Heating oil futures just posted their lowest level since February. Meanwhile, gasoline and crude have printed fresh year-to-date lows, taking out their prior cycle highs.
Now what?
Should we expect broad selling pressure to hit the commodity space?
Not so fast…
If you believe impending weakness awaits commodities in the coming weeks and months, this chart is for you: our energy index overlaid with our broad commodity index (both equal-weight):
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:
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.
I’ve even gone primal, cutting carbs while increasing fats for long periods of time.
But I haven’t tried the new all-meat-all-the-time lifestyle.
Whether you’re a full-on carnivore -- or even if you just enjoy a nice steak once in a while -- it’s time to hedge against rising beef costs using the futures markets.
Check out the chart of feeder cattle futures:
Feeder cattle represent weaned calves making their debut at the feed lots. They range from six to 10 months old and tend to weigh between 600 and 800 pounds.
While these young cows still have weight to put on, from the looks of the weekly chart, they’re planning to eat well this holiday season.
The bulls are dropping the US dollar like it's hot – and risk assets worldwide love it!
Few areas are enjoying the newfound dollar weakness quite like the metals space. It’s not just precious or base metals catching higher. It’s both.
So if you shelved those shiny rocks months ago, it’s time to pull them out and take a look.
Copper futures are up first:
Dr. Copper went out with a bang last week, posting its largest single-day return since 2009. We call these types of strong directional moves momentum thrusts.
Metals have been one of the weakest areas of the market this year.
It doesn’t matter if we’re talking about the materials sector, commodity space, base and industrial metals, or gold. These assets have carried nothing but downside risk.
But mix in a little dollar weakness, and we see an impressive display of strength. Metals are finally looking like they have something to prove.
Yes, it’s only one day of action. But it’s a day worth noting…
Check out the breakout in copper futures, posting its largest single-day return since 2009:
This is a big development for commodities and risk assets in general.
It doesn’t look like that will change any time soon. However, I doubt energy contracts will be left behind.
Let’s run down the most actively traded contracts for crude, gasoline, and heating oil. First, crude oil:
The December contract has chopped around a key level of former support at 85. Despite the sloppy nature of the chart, I don’t hate a long position here. But that's only if it’s above 85.
It’s easy to lose sight of how impressive energy has been this year.
We get it. Sideways action is boring.
But while the rest of the market has been selling off, energy has shown incredible resilience, digesting gains in a continuation pattern since early summer.
After an explosive rally for energy stocks off the 2020 lows, it’s normal to experience an extended period of corrective action. In fact, it’s healthy.
Now get this...
Many of these stocks haven’t even broken out yet!
We know it sounds crazy, especially when some of these industry groups have more than tripled during the trailing 24 months.
But the charts don’t lie. They’re telling us some of these trends might just be getting started. Let’s take a look.
We can break down oil and gas companies into three main categories: upstream, midstream, and downstream.
After months of selling pressure, the most widely followed commodity contracts are testing critical potential support levels.
More importantly, these support levels are the prior-cycle highs marked by the 2018 peaks. If there was ever a place where the bulls needed to step in and repair the damage this is it!
I know the market’s ugly right now. Risk assets are getting crushed across the board.
But, believe it or not, greener pastures do exist in this market.
And, on days like these, I choose to focus on areas that aren’t free-falling into the fiery depths of hell.
Last week, I discussed the relative strength of the less economically sensitive grain complex. These contracts are more defensive in nature and are currently escaping the broad selling pressure.
That’s a relief!
When it comes to today’s trade ideas, I’m sticking to the individual contracts with the highest volume heading into the fall. Those are the charts and levels of the most importance.
Do the levels on the continuation charts come into consideration?
Absolutely!
Premium members can reference our Commodity Chartbook below for our structural outlook and reach out at info@allstarcharts.com with further questions.