Futures Outlook for the Week: 03/18/13
Let’s start this week by looking at Crude Oil: which has been hanging around in the 90’s and Copper: which has seen some significant selling.
My take on Crude Oil is still bullish long term, but we have some patterns that we need to pay attention to on the shorter term time frame that are important if you are in trade or considering a new play.
The Daily chart shows the selling that we’ve seen in West Texas Crude. We pushed up towards the $100 mark again, but got stuck as we got to $99 and change. The $100 mark is a very large resistance level for Crude Oil and it has been problematic for the advancement of prices here for quite a while now. As we failed to reach or breach the $100 level the players came in to the short side and we sold off down towards the $90 level. Over the last number of days though we have seen buying pressure come in and the price was able to recover up to around $94 and we currently sit around $93. As we saw a number of days with higher pricing, it is no surprise to see a little selloff currently. We need to watch the Daily chart to see if we are truly recovering or if this is just an upward cycle in what may develop into a larger downward move.
Looking at the Weekly chart for Crude Oil is really the most important piece for gauging the direction as far as I am concerned right now. The largest key for us at the moment will be to watch closely to see whether or not crude is able to break down the $90 mark. If it does then we might fail towards $85 and then ultimately the other really major territory for Crude Oil which includes the support levels around $70/$75. If Crude oil respects those support levels, then there might be an opportunity for you on a near term play to look for long side potential coming up again towards $100. If you consider a trade like this though, you need to be hyperaware of the tendency for quick selling momentum once you near $100.
From a big picture perspective your psychological levels that Crude has traded between for almost a year are $100 and $75. If you are looking for a long term play, then one of these territories needs to be broken well. Looking at the Monthly chart for Crude shows the potential for a pennant formation which is bullish, but I have also highlighted the psychological range where we are stuck for the moment.
As the metals started to fail in February, I was actually hoping that Copper would be one the faster metals on the recovery side, but that hasn’t been the case. Copper is in an interesting place at the moment and personally not one of my favorites to trade right now. However, it is definitely one that I want on the radar for the next potential plays longer term.
Here on the Daily chart, you can see that we severely broke the upward trendline via the selling actions of late February. We tried to consolidate a little bit at the beginning of March, but our breadth of action to the short side has become more severe yet again. Right now, Copper maintains its south side direction. If we see failure measured as Feb. then we could easily drop to the 3.35 level or lower. However, I am not a huge proponent of jumping in on the selling momentum at this point. If you are a scalper, then this might be the way to go, but if you are evaluating anything along the lines of a mid-term or longer term trade then you might stay on the sidelines for a little bit.
When looking at the Weekly chart, you notice that we aren’t writing a new story with the pricing of Copper. We truly are still just moving within a larger range. The heavier resistance and support levels for Copper here seem to be around the large psychological level of 4.0000 and 3.0000. What I want you to focus on now though is right around the 3.4000 level as near term support. We are sitting just above this level and the question will be whether or not it respects the territory. If it drops through that level well, then we could revisit the 3.2500 level and then eventually the 3.0000 if there is enough selling momentum. Many of you have heard that “You don’t want to catch a falling knife.” Right now Copper’s short side momentum is something that you probably don’t want to get in the middle of, but should support levels really hold, then there might be a nice little story for Copper’s rebirth of strength.
From a longer term perspective, I view Copper in a bullish light. The pennant formation on the Monthly chart reinforces that sentiment, but we haven’t broken out of this pattern yet. The Daily and Weekly charts are paramount for Copper. Don’t take a position in this one just for the sake of taking a position. Watch it closely and look for new opportunities, specifically if it respects its support levels.
For those of you, who may want to explore the Crude Oil and Copper markets without “going all in” so to speak, consider utilizing Options to dip a toe in these markets. We focus on utilizing Options on these Commodities in order to lessen capital outlay and we use fixed risk strategies that allow you to rest at night knowing exactly where you stand. You should be prepared for the appropriate actions should these markets start to shift. We are here to make your options clear!
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