Commodity Snapshot

Below we highlight our trading range chart for ten major commodities.  In each chart, the green shading represents between two standard deviations above and below the commodity’s 50-day moving average.  Moves to the top or bottom of this range are considered overbought or oversold.

As shown, oil is trading pretty much in neutral territory at the moment after bouncing off of oversold levels a month and a half ago.  Gold has moved down from overbought levels over the last week, and the metal is now closer to the bottom of its range than the top.  Silver and platinum are in similar situations.  Natural gas has pulled back some after moving into overbought territory a few weeks ago.  Looking at some of the agricultural commodities, corn is attempting to break out of a long-term downtrend, while wheat already did so after spiking recently.  Both coffee and orange juice have done pretty well lately.

Source: http://www.bespokeinvest.com/thinkbig/2010/7/7/commodity-snapshot.html

Oil Up 99% In 75 Trading Days

Oil has rallied more over the last 75 trading days than it did at any time during its entire bubble run from 2001-2008.  In fact, its current rally of 99% since the February 12th low is nearly double the highest 75-day rally during the last oil bull (From December 2001 to April 2002, oil rallied 55% over 75-days.)  Oil has also gone from $33.75 to $67.75 in just 75 trading days.  During the 2001-2008 oil bubble, it took 409 trading days to complete the same task from January 2004 to August 2005.  While many investors are arguing that oil’s rally is a good sign for the global economy and equity markets, let’s hope it doesn’t keep up the pace, or else we’ll be right back to $150 in no time.

Source: Bespoken Research

Oil and Stocks Trading Together

lf you’ve been following the markets on a daily basis over the last few months, chances are you’ve noticed that oil and stocks have been trading hand in hand together.  When stocks have gone up on the day, oil has also gone up, and vice versa.  Below is a chart highlighting the price of oil and the S&P 500 so far in 2009.  As shown, both are up big since the March lows.

To quantify this trading relationship, we calculated the correlation between the daily percent change of oil and the S&P 500 on a 50-day rolling basis going back to 1986 (as far back as daily oil pricing goes).  As shown below, prior to recently, the correlation between the two over any 50-trading day period had never gone above 0.50 (1 is perfectly correlated).  Now, however, the correlation between their daily moves is at its highest level ever and approaching 0.60.  So if you’ve noticed that the two seem to be much more inline with each other recently, here’s your proof.

Source: Bespoken Research

Crude Oil and Gold

With Crude Oil and Gold being in the spotlight last week, especially against purchasing news out of china, we still need to keep our feet firmly planted on the ground as we take a look at the facts.

Looking at the raw data on Crude Oil provided by the EIA, it is very hard to be supportive of a bullish price action for the near term.  Crude Oil, Distillate’s, Gasoline and Propane stocks all reflect a much higher cyclical average than previously seen for this time of the year.  This is underpinned by above average production level and Crude Oil days of supply.

Taking this into consideration, these types of builds would not be a cause for concern, provided of course, that we are in a situation where demand is on the increase.  According to the IEA, “Global demand is now forecast at 83.4 million barrels per day, 2.4 million less than 2008. The pace of contraction is close to early 1980s levels, with a growing consensus that economic and oil demand recovery will be deferred to 2010″. 

And even judging by the short term movements in demand, there is really nothing to suggest an increase in the present environment.  After all, China’s Crude Oil imports did fall by 5.5% from last year and their Gasoline imports being virtually none.

The recent price action paints a slightly different picture as we approach the top of the range for this year’s prices in WTI. Having seen the sharp rejection of the downside this week, good discipline will be needed in approaching any shorts.  But it is really hard to see why we should be anything but short, targeting a correction in prices over the next couple of weeks towards $41.00.

The Gold price action is very similar to that of Crude Oil over the past week.  However, there too, the upside does seem to be fairly limited.  Much of the upside coming on the back of news saying that China had increased their reserves by 76% since 2003.  I am slightly skeptical about all this talk, as to some extent it sounds like a bid to talk up the market and I am still of the persuasion that no one country is able to buck the market.

We need to remember that we are trading far from the lows in stocks markets, and even when the carnage on equities was at its bleakest, we failed to break higher ground in Gold.  In saying that, it brings to questions whether Gold should carry a high weighting in a general market portfolio.  With little upside potential in Gold, I still believe that Gold at 780.00 remains a realistic target in the near term.

In general, I think in our current market environment, keeping it real and sticking to the facts remains the prudent strategy.

Oil Outperforming Oil Stocks

While the price of oil has risen from the $30s to $50, oil stocks have not really rallied much.  Below we highlight the ratio of oil stocks (S&P 500 Oil & Gas index) to oil (the commodity).  When the line is rising, oil stocks are outperforming oil, and vice versa for a declining line.  As shown below, when oil spiked in early 2008, the ratio dropped to its lowest level in years.  Then when oil tanked in late 2008, the ratio spiked to its highest level in years as oil stocks held up much better.  Recently, however, oil has rallied and oil stocks have been stagnant, causing the ratio to come back down.  At the moment, the ratio is resting just above the average since 1990.

Source: Bespoken Research

ASX closes higher after Wall St surge

The Australian share market closed higher on Tuesday but nowhere near the near seven per cent surge on Wall Street as local bank stocks wound back the earlier gains from the big miners and energy stocks.

The benchmark SP/ASX200 index was 29.7 points, or 0.84 per cent, higher at 3580, while the broader All Ordinaries gained 34.2 points, or 0.98 per cent to 3517.3.

At the close of day trading on the Sydney Futures Exchange, the June share price index contract was 51 points higher at 3604, on a volume of 29,599 contracts.

Austock Securities senior client adviser Michael Heffernan said Wall Street’s positive move prompted the gains on the local market, with oil-based stocks and the big miners the drivers.

‘We bolted out of the gate given the six per cent plus moves on Wall Street last night but it was very much a see-sawing day, certainly for some of the major bank stocks,’ Mr Heffernan told AAP.

‘The oil-based stocks along with BHP and Rio did the driving today, while the financials ran out of puff towards the end.’

Look at Commodities

The chart of WTI crude oil is very interesting to we bottom feeders. WTIC is on the verge of confirming a new uptrend and in fact, the break above the moving averages (green box) has held for three days. This is bullish. Next resistance levels are noted.

Interestingly, the XOI oil index is not leading and could be considered a bearish divergence. Either that or the oil stocks are in the process of holding support for a double bottom. Despite the bearish divergence, energy stocks could prove to be leaders at whatever point the broad market bottoms. NFTRH is only interested in relative strength leaders at whatever point the time is right to become temporarily bullish.

Copper has bottomed and is attempting to hold a break above resistance. Again, this is a very delectable chart to the bottom feeder. These bullish sentinels argue that there may be life yet in an inflationary world, although right now we cannot read anything more into these bottoms than temporary relief.

In what is likely to one day degenerate into a global war for resources and capital, the time has come to begin watching these commodities closely, now that the former commodity bull herd is obsessed with deflation. This is how the markets work my friends.

Tricom Today 10-02-09

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The market is down 37 underperforming the 27 point rise predicted by the SFE Futures this morning. Property down 0.6% with Westfield and Stockland down 1.3% and 5.0% . one broker cut their recommendation on SGP to NEUTRAL from Buy this morning and price target from 400c to 300c ahead of tomorrow.s results. ING Industrial Fund up 9.1% on asset sales. Financials down 1% with the banks all down . ANZ down 2.3%. Diversified financials down . Australian Wealth Management down 7% after it posted a 1H loss of $131m and declared no interim dividend. IOOF Holdings down 4.5% on their half year results. Henderson Group down 2.4%. Industrials up 0.2%. Tabcorp Holdings down 7% as it goes ex dividend. Cochlear up 3% after reporting 1H net profit up 22% and forecasting 20% growth for the FY. JB Hi-Fi up 13% on their 41% increase in 1H profit and 50% interim dividend hike to 15c. Resources down 1.0% – BHP and RIO both down 0.3% and 3.5% with RIO.s chairman elect resigning over a dispute on how to manage their debt issue. Gold stocks all down on the lower gold price . Sino Gold down 5.2%. Small miners mixed on mixed metal prices. Oil stocks mixed on the lower oil price . waiting in anticipation on the stimulus package being pushing through the Senate in the next day or two.

Tricom Today 6-2-09

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The market is up 28 slightly underperforming the 56 point rise predicted by the SFE Futures this morning. All sectors up. Property leading the way up 3.2% with Stockland Group up 5.8% after recent savage falls. Banks all up between 1-2% responding to a solid rise in the US banks overnight. NAB gave a trading update with no disasters. News Corp down 5% as they slash their earnings guidance and report a shabby set of interim results. Resources up over 1% as BHP and FMG keep rising on the theme of higher shipping rates and iron ore volumes and prices. Iron ore stocks having a moment in the sun. Small resources stocks up despite the fall in metals overnight Kagara Limited up nearly 11% early on. Nickel stocks strong on the China theme.Gold doing well on the higher gold price. Newcrest and Lihir up 3.5% on the open. Oil stocks mostly up on the slightly higher oil price.

Tricom Today 30-1-09

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The market is down 26 outperforming the 96 point fall predicted by the SFE Futures this morning. Financials down 1.5% – banks down 1-2%. Resources down 1.1% on the lower oil and metal prices. Energy stocks up 0.9%. BHP and RIO down 1.8% and 3.3%. Base metal stocks mixed. Gold stocks doing well on the higher gold price overnight with the flight to precious metals continuing. Newcrest up 2.9% and Lihir up 4.4%. Property stocks doing the worst  down 3.4%. Westfield down another 4.5% and Stockland down 3.6%.