Bespoke's Commodity Snapshot: Key Support Lines Challenged

With commodities down sharply once again Thursday, and the news media already asking everyone and their mother's if this is the end of the boom, below we highlight our trading range charts of major commodities.

The green shading represents two standard deviations above and below the commodity's 50-day moving average. When the price moves above the green shading, it is considered overbought (oversold when below). We provide trend and support lines where necessary.

Just as $100 per barrel was a key resistance point for oil on the way up, it is now acting as key support. Oil is currently trading below $100 at $99.25, and if it closes below the $100 support level today, the bears will remain in charge for the time being. Natural gas hasn't quite tested its support level yet.

Bespoke readers surely remember our post a couple of weeks ago highlighting the CEO of Barrick Gold saying he would not hedge gold when it was near $1000, and that it "has a lot of room to run." He reiterated those statements once again on March 13th.

While he may be right and gold could still rally significantly, if a few days ago was the top, it would sure be ironic. As shown below, gold has broken one of its shorter-term uptrend lines in recent days, but it still needs to get down to the $900 level to test its longer-term uptrend line.

Platinum rose a lot more than gold did in recent months, and its decline has been steeper as well. Because it went parabolic, it has a ways to go to get to the bottom of its uptrend. Copper, on the other hand, never really got going on the upside, and it recently broke support.

While other commodities rallied in recent months, orange juice fell. In recent days, it even took out its lows from last summer. Coffee has really taken a hit since it peaked in early March. As shown below, it broke its uptrend as well.

Comments

[paultaut]

What I see are short term chart interpretations.

These aren't to be used by anyone but traders.

Your placement of support lines is also suspect.
For instance: Coffee has NOT broken a slightly lower uptrend line using the May 23rd date. Corn has support where is broke out above the previous high of 450. Orange juice never had an uptrend and is still trying to find a bottom. Copper's minor move above previous short term resistance will be tested when it goes down to the uptrend line started in Dec. of 07. We are talking 3 months here but thats how trendlines are born.

I could go on and on. The charts are being interpreted in a specific way. While support for copper is considered to be the flat top. Silver's break above its wedge and where initial support will be is not the uptrend line.

All I have said is an opinion...Charts are subject to interpretation and therefore, the interpretation of the chartist involved. To find support/resistance, I use a minimum of 3 years. Short term formations like copper's Cup with Handle are just that...short. Copper hit $4 a few years ago. It has not broken through resistance. I have been charting for over 35 years and I still make Major Interpretive mistakes.

[misterchan]

Excellent previous comment. In my opinion, commodities suffer the same fate as did Cinderella, but worse, since there are more than 2 mean stepsisters (and brothers) on Wall St. who, whenever they can benefit, deride commodities and bless stocks. And justify bear markets by offering them as an opportunity to buy stock. Why not also buy gold when it has a correction? Or mining shares? In my opinion, the bull market in gold and oil and the decline of the dollar are still intact.

[SavCD]

You do excellent work

[Silver-Bullet]

Make no mistake, the long term fundamentals for gold is excellent. Gold's recent correction is due primarily to:

1) Brokers booking profits for the quarter, and the only asset which has appreciated in any significance is gold and other commodity positions.

2) Banks having to sell their only asset of value the have - not bonds or stocks as no one wants them - but bullion which they are holding, as a means of cash infusion in light of recent financial mess.

To other investors in metals (silver, copper, zinc etc.), gold is like a magnet, when it goes down it brings everything down. When it goes up again soon, most metals will go up with it.

An astute investor would be buying low and selling high. I think gold is still a bargain compared to the run up in the 80s when you factor in inflation.

[phlash]

I'd say the time to buy gold is right after the IMF sells it 400 tons...as of this moment...they haven't reached a decision on the timeline...

[sbenard]

You gents speak of 2 standard deviations. Those are just Bollinger Bands. I use them, love them, in my trading. But even John Bollinger, the creator, recommends against trading based solely on Bollinger Bands. I use them with other indicators, suggest other people do also. Otherwise, I'd end up in the poorhouse.