Fed's Bullard gives Commodity Rally the Green Light - Goldman helps out

If you are looking for a reason to explain the strength seen across a widespread portion of the commodity sector today, particularly silver, crude oil and gasoline, look no further than comments from the St. Louis Federal Reserve President Bullard, who actually provided a date in the future at which the Fed might begin pulling back on its monetary accomodation.

He was speaking at a Rotary Club meeting in Missouri when he stated that it might be in the SECOND HALF OF NEXT YEAR that the Fed would begin to effectively tighten.

The Fed Funds futures contract is signaling a move higher in the Fed Funds rate in the July 2012 contract.

Once the market digested those comments, some of the commodity markets got a fresh influx of hot money flows lifting them strongly higher on the session. No surprise that Goldman would issue their call to buy commodities. They obviously knew in advance.

That buying was enough to take silver out of the top of its recent tighter range near $36. It has a chance now to make a run towards $37.50. Only a good breakout above $40 will see it resume its uptrending move in earnest.

Crude oil punched through $100 today, no mean feat considering the selling it has been experiencing of late due to risk aversion flows. Goldman Sachs, whose call for lower commodities a few weeks back, touched off an avalanche of selling, changed their colors and came out today with a buy recommendation for several commodity markets, including crude oil. Crude was already moving higher on that news but when the Bullard comments hit the wire, it got an extra kick higher.

While today's move higher in crude is impressive, it is still stuck in a range trade on the technical price charts and will need a solid close above $101 at a bare minimum if it is going to set off any fireworks in there. Unleaded gasoline needs a closing push through today's session high near $302.50 to get something going in there.

The CCI, Continuous Commodity Index, while higher today, is still trading below 640. I view this level as a pivot around which it is rotating and which it must clear on the upside if we are going to see a solid revival in the overall "buy commodities" theme. There are still more than a few individual commodity sectors which are lagging badly, among them the grains and the livestock markets. If those both turn in conjunction with higher energy and metals prices, then I think we are on to something again with the risk trades. If not, it will be more range trading and consolidation for the sector as whole with traders having to hand pick which markets that they want to buy instead of just plopping down money on anything tangible and then waiting for prices to go higher.

In a perverse sort of way, Bullard's comments managed to get the best of all worlds for the Fed - they put a bid under the equity markets as traders were less fearful of monetary accomodation coming off anytime soon while bonds moved higher, shoving yields lower, on the idea that the easy monetary policy was indicative of the Fed's caution towards any economic recovery. Today was one of those days where the Fed got to have its cake and eat it too.

While the broad equity markets were on the plus side today, the mining stocks as exemplified by the HUI and the XAU confirmed technical bottoms by todays strong showing. They have been flirting with bottoming action for nearly a week now but were not quite able to get the job done. The solid push through last week's high for both indices is a bullish chart development and augurs for further gains, provided that we do not get any contradictory statements coming from any other Fed governor soon.