Crude Has a Nosebleed: Postmarket Update 8/31/09

I asked the question this morning, would the bulls buy this dip or were we headed for a larger breakdown.  Well, we didn’t really get either.  If there ever was a perfect doji day, this was it, we went nowhere between open and close while trading in less than an .80 cent range on the SPY.  It truly felt as if there was no one trading today besides day traders in the tiny little biotech names.  The gap down this morning was a direct result of weakness in China overnight and some early strength in the dollar, which by the way, quickly faded away.

The real action today was in crude which broke a significant trend line and is now sitting right on the flat 20 day moving average.  I get the feeling that we are in nosebleed territory for crude above 70.  That being said, because of the pure momentum characteristics of commodities, I see no reason why we can’t break through 75 and run to 100 if the dollar takes another leg down.  The bulls are very cautious though which is evident from the sharp pullbacks we’ve seen lately.  I don’t think there is anyone around to go short CL_F for fear of the weak dollar, at the same time, I don’t think there are any fundamental players buying crude up here, the momentum guys are the only ones playing.

I was stopped out of my position in USL today, which is unfortunate because I believe the dollar will capitulate at at some point and we will go to 100.  I will take this trade again if we break the yearly highs in the October or November CL_F contracts.

A few little notes. I wish the sugar ETF SGG was more liquid back in June when it gave a great buy signal.  The run there has been amazing and perfect and amazing and amazing and you get the point.  It would be very hard to dip into that trade now, but man is the momentum there.  Also, copper got slammed today.  I won’t speculate as to why copper has been on a tear this year, frankly I don’t care.  What I do care about is what seems to be a correlation between the Chinese markets and copper prices.  Keep a close eye on that one.

There really isn’t much more to say, it was one of those days when watching grass grow was more exciting than the market, and without a better feel for where we go next, there is no point in putting on any more positions.

Watch out for the release of StockTwits Desktop tonight at midnight.  This platform is amazing and will blow your mind.

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