Buy the Dips in Silver and Energy
A number of commodities pulled back Tuesday, February 12 as equities recovered, but I see long-term bullish trends intact and recommend using dips in silver, crude oil and RBOB gasoline as buying opportunities.
Crude oil fell after the International Energy Agency reduced its 2008 global demand forecast by 200,000 barrels a day to 87.6 million barrels, amid expectations for an economic slowdown. This morning, the Department of Energy released data that showed a build in both crude oil and gasoline stocks, pushing prices down a bit. Crude oil stockpiles were reported up 1.1 million barrels last week to 301.1 million barrels. Gasoline inventories rose by 1.7 million barrels.
While this news is prompting a pullback in energy, I think the markets will rebound and resume their bullish continuation pattern on the charts. I am recommending buying the December crude oil $100/$110 call spread, which expires November 17 and gives a good risk reward profile. While gasoline has seen a rise in stocks, prices will likely stay high given talk of stronger demand later this year, refinery snags, and trouble in Venezuela, a key exporter to the U.S.
The Organization of Petroleum Exporting Countries, which produces more than 40 percent of the world's crude oil, said it may cut production to maintain a price floor of $80 to $85 a barrel. OPEC meets March 5. In Venezuela, President Hugo Chavez has threatened to cut off crude oil sales to the U.S. The state-run Petroleos de Venezuela SA has cut off sales of crude, gasoline and diesel to Exxon Mobil Corp. in retaliation for a $12 billion legal dispute.
Turning to metals, a recent rebound in the U.S. equity market has made gold and silver less attractive to some investors, but I also see longer-term bullish trends intact in these markets. Silver and gold both fell hard Tuesday and are down again this morning, but I see the pullbacks to support levels as opportunities to establish fresh long positions. I recommend buying the May $17.50/$18 call spread for 16 cents or better, Good 'Til Canceled. These options expire April 24. The strength in equities took some steam out of commodities, but I think it's a temporary play. Some market participants are taking profits on winning commodity positions that were up significantly, in favor of rebuilding equity positions at cheaper levels. However, the big participants in these markets, the funds and speculators, will likely resume buying. Not only is there increasing concern about rising inflation in the midst of a string of Federal Reserve rate cuts, but technically, bullish chart patterns are likely to provide buying incentive.
Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
*No representation is being made regarding the actual or hypothetical performance of the systems at any other brokerage firm or prior to the dates reflected above. These numbers include commissions, but not fees. Contrary to most published results, please note that these monthly returns are calculated based on closed trade profit/loss and do not include changes in open trade equity. Futures trading involves the substantial risk of loss and may not be suitable for all investors. Past performance is not necessarily indicative of future results. All information, including performance and program description, has not been reviewed or verified by Lind-Waldock.
