Tactical Perspective, August 24: Commodities

Yesterday Sugar traded above the key 20.00 resistance level and we are watching for follow-through above that resistance.  If the market stumbles here, we will reduce the position and look to re-establish lower.  We continue to be interested in selling Gold on the first weakness, but be clear, this is a tactical (price action-driven) trade, not an investment recommendation. 

Our intended holding period on this trade is 2-4 weeks, but if we see strength that contradicts the trade we will be very quick to cover the short, perhaps even on the day it is initiated.  This is a trade that is only appropriate for nimble traders who will aggressively manage the risk in the trade.

We continue to see patterns in Crude Oil futures that support the possibility of significantly lower prices to come (see chart).  While we realize this flies in the face of a number of fundamental factors and common sense, this appears to be a high probability pattern that targets the low 60.00 range within the next several months.  We first wrote about these patterns in early summer of this year, the subsequent price action has support and confirmed the patterns, and we see short term confirmation in the recent selloff from the low 80’s. 

From a practical standpoint, most traders holding positions in this market should either keep the position size very small or maintain some disaster insurance in the form of (admittedly expensive) out of the money call options.

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