Appealing commodity charts, and how to play them

Commodities – particularly gold and oil – are looking technically attractive. Today I’d like to visit a few of these plays from an intermediate (weekly) and longer termed (daily) perspective on the charts. Let get at it:

 

Gold

gold long

A mere 5 weeks ago, gold was trading 25% lower in price. The breakout through the downtrend, as seen on the weekly chart above – and noted on this blog a few weeks ago- was significant for intermediate termed investors. Its looking like gold has finished a Phase 1 base, and broken out. However, there are some signs of a weakening from an overbought condition on the daily chart. Stochastics, MACD and RSI are flattening after reaching overbought areas. Comparative strength to the US stock market is flattening. Moneyflow- as seen on the extreme bottom and extreme top panes, is waning. A pullback is in the works, and this pullback should provide an entry point shortly. I’ll hazard a guess at a target of just under $1200, which was the last point of resistance when the chart was down trending. Keep your eyes open for an opportunity on gold.

gold neartermed

 

Oil

oil long

WTI Oil’s weekly chart shows us that there is a mighty convergence of resistance about to come into play around $38-$42. I draw this conclusion by noting that the downtrend line (which has not been broken- an important thing to consider…), along with the 200 day MA (40 week) and the last peak within the current downtrend all lie between those price points. The short termed chart below shows us that momentum (Stochastics, MACD, RSI) is largely overbought, but moneyflow is bullish. Thus, my opinion is that we may just see oil crack that $42 resistance point – but not likely right away. Expect a pullback before the trendline is tested.

oil short

Steel

SLX long

Steel is a sector that I haven’t covered before. It’s a product of base commodities, and its presenting an interesting technical profile. The weekly chart shows a successful break of the 40 week/ 200 day MA. However, SLX (steel producers ETF) is just testing the last peak within its still-present downtrend. Breaking this resistance point above $24 on the ETF suggests a break of the downtrend as well – meaning that all of my conditions are met for a “Phase 1” breakout (please read my book Sideways for more on this). I didn’t post the short termed chart on steel, given its need to break $24 before I become interested in the play. Keep an eye on this one.

 

 

TSX

TSX LONG

Somebody asked me to post my thoughts on the TSX. The TSX is tied into energy, metals and financials. Really, the financials have been largely lead by energy lately, so I tend to pay more attention to energy when viewing the TSX. While I didn’t post the charts for copper and iron ore, etc., these too have influence on the Canadian market. As you will note on the weekly TSX300 chart below, this index has strong resistance between 13,300 (current levels) and 14,000. This resistance coincides with the current zone of resistance on oil. Thus, my conclusion remains the same for the TSX as it has been for a while – that is, as oil goes, so too does the TSX. Watch for oil’s break before buying a broad index TSX ETF.

 

 

Keith on BNN: Tomorrow, March 10 at 6:00PM

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 Tune in to BNN to catch me live on BNN’s premier call-in show Thursday, where viewers like yourself can ask my technical opinion on the stocks you hold.

Call in with questions during the show’s live taping between 6:00 and 7:00 pm. The toll free number for questions is 1 855 326 6266. You can also email questions ahead of time to [email protected] – it’s important that you specify they are for me.

13 Comments

  • Hi Keith,
    What kind of price level would you expect oil to pull back to before testing $42.00?
    Thank You,
    Barry

    Reply
  • Excellent topic! So some questions/confirmations based on a few of the topics in this blog:
    1) Gold: While you are suggesting near term gold could have a bit of a pull back, in the big picture it has completed a Phase 1 basing and now ready to move into the profitable phase 2. The last 4 phase cycle had gold rise to 1900 during the 2 year phase 2. Can you forsee a similar trend (couple of years duration and up to 1900ish…. or maybe even higher for this cycle?
    2) Oil: You state “my opinion is that we may just see oil crack that $42 resistance point – but not likely right away. Expect a pullback before the trendline is tested”. So I gather from this perhaps a pullback of a few dollars but do you believe $30 oil is well behind us now?
    What are the real fundamentals that will drive this above $42 near term? Inventories are still way high while output is holding, perhaps not increasing. China will consume more. But even with consumption this year rising a bit and output holding steady this still leaves very high inventories no? Venezuala have not indicated an output contraction. So wondering where the fundamental drive may come from? Or is this current rise simply traders & speculators anticipating a rise but its not fundamentally sustainable?
    Thanks Daddyo

    Reply
    • Thanks Daddyo–yes, I strongly believe that gold has entered into a phase 2 bull market- and as mentioned, is likely pulling back a bit in the nearterm. I wont provide an upside ultimate target, because that’s kind of a mugs game. Instead, I will give you some technical resistance points that could offer points of stagnation or even a top. Each resistance point will need to break to see the next point reached. They are (approx) $1400, $1550, then $1850. The high peak of $1900 in 2011 was a spike top–I wont count on that as a potential target.

      Re \Oil: not being a fundamental guy, I don’t care what drives it, although an agreement by OPEC nations to curtail production might be a catalyst. If, and only if, $42 is broken (and thats not far away from this point of writing…) – and stays above $42 for a while–it will be bullish and could target $52, then $60 as nearest resistance points on the chart.

      Reply
  • HI Keith,
    What price do you feel oil will test on the downside before testing $42.00 on the upside.
    Thanks,
    Barry

    Reply
    • It could safely test $35 or thereabouts and still be in a constructive base building pattern.

      Reply
  • Many of the charts I have been watching are showing promise including some of your charts above. But I’m concerned that most show little if any Phase 1 or bottoming pattern. You have pointed out many times including in “Sideways” that V bottoms are quite rare. Is this a concern?

    Reply
    • Fred–this is a really insightful comment and question–thanks for bringing it up. Yes, it is somewhat concerning that markets bounced in a rapid fashion. In some cases like oil, there is an obvious base- one that hasnt quite yet broken despite the move up since $27-gold looks a reasonable bet with a neckline break at $1560 or so after a rounded look on the daily chart–but its certainly not a big, clearly defined base. as you note–many of them like the steels I mentioned just reversed and rocketed up. They are the most likely to fail. so–as always, keep an eye on the ball at all times!

      Reply
  • We could see in some of the commidies you mention (my observations include equities as well) reverse course to start the bottoming pattern, perhaps a double bottom. I have also noted a shoulder, neckline and a head – perhaps a reverse H & S formation developing in many of my charts.

    Reply
    • On the daily chart we can see some potential basing for sure Fred. Not so much yet on the weekly charts–yet….
      We now are testing the vital 200 day MA and resitance points noted–lets see what happens!

      Reply
  • Hi Keith,
    I enjoyed watching you on BNN last evening. I’ve ordered “Sideways” from Amazon so perhaps I will get a more in depth understanding of your investing style from that source. Do you have any opinion on investing using momentum (MOM) charts of the various sectors? As I understand it, this data seeks to identify the number of weeks of positive and negative momentum on a relative, sector to sector or country to country basis. Presumably one would gradually reduce sectors that are beginning to loose steam and add sectors that are emerging as youthful bulls. If adhering to this system one would currently be reducing the US and Canadian Consumer Staples sectors since various charts show that these have had 26 months of positive momentum and are thus technically aging bulls. I ask this question because you recommended the XLP as a top pick on BNN. I assumed you did so because you are very short term and defensive in focus presently. However, I would benefit from a more detailed understanding of your use or lack of use of momentum studies.
    With thanks,
    Joe

    Reply
    • Joe–you will get much of that question answered in the book–but here is a VERY short summary of my logic behind XLP:
      -It consolidated for many months-peak was last July-although it was more or less sideways consolidating since 2014–recently broke out. Thats a bullish sign–possibly of a new bull trend about to emerge after such a long consolidation
      -Seasonality gets favorable from spring to summer for the sector–I am ahead of the curve but thats OK–I defer to the breakout first, the seaosonality adds another positive
      -My macro market view is cautious–the sector is more defensive than other sectors relatively speaking

      Momentum–best source to use that trading strategy is point and figure charts. There is a P&F service that many Investment Advisors use with some “religious- like” faith in, but I feel anyone can read a P&F chart with a little bit of understanding. You dont need to pay hundreds of dollars a month to have a machine or someone else read these charts for you. Read a good book on P&F charting if you wish to explore the subject–I briefly note how they work in my book, but not in great detail as I am not especially a momentum trader.

      Reply
  • Keith, are you thinking the long term bear call on commodities you made about 5-6 years ago might be ending ?

    Reply
    • Mark–at this point that is hard to call, but I would suggest that its probably not over. The observation was that there is a 33-35 year cycle on commodities that peaked right on schedule in 2011. If we translate the trough of the cycle–which can land anywhere from 1/3rd, 1/2, or 2/3rds the way through it–we wouldn’t see a bottom until somewhere between the early 2020’s- 2030’s. But, cycles can be broken, and that trough is not all that predictable as far as its exact timing–so we keep an open mind.

      Reply

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