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NFTRH 1 Year Ago - Commodities

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Long before the absurd rationalizations popped up lately explaining why the copper component of Hope '09 was not a speculative mini-bubble but rather, based on inflationary fundamentals, there was a newsletter writer getting bullish on copper because the downside hysterics were getting out of hand and the chart looked oh so good. This was despite the protestations of some well respected fundamental analysts. I got bullish on oil too and I recall some deflationist bashing on SeekingAlpha for my bullish troubles.

This is what makes a market. Luckily for those of us who wish to simply get it right, there are way more trend followers than real contrary types.

Okay, self-congratulatory preamble aside, here is an excerpt from NFTRH19, dated February 7, 2009:

Commodities

‘Doctor Copper’… ‘Every bull market has a copper roof’… ‘China is still growing, albeit at a slower pace’… ‘The US infrastructure spending will put upward pressure on industrial commodities’… Have I missed anything?

[Copper chart omitted]

The chart of Copper does indeed look bullish (i bottom feeder). Again, there is that tell tale rise above important moving averages. NFTRH remains open to a continued rise in the commodity complex, probably attended by some or all of the stories noted above. It remains a trade only pending further macroeconomic developments.

Oil remains the asset that I have been proud to be so right on and yet so wrong on for your viewing and entertainment pleasure over the last couple of years. Perpetually bearish on this most hyped commodity heading into Armageddon ’08 and yet, totally screwing up in both top calling and now bottom calling. There is a certain comfort in knowing that all is as it should be.

As such, I remain bullish and in bottom calling mode and indeed, the volume on the most popular oil ETF. USO, may indicate a climax, as it went to fresh lows (27.35) during the day on Friday, rebounded strongly and sagged once again into the close, holding above the previous low of 27.73 from December. I believe the trouble oil is having getting off the bottom compared to other commodities is related to the levels to which its hype value was played (even today, the Democrats are ramming through ‘green initiatives’ as part of the supposed stimulus) and to which incorrect assumptions have been embedded in the public consciousness. Peak oil, while potentially valid longer term, became Gospel.

[ USO chart omitted]

The CRB and CCI commodity indices look constructive for a bottom as does the GYX (industrial metals). Commodities, at the very least, allow for some upside in Hope ’09 as does the MOO Agribusiness ETF.

Below is a chart of Provident Energy Trust (PVX), which was added back to the portfolio after being ejected post ex-dividend. The reason being the desire for a bit more positive exposure to the economy and the bullish flag noted on the chart below.

Like many stocks and markets, PVX sported bullish divergence into the December lows. PVX then got caught up with Santa and went too far too quickly, the result of which has been a nice looking consolidation on declining volume. In other words, a very nice looking bull flag. If the flag actualizes into a bullish breakout, the noted target comes into play, although lower resistance exists, as shown. PVX pays a significant dividend (I keep it in the IRA to mitigate Canadian taxes and should be reviewed thoroughly), which makes it a price appreciation and income candidate.

[PVX chart omitted]

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