Commodities Host the Money Game

Price action in the market this holiday-shortened week witnessed U.S. Treasury market prices (T-bonds and T-notes) hammered to fresh multi-month lows, the U.S. dollar hit a fresh eight-month low vs. its major counterparts and the U.S. equities market continue to chop in a sideways trading range. Meantime, crude oil futures notched a fresh six-month high and are leading a strong rally in many other commodity futures markets.

This week's price action provides compelling clues regarding the flow of money in the market. Money has been fleeing from U.S. Treasuries as the investors' general risk appetite increases. However, the funds flowing out of the U.S. debt market are favoring hard assets (physical commodities) and not the stock market. The shrinking value of the U.S. dollar on the world currency markets has exacerbated the speculator interest in owning raw commodity futures or commodity exchange-traded funds (ETFs).

Recent history has proven that when money starts to flow into the raw commodity markets, supply and demand fundamentals in those individual markets tend to be ignored. The money flowing into those markets creates strong price uptrends on the charts that turn the technical posture of those markets bullish and prompt even more money inflows into those markets, which in turn makes the technical picture even more bullish.

This is a powerful "money game" in markets that all traders must respect. Indeed, the old market adage "the trend is your friend" rings very true.

With crude oil futures prices knocking on the $70.00-a-barrel door and in a solid 3.5-month-old uptrend on the daily chart, this market is arguably the leader of the general bull market run in commodities. The other candidate for leading the commodity bull charge recently is the deteriorating value of the U.S. dollar vs. the other major world currencies.

July Crude Oil FutureSource.com and TradingEducation.com

As long as crude oil prices can maintain an uptrend on the daily chart and the greenback remains in a weak posture, bull markets are likely to continue to play out in many commodity futures markets. Also, those commodity futures markets that have not participated in the strong rallies of late are likely to see some fresh speculative bargain-hunting buying interest from speculators.

---

Know What You Own: Major oil and gas stocks include Exxon Mobil (XOM - commentary - Trade Now), Chevron (CVX - commentary - Trade Now), BP (BP - commentary - Trade Now), PetroChina (PTR - commentary - Trade Now), Total (TOT - commentary - Trade Now), ConocoPhillips (COP - commentary - Trade Now) and Royal Dutch Shell (RDS - commentary - Trade Now).

---

At time of publication, Wyckoff had no positions in the stocks mentioned, although positions may change at any time.

Jim Wyckoff is a senior market analyst for TradingEducation.com a free educational Web site. In addition, Wyckoff writes a blog offering current market commentaries every morning on TraderBlogs.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Wyckoff appreciates your feedback; click here to send him an email.