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Hot commodities: The best could be ahead for bouncing oil and silver

  • Silver and crude oil are enjoying solid bounces in Monday trading.
  • There is reason to believe both commodities could see a sustained rally rather than a "dead cat bounce."
An oil worker looks on as flames burn from a gas venting pipe on the Casablanca oil platform, operated by Repsol SA, in the Mediterranean Sea off the coast of Tarragona, Spain.
Angel Navarrete | Bloomberg | Getty Images
An oil worker looks on as flames burn from a gas venting pipe on the Casablanca oil platform, operated by Repsol SA, in the Mediterranean Sea off the coast of Tarragona, Spain.

The week kicked off with a solid start for commodities, with both crude oil and silver enjoying gains early in Monday trading. And while both have suffered plunges in the past month, there is reason to believe today's respective bounces will continue.

Crude oil rallied on news of an agreement between Saudi Arabia and Russia, reached Sunday, which would extend existing output cuts through next March. A weaker U.S. dollar boosted the oil price as well. On Monday, WTI crude is rising almost 3 percent, and in morning trade closed in on $50 per barrel.

Naturally, the oil rally also boosted the XLE, an exchange-traded fund that tracks energy stocks. With a rise of more than 1 percent on Monday, the XLE is now close to $69, which is a key level of near-term resistance. The $69 figure is where the 50-day moving average and the trend line from December meet.

Certainly, there is reason to be skeptical about the longer-term potential for WTI crude oil and energy stocks. However, any meaningful break above $69 in the XLE will raise the odds that the group is in the midst of a multiweek rally.

Silver, too, is seeing significant gains on Monday morning. After a severe 12 percent correction over just four weeks, the commodity is enjoying a bounce that began on Wednesday. As we saw with crude oil, a pullback in the dollar is helping the commodity bounce from a deeply oversold condition.

We'd also point out that that the Commitments of Traders data shows long positions held by speculators have fallen sharply over the past two weeks. Don't get us wrong; they haven't suddenly become wildly short. However, the positioning within silver right now is no longer anywhere near as bearish as it was last month. Thus, the selling pressure from this area should continue to abate, which raises the odds that this bounce in silver will prove to be more than simply a "dead cat bounce."

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Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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