October Crude Oil: After an impressive run for most of 2021, spot crude oil futures have turned in a series of lower highs and lower lows, which has flipped longer-term trends down. Another indication of this was the October contract pushing below both the 50- and 100-day moving averages in recent weeks with the 200-day moving average in sight at 60.31. The next best level of support would be the corrective lows from May 21 at 61.56, which we would look to hold on further weakness this week. If that level cannot hold, the former area of consolidation from March 19 to April 14 around 60.00 should slow selling. Momentum indicators remain weak and confirm the overwhelming bearish trends in the market. The stochastic measure of momentum has not yet diverged with price, which would be the first sign the current downtrend is slowing or even beginning to turn. These issues considered, a bearish policy remains advised with strength above the corrective lows from either July 20 or Aug. 9 at 65.15 to 65.21 needed to stem the current downtrend and move to a cautious bullish punt. The overnight outside reversal higher needs to be monitored in the short-term.
U.S. Dollar Index: On the other end of the spectrum, the U.S. Dollar Index has been enjoying an impressive run from the May lows with a breakout to the highest level since November 4. Several setback attempts have been witnessed since May with each one finding ample buying to propel the next round of highs along this move. It should be noted, Friday's breakout to new highs was followed by a reversal on daily charts as the settlement price was below Thursday's close. Until or unless there is follow-through selling, however, trends remain up on all applicable scales. Fortunately for the greenback, the breakout to new highs was done so with higher highs on momentum indicators like stochastics. If stochastics had not made new highs along with price, this would have been the early stages of a bearish divergence and a warning sign that little strength was behind the buying. To flip bull trends bearish, we would need to see weakness below former resistance turned new support at the corrective highs from July 20-21. Even then, a host of consolidative price action exists between 92.00-93.00 to hold prices. These issues considered, a bullish policy remains advised toward the U.S. Dollar Index until enough selling pressure exists to drive price below the July/August lows.
Bloomberg Commodity Index: As one might imagine with a bearish crude oil market and a bullish U.S. Dollar Index, the Bloomberg Commodity Index has submitted bearish price action for the last two weeks. Last week, the index broke below the July 19 corrective lows at 91.7 to hit the lowest levels since June 21. In the process, the index pushed below the 100-day moving average at 92.0. The next level of support exists at the June corrective lows around 89.80. With the bullish view of the U.S. Dollar Index, and the generally weak energy sector, it will be difficult to turn the tide in the Bloomberg Commodity Index in the short-term. More generally, the bearish view on the index makes it difficult to believe passive long funds commonly found in the "index" or "swap" category on the CFTC report will be looking to deploy fresh capital to this space on the long side.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
Tregg Cronin can be reached at email@example.com
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