There are a few commodity plays worth looking at for potential trading opportunities right now. Investors can consider equities (aka individual producers)– or direct commodities exposure ETF’s – for these trades. Let’s get right down to business and look at some charts that should be on your watch list:
I noted on a recent blog that Nat Gas is setting up for a potential move. Here is the full write-up. I’d like to see Gas move above 3.0 MMBtu to confirm a breakout. Seasonality is favorable for Nat gas right now and into October. Next period of seasonality is February to June.
ValueTrend initiated a position in silver this week. The chart suggests a textbook Cup & Handle formation – including the “high-low-high” traditional volume appearance for this basing pattern. I covered how to identify formations and their volume patterns in my book Sideways, for those interested in learning more on that subject. The handle in the current formation on silver is performing a classic test of old resistance (new support). Seasonally, silver can move well between mid-September and February. All of this suggests a reasonably good probability of success in the trade. Gold, too, has a good chart, although we preferred the silver play in the ValueTrend Managed Equity Platform.
The PowerShares Base metals ETF holds futures contracts in Aluminum, Zinc and Copper in equal portions. A break of the downtrend, and a rough looking Head & Shoulders bottom with volume confirmation on the neckline breakout suggest a bullish outlook. It’s hard to find seasonal research on the three metals, but copper does have a strong seasonal period that typically comes in around the end of the year or early in the New Year. If you are inclined to wait for the seasonal period, it may be worth watching to see if the sector jumps after the traditionally weak market environment in the fall.
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I was looking at the vix today. While it is low it doesn’t necessarily have to shoot up any time soon. If you look back it can stay in a low range bound area for many months. I suspect that is what will happen this time especially since we have broke out to new all time highs on the S&P.
Yes the VIX is a macro-indicator–which is why I use it within my ‘Bear-o- meter” compilation of indicators. Its a leading indicator–as is smart/dumb money and so many others.
Thanks for this blog. What you share is helping me build up savings for my toddler’s future education.
This morning I applied one rule I heard you say before: I sold CAE, because its price rallied +20% above the 200 DMA. This has been my easiest, most robotic trade this year. I bought after a confirmed 12 month+ base breakout.
I will use this example to propose a blog entry idea: If the price rises 20% above the 200 DMA, do you under specific rules, buy it back when it returns to its 50 or 200? It seems that such a method would work with charts that have trends where the prices “hops” on a MA. Loblaws is another example. It seems an important criteria to minimize slippage is that the height of the hops must be big enough, perhaps 10% or more from the MA. Is there a name for this type of trading?
Matt–very good trading rule! I have often mentioned on this blog and on BNN that a move of 10% over a stocks 200 day MA is indication of overbought. 20% may be a parabolic move worthy of a sell – although I must admit I have not incorporated that as a sell rule. I dont know a name for the system, but I found through gold old fashioned experience that my 10%+ over the 200 DMA is a pretty good indicator of a pullback. Even if you like the stock and its on an uptrend, an overbougth signal like that can guide you to wait for beter entry
I suggest using momentum indicators to re-enter the stocks you sell – but ONLY if they are on trend. Please read my book Sideways for the entire story
Great blog, I always enjoy reading them and using them for ideas. I have been looking at getting back into silver as well. Are you buying producers or a bullion ETF?
Bullion- we bough HUZ–slightly lower MER than SLV
I love your blog and visits on BNN. Unfortunately, I started reading your blog after
your item on the VIX which I just read this week. I am stuck in HUV….. down 32%.
I understand what you wrote with regards to contango.
I’m hoping the next week will bring some volatility with potential US interest rate hike.
Do you think we’ll see some volatility now that September has arrived. Many analysts
are predicting an increase. Wondering if I should just take my losses and sell some
or hang on a bit longer.
Any comments would be appreciated. I look forward to reading your new book!
I do think the markets will start to lever down Terry but the problem with VIX is the time factor. I have been correct on calling a VIX level before, but sometimes it takes longer than you hope–and meanwhile, your VIX ETF erodes – so its a very hard trade. For that reason I am mostly sticking with single inverse ETF’s now–I got stung once already on a VIX ETF depite beign totally correct on predicting a VIX double. So I cant say when you will see a likely decline–and that may be a problem for you. I cant make the call for you. Sorry–volatility may pickup in the nearterm, but…it may take longer than you hope…
I sold HUV….. yesterday. It went up today 15%.
LOL! You have to laugh!
Commodities is a great topic and glad you issued this one.
WRT Natural Gas my buddy and I have played Nat Gas for many years. We discussed your recent Nat Gas recommendation and while we both agreed with your technical and seasonal analysis we both believe there is a third criteria that must always be considered in most trade decisions and that is “fundamentals” for any particular business category. One of the fundamentals for Nat Gas is inventories. He pointed out at this website the storage data is sitting above the 5 year max range, meaning gas in storage is higher than any time in the last 5 years. http://ir.eia.gov/ngs/ngs.html
Our experience has been with Nat Gas that if inventories are high then this constrains upward price movement (supply is outstripping demand). So while I was ready to buy based on tech and seasonality, he and I agreed the fundamentals added a level of risk we were not comfortable with so have chosen not to invest in Nat Gas at this time.
I am considering adding to my silver positions based on your analysis.
Awesome input thanks Daddyo–FYI we have not bought yet either but that doesn’t mean we won’t. Still contemplating on the trade.
Would you consider buying gold? It has pulled back to a support level. Should we just wait and see which way it breaks? Would you recommend a partial position or full position? Thanks.
I like gold as noted but like silver better
Do you think silver can pull back some early next week given how overbought it is on the hourly hence giving one a chance to get in if they did not buy this week?
Love you on BNN
Hard to say–I think the neckline pullback and the bounce therein was enough to suggest more upside than downside potential from this point.
Thanks for the suggested silver trade.
Having read Sideways, I was wondering did you wait for a 3 and 3 before buying?
I watched it hit and test neckline support Aug 28, waited 30th to buy–it didn’t bounce 3% and wasn’t willing to wait for that, given my horizon of weeks, not months to sell. I determined that I would go for 2 days rather than our minimum 3 days – why? Because the trade in my view is going to be short, and move fast ‘n furious! So far I appear correct about the fast n’ furious! Sometimes you have to bend the rules a bit if the security in question is likely a high volatility candidate or is setting up to move fast.
So… 27 years of trading experience, combined with some rules, some chart observations, spider-sense, and, lets face it, sometimes ya just gotta go with that little voice that has been developed by years of doing this stuff…
HOWEVER…… A mid-termed (multi month) trade will ALWAYS be reached only after a 3 day wait.No exceptions, ever!
Silver is pulling back some now so I am entering my positions. I am assuming this was not a quick 2-3 day trade for you but that you think we will have at least a few weeks or more where we can see some nice upside still (silver currently about $19.60 USD as I type this).
I see you have a couple of books on technical analysis. Just ordered Sideways: Using the Power of Technical Analysis to Profit in Uncertain Times. Hoping to become a better reader of the charts.
Brianna–I expect to hold silver to early October or thereabouts–it has a seasonal period of slowdown in October then gets good again after that. Not sure of what price it might hit, but a guess would be in the resistance area of $21-22
Hope you enjoy Sideways. It was designed for retail investors like yourself–I tried to use plain language and practical tools that anyone can use.
Wow silver and gold really took a beating the last few days. Crazy this volatility.
One almost needs to be a day trader to capture any profits in this market.
Still holding what I bought the last two days and hoping we do not go much lower but kind of scary the chart the last 3 days. Hopefully the seasonal strength you mentioned appears and holds for more than two days going forward.
Re Silver–Its a nickel above what I paid, what a turn! I’m still in the trade.
I bought silver yesterday and again more today. Hope to see your 21+ price target.
I ordered your book on Amazon so very much looking forward to learning from a top technical expert such as yourself.
Finally received your book from Amazon yesterday. Looking forward to reading it.
I guess we are taking the scenic route to 21+ for silver? LOL What a yo-yo. I am assuming you are still holding.
Brianna – yes I still hold silver–and that’s a good way of putting it!