Traders Take On Risk Amid Choppy Commodity Markets | Page 1 of 1 | Financial Articles and Blogs

Prices for U.S. Treasury bond and Treasury note futures closed at bearish monthly lows on Thursday. Both markets are in solid near-term price downtrends. Meantime, U.S. stock indices finished April at or very near their monthly high closes; gold futures prices have recently slumped. Importantly, the recent posture of the aforementioned markets strongly suggests risk appetite has increased in recent weeks. U.S. Treasuries and gold had commanded a premium on their price structure in recent months due to the world financial market crisis and economic contraction. That premium is presently being extracted from those two markets as traders seek out other markets that offer potentially higher returns but at higher risk.

The increasing investor risk appetite is bullish not only for the stock market but also for the commodity markets. Rising stock market prices and rising U.S. interest rates (lower T-Bond and T-Note prices) suggest that a deflationary economic scenario is much less likely to play out in the coming months; deflation is the archenemy of commodity market bulls.

The higher risk appetite also suggests that the worst of the economic and financial crisis is past and foresees some light at the end of the tunnel on the worldwide economic troubles.

Still, trading in many commodity markets has become choppy, sideways and trendless the past several weeks. Choppy, sideways trading can be frustrating to traders who attempt to employ various types of trend-following trading methodologies. Most successful traders do employ some form of trend-following trading plan.

When markets become choppy on a near-term basis, it's prudent to examine the longer-term weekly and monthly charts to filter out the daily market "noise" and get a view of the bigger picture and any longer-term price trends that may be evident. Following is a brief technical examination of two key "outside markets" that have been affecting most of the commodity futures markets in recent months.

Crude oil: The weekly continuation chart for this key "outside market" is not in a bullish posture, even though a major market low was likely posted in Nymex crude oil futures prices late last year. I continue to believe that crude oil will trade in a range between $40 and $60 a barrel for most of this year. I will not rule out brief spikes above or below those levels, though.

The U.S. dollar: The U.S. dollar index futures weekly continuation chart at right shows an uptrend line that has just been penetrated on the downside. The weekly chart also shows the potential for a bearish double-top reversal pattern playing out, with the November and March highs being the bearish twin peaks.

Dollar index bears would gain fresh longer-term technical strength by pushing nearby prices below strong longer-term technical support at 83.50. It would take a price move in nearby dollar index futures back above longer-term technical resistance at 87.00 to provide the bulls with some longer-term technical strength.

The breakout or breakdown through these key longer-term technical resistance or support levels will likely determine the next significant price trend in the index.

P.S. Will you be there when Cramer makes his next move?
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