There’s something happening in the commodities, and the time is ripe to address it.
But first, we close a trade.
On July 12th we recommended you sell the TSLA July 29th 215 PUT for $5.25. The letter was called Smoke, Fire and Mirrors, and a right blaze of a trade it was! Today, the same option can be repurchased for $1.79. Do it and you come away with $346 net. That’s 193% in two weeks.
Now back to the commodities.
We’ll start with oil, where a great deal of action, first bearish, then bullish, has been occurring for roughly two years. Here’s a chart of the yucky stuff to give you an idea of the types of swings it has been experiencing in just the last half year.
After falling from close to $100 a barrel to $35, crude recently sprung north by 50% to close at better than $53.
Them’s moves, baby.
Now, oil comprises a great part of the broader commodity complex and affects the general level of prices for goods globally. So much of our world moves, works and wars over the stuff, that it’s natural that changes in supply and demand for crude would have a widespread and almost immediate effect on the price of nearly everything.
As it now stands, oil is moving lower, in what looks to be the right shoulder of a major head and shoulders bottom. Below is the same chart, blown up to better illustrate the formation –
We’re now forming the right shoulder, and if the formation holds, we could be looking at a strong break higher through the fall and winter toward $70, if our upside count on the pattern is correct.
From oil we turn to the precious metals, which, alongside the price of oil, are perhaps the most watched of all the commodities.
Why this is the case is less obvious. On the one hand, the precious metals comprise not even a fraction of a smidgen of a drop in the overall value of the commodities bucket. On the other hand, they’re considered an important indicator of the financial health of an economy, the real value of its currency and the state of any inflation that obtains there.
What makes an exegesis of the gold price so difficult, however, is that since the advent of ETFs like GLD and SLV and others, it has become far easier for both speculators and Ma and Pa investors to hop on the PM bandwagon and ride that chariot wherever it chooses to go.
The problem arises because vastly more cash in the precious metals arena only adds to the volatility and wildly pendulous nature of the metals’ trade, making them fly higher and dip deeper for far longer than they once did.
Put otherwise, investor cash is what drives the commodities these days, and perhaps gold and silver more than any other. It’s therefore harder to know if they’re representative of anything anymore.
That said, they’ve both been bullish since New Year’s, and despite a recent pullback, appear to be comfortably ensconced within a rising trend channel.
Have a look –
Could be good…
We’re going to have a look today at another commodity, however, that’s seen nothing but hard times for the last half decade. It’s coal, and since 2011 it’s had little to cheer about.
As far as we read the charts, coal’s now having an investor renaissance.
But before we get to the chart, let’s consider a number of fundamental issues.
- First, there’s been a political war against the coal industry due to its ‘dirty’ nature, with alternative energy sources preferred for their environmentally friendlier footprint. Both Obama and Hillary are seen as anti-coal, while Trump has yet to lay his cards out in full. It could be the coal industry is breathing anew in the hopes of a Republican victory.
- Second, the industry itself has been contracting in the face of steep competition and massive supply output from Chinese miners, to name just one massive player. That said, it should be mentioned, that in China, too, a similar contraction has waylaid at least a million diggers in that country’s hinterland, with an equal number in danger of losing employment if current trends continue.
Fortunately for everyone, it appears the trend is reversing and the bottom is behind us. Have a look –
This is a chart of the VanEck Vectors Coal ETF (NYSE:KOL), a stock that’s predominantly comprised of international miners. Only 13% of the names are domestic concerns, so the resulting price action is truly indicative of the industry on a global scale.
And as you can see, the action has been very bullish. For a full six months since bottoming, KOL has trended higher, knocking above all her moving averages successively (red and blue arrows), ultimately overcoming and separating from her long term MA (in yellow) just last week.
The rise has been accompanied by daily volumes that grew from 50,000 shares a day to over 100,000 (in black) and goldilocks RSI and MACD readings, bullish but neither too hot or too cold.
The weekly and monthly charts are also bullish. Below we offer the weekly chart along with the monthly RSI appended.
We’ll start with the weekly and monthly RSI readings, both of which registered oversold conditions over the last year (red circles). Since then, the weekly RSI and MACD have risen above their respective waterlines, with MACD confirming in June (in blue), offering a full-on bullish call for KOL going forward, with only the declining 137 week MA offering resistance (now at $13).
It’s for that reason that we’re now recommending a bullish trade using KOL.
It’s called a synthetic long position, but we’re offering it with a small twist.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
With kind regards,
Hugh L. O’Haynew