Critical Time For Commodities

Many commodities are extremely oversold and they are losing momentum on the downside. This is usually a good signal that a market has hit a bottom or is in the process of forming a bottom. I look at the next week or two as a critical timeframe where commodities should mount a decent rally. If they do not, I have to say we could see another leg lower on commodities and stocks and it could get ugly.

There was a sweeping bullish reversal in the stock market on Thursday and it was met with little enthusiasm on Friday and Monday. Normally, we would see strong follow-through off a bullish signal like that. However, the Dow has traded more than 500 points lower in the last two days. That is not a good sign unless the markets can rally soon. If you have been trading commodities or stocks in the last few months, you will understand that just as the markets start to look good, they turn lower. And just when you think they will get crushed, they turn higher.

Crude oil is now trading around $55. While bucking the trend, I would like to buy crude near $50 for a nice trade. Cotton dropped below $40 again and is trying to hold a bottom. Gold is getting some strength and might have a very strong rally if it can break out of this consolidation. Look at the next two weeks as a critical timeframe for commodities. Another wave lower will spur another round of forced liquidations and it could get ugly. A break higher could spur short covering and new buying, which might push prices much higher in a short period of time.