If you have followed this blog for a while, you will know that I have been rather bearish on most of the major commodities since 2011. Here’s a blog I wrote in May 2011 noting the potential for a long term cyclical peak for the broad commodities basket, which occurred on schedule in 2011: https://www.valuetrend.ca/?p=672.
Within any longer termed trend, you will find counter-trend rallies. WTI crude rallied in a countertrend movement over the summer of 2013. A short termed top broke in October to end that rally.
While my longer termed perspective remains bearish for oil, there may be some support coming in at $91-$92 – leaving oil with the potential to drop a few more dollars. Today’s chart shows us how $92 held for most of 2013, with a short termed breakdown through that level in April. At this time, momentum (RSI, Stochastics) has rounded over and is headed lower, and the infamous “death cross” (50 day MA crossing down through the 200 day MA) has added to the bearish picture. Relative strength is rather flat at this time, but showing early signs of breaking down. Watch for oil to find support at $91-$92. But remain cautious before buying – wait at least 3 days for a bounce off of that level to confirm support.
I continue to advise caution for long term investors on major commodities such as oil and gold due to their longer termed bearish charts. However, counter-trend rallies can be played by those who enjoy the risk/reward potential behind such trading strategies. Oil may present such a short termed trading opportunity soon.
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Great stuff as usual,keith! What do you say to Jim Rogers 25 yr “commodity supercycle” that is supposedly only 1/2 way done? As far as I know he s hanging onto this thesis (esp. bullish on ag)
Well, as noted on the blog, the cycle I follow is 1/2 way through the bearish trend–in other words, beyond counter-rallies, more pain to come. And agriculture’s? Yeech!
Given all of this, though, at the base of my analysis is always trend analysis. Cycles can discontinue–so I will be the first guy to buy any commodity after:
1. The market stops trending down (no more lower highs and lows)
2. A base is established (some sort of a traditional bottom formation on a weekly chart or longer)
3. A breakout from the neckline of that base occurs, followed by several days if not weeks of support over the neckline–preferably with some volume to support it.
Charts don’t lie. Theories and themes often do. Including cycles–they are interesting, but at the end of the day, all that matters is the trend.
I look forward to your weekly blogs and have found them to be very helpfull.
I would just like to point out that your use of the word “termed” to describe an event or view that has or may happen, may not be proper grammar. I think the word term, as in my short term view or my long term perspective would be proper use of the word. I’m not even sure that “termed “is a word.
Just wanting to help.
Thanks Joe–I actually do really appreciate that you point that out. I’ll keep in mind, over the long “term”…
great answer keith! thanks.