highs come into play again.
Let’s check back in on these critical levels of resistance turned support for clarity heading into year-end.
For crude oil futures, 76 is still our line in the sand:
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2022/11/CrudeOil11.24.png)
It coincides with its 2018 highs, its July pivot highs from last year, and this year’s September pivot lows. Former resistance has turned into support.
Now, will this newfound support hold?
Based on Monday’s action, yes!
Crude began this week slicing through our level of interest, only to reverse significantly higher by the close. Monday’s bounce off support was impressive despite a second retest of the prior-cycle highs within two months.
It’s a similar story for gasoline futures:
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2022/11/RBOBGasoline11.24.png)
Besides crude peaking in March and gasoline in June, the charts mirror each other. It makes sense since gasoline is derived from crude oil.
Our level for gasoline futures is 2.27. If it breaks below there, we imagine the bears take control of both energy contracts. But a strong underlying demand has supported the energy space all year.
We’re still giving these leaders the benefit of the doubt.
While many cyclical areas experienced aggressive selling pressure, Energy remained buoyant. Even today, energy stocks continue to rise while crude, gasoline, and heating oil retest critical support levels.
The growing divergence between these stocks and their underlying commodities raises concern. With that said, the entire energy complex is in a primary uptrend and showing relative strength over the long term.
We want to give energy futures some room to play catch up.
On the other hand, if Dr. Copper closes back below its prior-cycle highs, that’s another story!
Check out the weekly chart highlighting key levels of support and resistance for copper futures:
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2022/11/Copper11.24.png)
The structural levels for copper are 3.30 and 4.00. The former represents the prior cycle highs from 2018, and the latter marks the July 2021 pivot low. That’s the new range.
After copper’s explosive rally earlier this month, the bulls want to see follow-through above 4.00. It’s messy at best until then.
On the flip side, a decisive close below 3.30 puts an outright dent in the structural uptrend.
The bulls are in trouble if copper futures start to resemble a chart of lumber:
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2022/11/Lumber11.24.png)
Lumber has slipped back into the box, undercutting a former resistance level that kept a lid on price for decades.
It would be nice if lumber futures reclaimed the shelf of former highs going back to the early 1990s. So would new all-time highs in the S&P 500. But we’re not going to let a single data point define our outlook.
Lumber above 500 is a want, not a need, for commodity bulls.
Notice lumber futures rallied in the early stages of the last commodity supercycle, peaking in the summer of 2004. The rest of the commodity space went on a rip-roaring rally into 2008 while lumber trended lower.
That’s not to say lumber is irrelevant.
We’ll always keep a close eye on lumber futures. But we’re more concerned with other procyclical commodities for now, especially copper.
Whether these critical levels hold in gasoline, crude, and copper will determine if we’re talking about tradable lows or renewed selling pressure for many commodities and cyclical assets in the coming weeks and months.
As this tumultuous year nears the finish line, those prior cycle highs remain front and center.
Stay tuned!
COT Heatmap
Due to the Thanksgiving holiday, the Commodity Futures Trading Commission will release the Commitment of Traders Report on Monday, November 28.