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Commodity Report August 12th 2017

August 12, 2017

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After the little breather, the commodities took last week, the game is back on as our commodities had all sorts of trouble to deal with this week.  First up, is the threat of war coming from the North Korea situation.  We will look at how a potential war could affect the metals and the oil reserves as well.  In addition to the war news, we are seeing some weakness from the overall markets, with the exception of the Dow Jones industrial which also acts as a safe haven in certain situations.  The markets have pushed below serious technical indicators and we need to see how that may affect our commodities.   To see the real effects of these technical indicators make sure you are using the one-two punch method of checking the market scoreboard and reading this here report. Without further delay!

THIS WEEK’S PLAYBOOK

CommodityWeekly TrendDaily Trend
Crude OilBullish/ Above SupportNeutral/ Above Support
Natural GasBearish/ At Resistance
Bullish/ At Resistance
GoldBullish/ At ResistanceBullish/ At Resistance
SilverBullish/ Above SupportBullish/ Above Support

Crude Oil –

We talked about the 50 level being a barrier to the price of crude going higher.  That level has not disappointed.  CL this week did nothing but bounced off of the 50 level with a smaller push downward on Friday.  This was not a surprise last week and again was not shocking this week either.  This week there was a couple of fundamental reasons for crude staying pat.  First up, is the Baker Hughes oil rig count.  We talked recently how the rig count increased for over twenty weeks in a row and pushed well into the 700’s of total rig count.  Well, this week three more rigs came online and are now adding to an already bloated domestic supply.  In addition to the increased rig count, the numbers came out for the OPEC nations output for July and it was not as they had hoped.  The numbers showed increased production from Nigeria and Lybia which is not that big of a surprise.  The big surprise came from increased production from the biggest player in the game, Saudi Arabia.  This renewed traders fears that the glut of supply is likely to continue for some time to come.  From a technical standpoint, the picture is very clear.  The 50 level on top and any pullback should see some support at 47.

Natural Gas –

After pushing down to a triple bottom at the 2.75 level NG had a solid week of a bullish run.  The run for natural gas ran into a familiar foe, the 3 level, it provided the exact resistance one would expect to see.   The 3 level is still in line with the intermediate bearish trend line that we have seen forming since the high mark that was put in during May of this year.  So, why all the bullish this week? And will it continue?  Logical questions for sure.  So we need to look at the fundamental and technical pictures to see if we can answer those two questions.  First is the fundamental view,  this week the EIA reported that 8 billion more cubic feet were taken from the stockpile than was expected.  This could help the bullish case for natural gas.  In addition to the drawdown, the weather forecasts for the coming winter have been revised and it looks very bullish.  Last winter saw a reduction of the stockpile of approximately 2 trillion cubic feet of natural gas and this coming winter the traders are looking at reports that are predicting approximately 3.8 trillion cubic feet of drawdown this winter.  Again very bullish data.  That pretty much sums up the fundamental picture as it stands.  As for the technical picture, it is not hard to believe that the 3 level could hold as resistance and that a pullback could see the 2.90 or even 2.85 levels.

Gold –
Last week we talked about the run to safe havens if the FED changed its mind or if the freefall in the dollar continued.  As it turned out it only took a bunch of bravo between the US and North Korea and the threat of nuclear war to set the run in motion.  After touching the 1260 level this week GC went nowhere but up.  Gold did, however, slow its roll as it hit the 1300 level as this was to be expected.  This is putting together a decent inverted head and shoulders pattern at that 1300 level.  If GC gets past that level then we should see a significant pop in price from a technical standpoint.  In addition to the threat of war, the inflation rate has slowed and this helps our original FED thesis play out in regards to the interest rate hike.  The data that indicates the slowing pace of inflation is the consumer price index, that report stated that the CPI rose by 0.1% when it was expected to rise by 0.2%.  This alone doesn’t mean much but it is the overall CPI rate that tells the tale.  The overall CPI sits at 1.7% for the calendar year and this is below the 2% that the FED is looking for and this could mean a pullback on the raising of the rates.  The technical levels to watch in gold are the 1300 level and on the downside, the 1275 level could act as support to a pullback.

Silver –

Silver broke through the neckline of the inverted head and shoulders pattern that we talked about last week.  This bump came courtesy of heated exchange between North Korea and the White House.  Although SI was able to break above the 17 level, it has not strayed too far from that level at this point.  More geopolitical tension could push the price of the metals up much further from where they stand at this point.  Before we get ahead of ourselves, we need to look at what the bigger technical picture is doing.  This week saw SI put in a higher high which negates the bearish trend line we have been looking at since April of this year.  This puts silver into a neutral stance instead of the bearish posture we have been dealing with in recent vintage.  Silver has been benefitting from the run to safe havens due to the weak economic numbers same as our friend gold.  Looking forward, we need to keep an eye on the 17.50 and 18 levels for the next logical resistance and on the downside 17 and 16 levels could act as support.

TRADING INSIGHT OF THE WEEK

This week’s trading insight is all about hedging.   After the movement in the markets this week I think this is a good time to remind ourselves about protecting our profits and our portfolios from the inevitable ups and downs of the markets.   We have seen this bull market running for over eight years and this is the longest bull market in a long time if not all the recorded history of the markets.  Does this mean we go out and short everything that moves? The answer to that is no!!!  What it does mean is that we have to take a page from Sir Issac Newtons playbook and ready ourselves from whatever comes next.  We all know that what goes up must come down at some point and that is what we need to be ready for.  This can be as simple as collaring a trade or as intense as hedging a multi-million dollar portfolio.  There is a multitude of ways to hedge and I encourage you to get over to the tackle trading website and put hedging in the search box and go through the coaches videos to learn all you can about hedging.  For this little excerpt, I will just give you a small tidbit to help with disaster protection.  For very basic portfolio protection, a trader could go and buy puts on the index where you find most of the equities in your portfolio and throw on a six month, twenty-five delta put or puts and this can save you some heart burn when the bear market picks up speed.  Think of this as rainy day insurance, it will cost a little money but it will give you peace of mind and that is priceless.  If you want to learn ways to hedge and have someone else pay for it then you need to get a mentor that understands that part of the game.  I recommend having more than one mentor.  Trading is a team sport and the bigger and better team you have the better you will do.  You have a great, big team here at tackle trading. Happy Trading.

Greg Holmes is a full-time trader that came into the world of trading through an unusual channel.  Greg held a securities license that allowed him to sell mutual funds and insurance investment products such as segregated funds and annuities.  After learning more about the financial markets through his education, including Rich Dad’s Master Trader and Cash Flow Options and graduating from a host of other trading programs, Greg came to the realization that he could better help his clients achieve their financial objectives through trading of the financial markets.

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3 Replies to “Commodity Report August 12th 2017”

  1. BRUNOSILVINO says:

    Thank you Greg, nice tips on hedging!!!

  2. PETERIRUNGU says:

    Thanks on the tip on hedging

  3. bethsalamanca536 says:

    Thanks, Greg. Great “quick n dirty” on basic hedging!

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