Commodity ETF Alert September 2014 Issue

 

Commodity Outlook:  Crude Oil

No doubt about it, recent advances in the US Dollar have hurt the commodity space. Gold, silver, oil – they’ve all been hindered by the Greenback’s rally.  Since early July, gold is down 4.4% while silver and crude oil are down 9.8% and 9.1% respectively.

What has the dollar spiking?

Federal Reserve Chairwoman Janet Yellen announced in early July that the US Central Bank will likely start raising interest rates in the first quarter of 2015.  With rates seemingly set to rise, investors have piled into the Greenback.

But here’s the deal…

The most recent Non-Farm Payroll report (released this past Friday) was an utter disaster.

For the month of August, employers added a mere 142,000 jobs.  The report was far below economists’ consensus expectations of 225,000 jobs added, and the weakest report in eight months.

What’s it mean?

While the Fed is eager to cut rates, they simply can’t do so with the US labor market the way it is.

Not only is the unemployment rate still relatively high at 6.1%, but the labor participation rate is sitting near 36-year lows.  In case you’re unaware, the labor participation rate is the number of working age Americans who are employed or looking for a job.

Not since 1978 have there been so many working age people unemployed or simply given up looking for a job.

Given this information, it’s highly unlikely Yellen walks into the next FOMC meeting on September 16th demanding interest rates be raised.  In fact, I am willing to bet the head of the US central bank stops hawkish interest rate talk dead in its tracks.

What’s all this information mean for oil?

Thanks to the surprisingly weak jobs report, the US Dollar will likely slow its advance soon.  When the Fed meets again in a few weeks, it’s highly likely they calm investors’ unemployment related fear with dovish rate talk.

If the US Dollar turns lower on this dovish discussion, oil will have the wind at its back once again.

And that’s not all…

As you’re likely aware, the West Texas Intermediate (WTI) crude has plummeted from $107 a barrel in June, all the way down to last Friday’s closing price at $93.43.

With the commodity deeply oversold, now’s the perfect time to start a long position in this market.

And the best part is, WTI is sitting near very important technical support at $93 a barrel.  So not only are the odds in our favor for a rally, but the downside risks are smaller than the potential gains.

Go ahead and buy the US Oil Fund (USO) at any price under $35.00 a share.

As usual, I’ll give you more details on our new USO position in our upcoming monthly update.  For now, just focus on buying the oil ETF at any price under $35.00 a share.

Let’s look at a chart…

Technically Speaking:

As you can see, USO is sitting near important technical support (green line).  The odds favor a rally from this level.  However, it’s not out of the realm of possibility to see crude weaken to the $90 a barrel level before the Fed meets again on September 16th.

If it does, use the weakness as a buying opportunity in USO!

WHAT TO DO NOW:

US Oil Fund (USO) is trading at $34.90
Buy USO up to $35.00 per share
Our profit target is $38.00 or more

 

Category: Commodity Trading