Buyer Beware! Three Commodities Doomed To Trade Lower…

| August 5, 2013 | 0 Comments

oil and wheatWith a few exceptions, most commodities traded flat to lower last week.  In fact, grain markets, precious metals, and natural gas all turned in firm losses.  And keep in mind, those losses came in spite of the fact Ben Bernanke announced the Fed would continue buying $85 billion worth of bonds each month. 

The news should have sent the entire commodity complex higher.  The fact that it didn’t is rather telling.

But I digress…

Only cocoa and coffee managed to buck the trend and pull in respectable gains last week. Recent fundamental data revealed the supply/demand balance of these two commodities might be altered soon, which is resulting in slightly higher prices.

But I’m not here to talk about cocoa and coffee…

Instead, let’s take a look at two markets showing spectacular weakness, and one exhibiting surprising strength.  And most importantly, I’ll show you why bullish investors should steer clear of all these markets.

First let’s look at sugar and wheat- two commodities that are suffering mightily right now…



Clearly, both these markets are stuck in firm technical downtrends.  And as you may remember from last week’s article on trend lines, you want to align your position with the trend of the overall market. 

As a result, investors should either sell rallies or stick to the sidelines in wheat and sugar. 

Now let’s take a look at a chart of WTI crude…

Crude Oil

As you can see, the US benchmark oil contract is trading at nose bleed levels thanks to the ongoing geopolitical issues in the Middle East.

This is a rare instance where it will pay to go against the market’s overall trend…

As I said in a recent article devoted to oil, prices are not sustainable above $105 a barrel.  There’s simply too much production here in the US to warrant oil at these inflated levels.  

Of course, it’s possible crude can trade a bit higher in coming weeks due to its bullish momentum.  But once the end of August draws near, it’s highly likely that oil will come crashing back down to earth.

How can you capitalize on this looming profit opportunity?

One way is through the US Short Oil Fund (DNO).  Since it’s an inverse ETF, DNO rises when crude prices fall.   In other words, a long position in DNO should turn in hefty profits when the price of oil starts coming back to reality.

Folks, this is a golden opportunity to sell the oil market right now.  Even though crude is clearly trending higher, bearish market fundamentals make it a no brainer to bet against this commodity.

Until Next Time,

Justin Bennett

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Category: Crude Oil, Sugar, Wheat

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.