Anticipating The Commodity Bounce

Buyers have proved to be more resilient than I expected. As a result, I have a neutral stance going into this week. Technically, the picture looks less-than-optimistic. However, there has clearly been a change in the market’s character, and the bulls could quickly gain confidence with a strong rally off the lows. Such a rally would likely provide us with an intermediate-term bottom.

- SPY held the lows and has a double bottom in place.

- iShares Russell 2000 Index ETF (IWM) made a new low intraday on Friday, and looks more bearish. The important support level is around 46.50.

- QQQQ (QQQQ) set new lows on Friday. However, there is an evident struggle taking place between bulls and bears.

At this point I am more focused on playing sector ETFs and day trading the intraday trends. I am looking for a strong rally off of the lows, at which point I will be more interested in swing trades. Commodity-related stocks and ETFs are continuing to make big moves in either direction, offering potentially large profits to alert traders. A case in point is Oil Services HOLDRs ETF (OIH).

- OIH has been making moves in excess of 10% in a single day. I would consider a short position on a move below 80.00. At the same time, looking at the longer-term chart, OIH looks as though it may be forming a bottom. We can see the increased volume in Thursday’s trading, a bullish sign. If we are holding the lows on Monday, I would be inclined to phase into a long position.

Quite a few commodity-related stocks display similar patterns, including O&G stocks, steels, fertilizers, and shippers. I see big potential profits in some of these names, as many could double in price and still remain well below their 200 day moving averages or other forms of substantial resistance. At the same time, considering last week’s action, caution is still warranted until we see more buyers enter the market.

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