Commodities rocketed higher after the Fed announced on Wednesday that rates will remain near zero until late 2014.  We saw follow through on Thursday in commodities, especially in the precious metals. 

One could read into this news that the people with the most economic information think we are going to have a continued poor economy for the next 3 years.  On the surface, you might think that is bad news for commodities.  However, as you can see from recent reaction in the markets and the price of gold, it is actually positive.

The Fed is trying to increase asset prices and provide liquidity.  This is the main reason why the stock market and commodities have rallied substantially since the financial crisis.  It is inflationary and the Fed just told us things will likely stay this way for the next couple years.  The markets have a tailwind and the path of least resistance is higher for the markets.  There will be the obvious swings in the markets, but we should see overall higher prices ahead.

The natural gas market came to life Monday as Chesapeake Energy announced plan to immediately curtail production of a good portion of their natural gas wells.  They plan to devote more investment and effort toward oil production in the near future.  This news sent natural gas prices soaring and many traders are wondering if the market hit a bottom.

The news today was a reflection of the extremely low prices of natural gas.  It was only a matter of time before producers would cutback.  The second largest producer carries alot of weight and there may be more to come.  When producers begin to cry uncle, you know the market is close to a long term bottom.

I don't know if the market has put in an ultimate bottom, but the low 2's look like an area that is a good value zone.  The timing is also an issue.  We could form a "V" bottom here or it could be a prolonged sideways move for a year before a trend higher develops.  The key to realize is that the market probably found a floor and it will probably take some catalyst for a trend to develop.  I'm not sure if this news was it or it will take cold weather, a government mandate or possibly a hurricane this summer to propel the market.

Natural gas futures are spiraling into a black hole as they tacked on another 7 percent loss on Tuesday.  The $3 level was recently a magical support level where the value players were scooping up natural gas for a long term buy.  Now, the $2.50 has been penetrated as natural gas is currently trading at 2.4830.

So, where is the bottom in this market?  It is in freefall right now as everyone is throwing in the towel  I would say capitulation is near.  The $2 level would have to be an excellent target for many looking at a long term buy.  I have to admit I recently bought some natural gas positions for a long term buy. 

I might get a chance to average my cost by adding more positions if the price continues to fall.  That is not normally a good strategy, but I will have no problem with margin and I am committed to a long term horizon.  The fundamentals look terrible right now as supplies are huge and the weather has been mild this winter. 

What I am looking at is the likelihood that this downswing will be overdone and the fundamamentals always look worst at the bottom.  It seems obvious that natural gas will have a bright future several years from now.  That was seen a couple years ago and many piled on the trade.  However, the markets don't like to reward the obvious.  The early birds are now paying the price, but this trade should pay off well in the years to come for those buying in the low 2's. 

Where do I start with this wild week in commodities?  The first market that comes to mind is orange juice.  This market was trading off the recent freezing temperatures that hit Florida and then news of a fungicide in Brazilian OJ hit the news.  Many people don't realize that we actually import OJ from Brazil, which is now the largest producer of orange juice.  Prices shot higher for a couple days and then it was a whipsaw for the remainder of the week. 

The grain markets got hit with a sledgehammer this week as the USDA released their monthly supply and demand report.  The report was very bearish for all the grains, especially corn.  The demand just wasn't there for the markets and the supply numbers increased more than expected.  The grains had a strong run from mid-December and basically priced in high expectations for a bullish report.  Traders ran for the exits when the negative report was released.

Crude oil had a reversal late in the week and closed below the $100 mark.  News that an embargo on Iran would be delayed 6 months and a sharp increase in weekly inventory numbers was enough to put a possible reversal in the market.  Natural gas continued to sink well below the $3 mark, closing at 2.628.  The fundamentals still look bad, but the market is well overdue for a bounce. 

The metals have been pushing higher, with copper on the verge of breaking out of a major consolidation.  The dollar has been much stronger as the Euro continues to weaken under pressures from their financial situation.  Overall, the metals look good, considering the strength of the dollar. 

The markets are closed on Monday for the MLK holiday.  We'll see how the markets react to the S&P downgrades to several countries in Europe.