February has been an incredibly profitable month for anyone who was long the commodity sector. So much so that the famed February Break apparently decided to "take a break" from showing up. Maybe it will appear here at the end of the month or perhaps it has been a bit postponed until early March.
Either way, several key commodity futures markets experienced some big downside reversal patterns. That is taking some of the buying momentum out of the general sector as traders, particularly hedgies, do not want to let these profits slip away prior to getting those monthly statements out to their clients showing them how smart and clever they have been with their investment capital this month.
Here is a BIGGIE - Natural Gas and a HUGE downside reversal pattern.
Check out OATS - which is not a very largely traded market from a spec standpoint but nonetheless tends to be regarded by many as a type of general bellwether for the grain sector.
Here is Cotton:
And of course, Copper, which I continue to maintain has not validated the move higher across so many different commodities as it has been a laggard ( something which should not go unnoticed by those talking up hyperinflation concerns ).
This last chart of copper is the one that has made me such a skeptic when it comes to the recent buying binge that occurred throughout the commodity sector. In my view, you cannot have bellwether copper going one way on chatter about rapid growth and escalating inflation concerns all the while you have the rest of the sector moving higher. Something was not making any sense.
The month is not yet over but I must admit that this is one of the weirdest months I can ever remember because they entire commodity sector was on a tear higher and for the life of me, I haven't a clue as to what the heck was behind the move in some of these markets.
It has certainly been a momentum-driven buying event but other than perhaps some desire for diversification away from equities and into commodities, I failed to see the reason for this sort of wild buying. There has been a tremendous amount of damage done to the bears in the sector who were forced out across so many of these markets. Now the question, at least in my mind, is where do we go from here?
Further clouding the issue is this end-of-the-month book squaring. I want to see how things look at the close of trading this coming Friday ( the last day of this month ) and then see if money is put back to work in the commodity sector to start off the month of March or if we go back to range trading with markets being moved more by their own specific set of demand/supply fundamentals instead of this rather mindless and indiscriminate entire sector buying that we have seen this month of February.
Notice by the way, that both gold and silver are moving lower in sync with the sector. Also putting some pressure on both of the precious metals is a firm US Dollar and generally stable interest rates which seemed to stopped moving lower, at least for today.
Gold has stalled out at the resistance zone noted on the chart but still remains above initial chart support as dip buyers are still coming in on the heels of further nervousness involving Ukraine. The ADX has been steadily rising indicating the good trending move to the upside but it too is beginning to show some signs of that fading upward momentum.
The USDX has managed to get a nice bounce away from strong chart support near the 80 level. The New Home sales number seems to have made some Dollar bears nervous.
Try not to draw too much from any one day's worth of price action. Remaining flexible and not dogmatic is wise during this zany period.