After Major Breakdown, Don't Hold Commodities Long-Term
The Fast Money pros always watch the action in commodities quite carefully. And lately the entire space has been a mess.
On Wednesday, gold cracked its 200-day for the first time since January 2009. Brent broke below its 300-day moving average of $107.08 and hit a session low of $104.36, its lowest level since Oct. 6.
U.S. crude dropped below its 200-day moving average of $95.98 and settled at its lowest since November 4.
And the weakness wasn’t limited to gold and oil – it extended to the grain market as well. Corn traded near its lows for the year. So did other softs.
All told, the action in commodities didn’t bode well for bulls. What should you make of the moves?
Strategy Session with the Fast Money traders
Trader Brian Stutland thinks when you look at the moves in aggregate, it’s a giant neon sign that says, ‘change your trading thesis’. “I would no longer own commodities for the long-term,” he says. “Going forward, they’re just tradable.”
And if you don’t have the stomach for swings, commodities may not be for you at all. “There’s a tremendous amount of volatility now. They’re going to fly around,” he says. “If you want to play – play with put protection,” he counsels.
If you’re a trader, Tim Seymour thinks commodities may be oversold in the short-term and the play may be for a technical bounce. But long-term he thinks the path of least resistance is lower.
Largely he expects the dollar to gain significantly and a stronger dollar is bearish for commodities. “Do not be surprised to see the US dollar test the March ’09 highs – I think the dollar index is going to 89 – that makes commodities very challenging,” he says.
Trader Guy Adami is relatively more bullish. He thinks the broad sell-off in commodities was largely triggered by weakness in gold. “At some point I wouldn't be surprised to hear a central bank stepped in and bought gold. That should put a floor under all this.”
Of all the Fast traders Joe Terranova is probably the most bullish but again it's relative. “I would not go short commodities,” he says. “Look at the price action in Freeport, it held up very well.”
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Trader disclosure: On Dec. 14, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Adami owns C; Adami owns GS; Adami owns MSFT; Adami owns INTC; Adami owns AGU; Adami owns NUC; Adami owns BTU; Iuorio has calls VXX; Iuorio is short VXX and net long volum; Stutland is long AAPL and short calls; Stutland is short TLT puts; Stutland is long INTC and short calls; Stutland is long CSCO and short calls; Stutland is long YHOO; Stutland is long IBM and short calls
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