From the Desk of Ian Culley @IanCulley
It’s getting busy in the commodities space.
Live cattle posted a new all-time high last month. Precious metals are gearing up for a potential rip-roaring rally, as gold retested all-time highs yesterday. And sugar futures refuse to quit.
But when I review my commodity charts, I notice more topping formations underway than bottoming patterns.
Crude oil is front and center as the energy space – commodities and stocks – remains one of the weakest areas of the market.
That’s why yesterday’s action in crude has my full attention…
Check out Thursday’s candle in crude oil futures:
Did someone punch in too many zeros?
I have no idea what caused yesterday’s abrupt sell-off, but buyers stepped in and drove prices higher. That’s for certain!
I was taught to trade in the opposite direction of long wicks or shadows. Sure enough, black gold is up three dollars mid-morning, roughly 4.5%.
What does this tell us about the rest of the energy space?
Despite the decoupling between crude oil and the energy sector $XLE over the past twelve months, it’s fair to say that further weakness for crude likely instigates selling pressure in energy stocks.
I also believe the opposite is true. Energy deserves the benefit of the doubt as long as crude holds above yesterday’s low.
Yes, crude is trading below its prior-cycle high at approximately 76. Risk remains to the downside from a structural perspective if it holds below those key former highs. We can extend that outlook to the entire energy space.
Yes, we’re only talking about two trading days. But don’t get carried away on a bearish tilt toward energy. Let the market and price inform you of the next directional move – not the headlines.
For me, I’m focusing on the 65 level in crude.
Am I oversimplifying it? What am I missing?
Let me know what you think. I love hearing from you.
COT Heatmap Highlights
- Commercial hedgers remain long cotton, falling within 6% of three-year extremes.
- Commercials hold their largest long position in soybean oil in three years.
- And commercials added another 10,000 contracts to their long exposure to Chicago wheat, registering a three-year extreme.
Click here to download the All Star Charts COT Heatmap.
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