April Showers Bring Rampant Commodities

Two weeks might not seem like a very long time in the grand scheme of things, but it can feel like a lifetime if you trade the commodity markets.

So trust me - there's always plenty of news and analysis from the commodities world for me to update you on in this column every two weeks. One thing is for sure: The volatility has certainly not died down. Let's dive in…

Energy By Name… Energetic By Nature

Without doubt, the current main driver of all the commodities is the energy market. It just doesn't seem to be slowing down at all.

In our last update, crude oil prices had just thumped back down to $100 a barrel after launching to all-time highs of $111 barrel. But like a prize fighter, the market didn't stay down very long - and in fact jumped right back up and punched its way even higher, hitting a new record over $112 a barrel.

Expect a continuation of the recent trend - large pullbacks followed by renewed upside momentum.

Natural Gas Moves Along With Crude Oil

Not to be outdone, crude oil's neighbor - natural gas - has seen equally large moves in the futures contract over the past two weeks.

The front-month contract had just neared the $10.200/mmbtu level when it took a 1000-point hit to the downside. That's a $10,000 move on just one contract to you and me.

But like oil, you can see that the natural gas market rallied straight back, tacking on 1100 points just as quickly.

Talk about perfect dance partners. It seems that crude oil and natural gas are moving in tandem at the moment. But since these two products trade on very different underlying fundamentals, why now?

The only reason we see for the "tandem-trading" here is due to big hedge fund activity. And with hurricane season set to get underway in June, it doesn't look like we'll se a long-lasting natural gas selloff any time soon.

Gold And Silver Futures Stay Consistent

Moving to the metals market, the two main players - gold and silver - have swung up and down over the last two weeks, but are actually at roughly the same price as they were when I last wrote to you.

Check out the gold chart and this silver chart.

That's good action for the day traders, but doesn't do much for longer-term positions. However, I do maintain a longer-term bullish bias - but expect to see continued volatility here, too.

The End Of A "Soft Commodities" Selloff

After a relentless six-week selloff, some of the "soft" commodities (coffee, sugar, cocoa, orange juice & cotton) finally seem to have gained some traction and possibly some good support levels.

For example, the cocoa, cotton and sugar markets have all enjoyed a spell of good, bullish activity, bouncing them off of the lows.

Take a look at the action for yourself here:

• Cocoa chart
• Cotton chart
• Sugar chart

On the other hand, the "drinks" markets like coffee and orange juice are still looking for their footing.

Lastly, I must mention the soybean market, which saw a huge move just after I sent my last column to you.

On March 31, the U.S. Department of Agriculture [USDA] issued its latest quarterly planting report and painted a bearish picture for soybeans. As you can see on the chart, it was a body blow that took many of the bulls by surprise. Soybeans got crunched, shedding $2.50 a bushel.

But just as quickly as it went down, it popped right back up. In a matter of days, it had regained all its losses - and then added more. That's $12,500 per contract on the way down and $12,500 on the way back up. Just goes to show that volatility rules and you just can't keep a good market down.

Because of volatility like this, if you're investing in commodities, make sure you stick with limited-risk option strategies in order to grab the most upside, while also protecting yourself from brutal losses.

I'll catch you again in two weeks, Meantime, buckle up! With earnings season adding to already volatile commodities, keep a close eye on developments and make sure you know your entry and exit strategies.

Comments

[AmesTiedeman]

I guess oil goes to 125 soon. The chart is just cranking..