Commodities have been suffering along with the stock market over the past few weeks. This is not surprising, considering one of the recent catalysts has been centered on the idea of further deterioration of the economy. However, the dollar has also been moving sideways, and any strength in our currency would likely drive commodities even lower. Interestingly though, not all commodities have behaved the same way.
Gold, as represented by the SPDR Gold Trust (NYSE:GLD) ETF, remains very close to all time highs. While it certainly experienced a sharp drop in May, it recovered most of that dip and is just hanging around. This can be explained by a variety of theories, but the bottom line is that gold has been showing relative strength to the other commodities. The $140 level remains as likely support on any sustained weakness, but GLD hasn't even approached that - and this at a time when other commodities have been weak.
Silver, on the other hand, has not displayed the same strength. The metal, as represented by the iShares Silver Trust (NYSE:SLV) ETF, has had a difficult time recovering from the sharp reversal earlier this Spring. Silver had been in a parabolic trend and thus the correction was more steep. That being said, it also hasn't pushed any lower than the thrust towards $32.50. SLV is now in a trading range between $32.50 and $37.50. Traders should key off of those levels, as a move to either side should result in a trading opportunity.
Oil on the other hand has continued to grind lower. The prior trend was not as clean as the metals complex, and oil has continued to show volatility. The commodity, as represented by the United States Oil Fund (NYSE:USO) ETF, just broke under its 200-day moving average after attempting to find some footing near the $39 level. Volume has been high over the past few months suggesting some distribution, and USO has been much weaker than the metals. USO should be avoided until it can at least trade back above the channel it has been following the past few weeks. This would require a close above the $40-$41 level. (For more, see 7 Commodity ETFs To Know.)
Looking at broader view of the commodities group, the PowerShares DB Commodity Index (NYSE:DBC) ETF is showing an interesting pattern. While it remains fairly close to its recent highs, it is also starting to form a possible head and shoulders topping pattern. It is important to note that this pattern would not be confirmed until a break below the neckline, which currently stands just under $29. Otherwise, the pattern can be considered a consolidation since DBC is technically just trading sideways. The $30.70 level is also worth noting, as it has served as both support and resistance over the past few months. A close above this level would possibly negate the head and shoulders pattern, thus improving the picture for DBC.
The stock market is closely correlated to the commodities complex, and traders should always keep an eye on these markets regardless of whether they trade them. They will often provide clues when it's difficult to otherwise find clear signals in the stock market. Monitoring the commodities, along with currencies, is very important, and many of these commodities are showing interesting patterns. Gold, in particular, remains pretty close to all time highs, and one would think that DBC would already be headed lower. Traders should keep a close eye on these ETFs until the picture clearer in the indexes. (For more, see 4 Commodities Affected By World Conflix.)
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.