Commodities look red again this morning as markets in both Europe and Asia are red, and significantly so. The commodity export economies have been hit hard, and Australia this morning finds itself down more than 1.3%. It seems that Bernanke's comments market an intermediate top, and most certainly so for the precious metals market. We are moving to be more conservative in our portfolios, and the first step of that plan took place yesterday.
Yesterday Kodiak Oil & Gas (KOG) fell through the $9.50/share level we said should be used for a stop. This happened early in the morning, and shares sold off shortly thereafter. This money should be used to deleverage at this time, and potentially come back to this trade at lower levels. The stock is at $9.20 now, and we feel that if this is the correction we have been waiting for, then we may yet get an opportunity to purchase shares at even lower prices.
Gulfport Energy (GPOR) was also lower yesterday, and as we stated we would not be buyers. We are only buyers in this market if shares go south of $30, and that will be for a mid to long-term trade.
Gold & Silver
It looks like a major breakdown here, as gold keeps breaking through each of its support levels and simply is not finding a base to level off on. It fell to the $1695 level again, only to not hold and fall down to $1685 and get a bit of a bounce, which for short-term traders is not good unless you are short. And to that we would have to tip our hats, as we have been on the wrong side of this for a week now. We are still holding our physical gold and believe that as the economy picks up steam so too will inflation.
Silver is also lower, having broken through the $34 and $33.50 levels. In the precious metals markets it is all around not good. We would buy silver over gold if one is so inclined to make a trade in this space, but would recommend doing it at prices 10% lower than these if you can for silver.
Rare earths were higher yesterday, one of the few areas of strength, and they were led by Molycorp (MCP) as it rose over the $25/share level. We find it a bit risky to chase in this market, but admire the fact that the whole sector was able to show relative strength versus the market as a whole. We will continue to watch the space as many investors were exiting positions early before this market correction, so they will hit a floor first. Also of interest for traders or those looking for a bottom in commodities might be Rare Element Resources (REE) which has been helpful in the past in showing us this.
It appears that Mitsui & Co may be looking to do some acquisitions and joint ventures in the copper space as Bloomberg reported this morning (see here). Coal is also a priority, but we are much more interested in the copper portion of this wish list as many look to copper as an economic indicator. If Mitsui is looking to buy here, and make no mistake they are one of the top Japanese commodity traders, then maybe copper prices are not too high but rather a bit too low. Regardless, we are now watching Freeport-McMoRan (FCX) even closer now, and should it break below $40/share might find ourselves buyers if we are stopped out of any positions and have some idle cash sitting around.
The rainfall in the country's breadbasket is putting pressure on the grains as the speculative money flees on the belief that the rainfall may lead to higher production. Farmers are also planning on planting the most acres in a generation, which should help for a record harvest.
Disclosure: I am long GPOR.