Commodities Still Treading Water

As I mentioned in my Commodities Weekly Review column, commodities are stuck in a consolidation mode and the next couple weeks are critical for price action. Commodities have been following stocks lately with a weak bias, but little direction. Commodities are drastically oversold and many are forming longer consolidations near their lows. This is often a sign of a good bottoming action, but it could also be a prelude to another swing lower, similar to what December live cattle did today.

Prolonged consolidations are the most difficult scenarios to trade. They drive most traders absolutely nuts, myself included, and it is often good to stay away from them. There is a lot of money to be made if your timing is good and you fade the extremes of the range. However, be careful if and when the market eventually breaks out of the range. The moves can often be very powerful.

That is where I believe we are at right now with the markets. They are setting up for a big move, but it is difficult to tell at this point. My gut says they are going higher, but it is anyone’s guess. The logical trade here is to wait for a confirmed breakout – up or down.