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Key commodities drop to new lows

10/22/2008 4:11:47 PM | Colin Cieszynski, CMC Markets

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Hedge fund unwinding responsible?

A number of commodities have broken down through key support levels this morning. Most notably, copper, which is widely viewed as the most sensitive commodity to global economic conditions, fell through $2/lb. This suggests that significant concerns remain over the health of the global economy. Next potential support levels for copper appear near $1.70/lb and then $1.50/lb. Crude oil, meanwhile, broke down through $70/bbl and into a previous support zone between $62 and $68/bbl. With crude oil inventories reported above expectations today at 3,182,000 bbls, versus the Street estimate of 2,650,000, crude may dip further into this zone in coming sessions. Wheat broke down to a new low as well today and appears to be trending toward a test of $5/bushel. A number of other commodities have traded down toward tests of key support levels, such as wheat near $5/bushel, gold near $730/oz, and soybeans near $8.50/lb.

These declines suggest that there still appear to be significant concerns about the health of the global economy. It is also possible that we may still be seeing the unwinding of mutual and hedge fund position to meet redemptions or margin calls.

These drivers also appear to be affecting equity market trading today. After moving up Monday, equities appear to have come under distribution over the last two days, which suggests that some investors may still be viewing rallies as an opportunity to raise cash. As such, it seems that not only do we appear to have moved into a period of range-bound trading, there also appears to be a possibility that recent lows may be retested. For example, having failed to overcome resistance at 9,250, the Dow Industrials (US30 CFD) appear to be trending toward potential support tests near 8,400, 8,250, or 8,000. The NASDAQ 100 (NDAQ100 CFD), meanwhile, may retest 1,200 again, while the S&P/TSX 60 Index may retest support near 525 with resistance near 625. The S&P 500 (SPX500 CFD), meanwhile, appears to still be drifting lower within a 900-1,000 trading zone.

Upcoming Free Seminars:

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For more information on these and additional CMC Markets seminars, please go to CMC Markets Seminar Registration Page at:

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Upcoming Trading Webinars:

In the coming months, Colin Cieszynski will be presenting a series of free webinars on trading for accredited investors from coast to coast.

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For more information on these and additional CMC Markets seminars, please go to CMC Markets Seminar Registration Page at:

http://www.cmcmarkets.ca/en/content/education/free_seminars.do

This commentary is based upon technical analysis. Technical analysis is the study of price and volume and the interpretation of trading patterns associated with such studies in an attempt to project future price movements. Technical analysis does not consider any of the fundamentals of an underlying company, and as such is inherently uncertain and should not be the only factor considered by an investor in making an investment decision.

This commentary is provided for informational and educational purposes only. Nothing contained in this commentary is intended as investment advice or a recommendation or solicitation to buy or sell. All opinions expressed are current as of the date of publication and subject to change without notice.

CFDs and FX are highly speculative and can involve a high degree of risk. Investors in CFDs and FX should be prepared for the risk of losing their entire investment and losing further amounts. Trading accounts are available to Accredited Investors only. CMC Markets will not open accounts except in jurisdictions in which it is registered or exempt from registration. CMC Markets is an execution only dealer and does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their investment decisions. CMC Markets will not determine an investor’s general investment needs and objectives or the suitability of a proposed purchase or sale of a security. CFDs are distributed in Canada by CMC Markets Canada Inc. as dealer and agent of CMC Markets UK plc. CMC Markets Canada Inc. is a Member of the Investment Industry Regulatory Organization of Canada and Member CIPF. Contact us for further details.

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ABOUT THE AUTHOR

Colin Cieszynski, CMC Markets

Colin Cieszynski,CFA, CMT is a Market Analyst and Manager of Education with CMC Markets Canada. Currently, Colin provides daily technical commentary on North American equity markets and selected commodities. Colin joined CMC Markets from Canaccord Capital, where he provided market commentary to individual investors for the last ten years and daily technical notes since 2001.

Colin has completed both the Chartered Financial Analyst and Chartered Market Technician programs. He is a member of the Market Technicians Association, the Canadian Society of Technical Analysts, the CFA Institute, the Toronto CFA Society and the Prospectors and Developers Association of Canada.

About CMC Markets

CMC Markets is Canada’s only online CFD provider and its affiliate, CMC Markets UK plc, was the first company in the world to offer online FX trading. CMC Markets UK plc has been offering CFDs and FX to Canadian traders through the services of CMC Markets since 2005.

Founded in 1989, CMC Group has 22 offices worldwide, including Toronto and Vancouver, employs in excess of 1,000 staff and represents clients in over 70 countries. Between November 2006 and October 2007, CMC Group handled over 16.2 million trades with a total value of over US $1.1 trillion, across the full product range. In December 2007, Goldman Sachs acquired a 10% stake in the CMC Group.

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