USOI - Trends Trades And 2024 Commodity Market Outlook
2024-01-19 10:30:00 ET
Summary
- After a couple of years with multiple “Black Swans” driving erratic action in commodities, Carley Garner of DeCarley Trading expects 2024 to be a less volatile one.
- She believes crude oil and select soft commodities look attractive - and is keeping an eye on gold for a breakout.
- Carley also lays out a case for lower Treasury yields over the longer term.
By Mike Larson, Editor-in-Chief, MoneyShow
Transcript
Larson: Hello, and welcome to our latest MoneyShow, MoneyMasters podcast segment. I'm Mike Larson, editor in chief at MoneyShow. Today I'm speaking with Carley Garner, senior commodity market strategist and broker at DeCarley Trading. Welcome to the podcast, Carley.
Garner: Hi, Mike. Thank you. It's good to be here, as always.
Larson: Great. Glad you could make it. You know, I was looking and it was all the way back in April when we last spoke for this podcast. And I mean, a lot has changed in the markets, especially in commodities. So I guess let’s start with the big picture, right. I'm looking at the Bloomberg Commodity Index being down about 11% in the last 12 months.
Obviously, energy is a big part of that given the weighting there. But I'm kind of curious as to your big picture, what are you seeing in commodities? Do you think we're going to be expecting better times in 2024, or how do you see things unfolding?
Garner: Well, it's interesting. The commodity markets have had a really wild run basically since early 2020 when we first learned about COVID shutdowns. It's been a roller coaster ride in commodities. We've had wars break out, and in all honestly, we've had three or four black swan events occur in a three-year period. So, we're going to either have to redefine Black Swan or, you know, just adjust our mindset.
But the reality is, I think that those are those types of wild swings are behind us. I think things actually calm down from here. Historically, commodities generally go down more than they go up, and they generally experience low volatility. This high volatility we've seen in the last couple of years is just kind of an outlier statistically. So, I think that we're getting to a situation where, you know, we're going to start treating commodities differently as opposed to all commodities being one asset going up or down together. They're going to start trading based on individual fundamentals going forward, in my opinion.
And I think it's going to create some opportunities. For example, I think that we're starting to get into seasonally bullish trends or periods, and the grains are coming up against some support. So, if you are somebody that trades corn or soybeans or wheat, you might be looking for opportunities there.
Crude oil is probably the most popular commodity that we talk about, and we've gone through a cycle of just overwhelming warring, bullish narratives, but it's yet to produce a sustainable rally. However, I think we've wiped out all the froth in that market. Speculative positioning is sitting at a minimal.
What I mean by that is, we follow the COT Report, the Commitments of Traders report that's issued by the CFTC, and it tells us who's long, who's short, by how much, etc., and large speculators are holding one of the smallest positions they've ever held in crude oil, or at least in the last decade or so. You know, on previous occasions when they're this light, it usually produces a nice rally.
So we're combining that along with seasonal bullish tendencies during this time of year, and some chart analysis that suggests that somewhere around $66 to $68 should be about the bottom in oil. So we're hoping to see prices stabilize here in the next week or so near those prices.
Larson: I'm glad you brought up oil. That's where I was going to go first, obviously a lot to talk about, and even as we're recording, there was just some bearish news out of Saudi Arabia in terms of oil pricing for their exports there. You know, is it sentiment that's going to help turn this thing, or do you think some of the supply issues that have been weighing on the market, U.S. production and so on are, you know, going to fade to the background? What do you think's going to help the oil market, I guess, longer term?
Garner: Well, you're right. The U.S. is producing more oil with fewer resources now than they have really ever. But Saudi Arabia, well, let's just say OPEC+ and their production cuts are helping to keep a floor under the market. And I think some of those narratives that we've been talking about, Middle East turmoil, you know, the Russian war, all these types of things that have been circulating for a while and weren't able to keep prices above $100 or anywhere near $130. I think those narratives will be enough to keep a floor under pricing in the high $60s. So, I think the market is going to treat things a little bit different.
Also, I think sentiment is actually very low despite prices being as low as they are. Sentiment... well, I shouldn't say despite... because prices are as depressed as they are relative to where we were a year or two ago.
Speculators in commentary has all kind of turned bearish, which is when I started to get interested in seeing things go the other way. Because when everybody adopts the same story or the same narrative is usually when the market has a surprise for us.
Larson: Got it. Okay, let's shift tacks a little bit here and talk about another part of the market that's been in a lot of focus. Precious metals, and gold in particular. It keeps seeming like we're getting close to that breakout in gold but we never seem to actually have it, and we get a bit of a rug pull in the short term. What do you see going on in that market and what's your outlook there?
Garner: Gold and silver both have been extremely challenging for speculators. I mean, they just can't get out of their own way, regardless of the environment. We had a high inflationary environment and gold couldn't break resistance. We've had the dollar selling off overall for the last several months and gold still can't get above resistance. I'd say most people are probably at the verge of throwing in the towel.
So, I think we're in a situation where everybody has given up on the upside in gold, and I've been doing this long enough to know that's exactly when gold finally makes its move. I mean, if you look at a historical, like a long-term 20-, 30-year chart, gold makes all of its moves all at once. It'll spend a decade going nowhere and then one day it decides to move. And that was it. If you weren't in, you weren't in it.
Larson: Got it. Let's talk next about the dollar. You brought that up. I mean, obviously it has an impact on commodities pricing across the board. We have a Fed that's now openly maybe flirting with the idea of cutting rates before too long. Do you think that's going to continue to have a weakening impact on the dollar? Do you think we've seen about all the downside in the dollar today? I want to know what your charts and kind of what your outlook are showing there.
Garner: Well, the charting that we've been following is suggesting that we should at least see about 99 to 100, which we’re really close to that area. So, we're almost near our initial downside targets. From there, we may get a little bit of a bounce, but if we're talking long run, like months, not weeks, I think that we're eventually going to make our way into the low 90s, because although the dollar index at 100 seems kind of cheap because we started at 114. But the reality is, 100 in the index is actually very high.
And so I think there's definitely some room for the dollar to move lower. Just may not be immediately. We may have to digest some of this, but I do think we see the low 90s. If that is true, if that turns out to be the case, that should be supportive for most markets, particularly gold, maybe that'll be the one thing that finally gets it moving above resistance and into new all-time highs.
Larson: So, obviously a big driver of the dollar is what's going on with interest rate markets and Fed policy and so on. I saw a segment with you and Jim Cramer a while back, I guess in mid-December, where you were talking about some of the things you were seeing in the Treasury market that maybe pointed towards even lower yields. Is that still the situation now? What's kind of your take on what's going on in Treasuries?
Garner: I do think that we are in a scenario where interest rates are making their way lower on some of our longer-term charts. We have a 10-year yield pointing towards a possibility of 3 to 2 and three quarters. Now, this isn't something that's going to happen next month, and it could take quite a while to get there. But I think that's eventually where we're headed.
That said, what happens in the next month or two could be a little bit dicey. The markets feel, to be honest, they feel a little bit dysfunctional. Which is always the case coming off the holidays and light volume and people getting caught on bad trades and things like that, or people making decisions based on tax consequences, not fundamentals.
So, there are a lot of weird things that go on at the end of the year and in the beginning of the year, and we're still working through that. So, I probably won't have a lot of conviction really with anything until we get into February, March, when things are a little more normalized as far as transactions go.
Larson: That said, and you kind of touched a little bit upon this earlier, but what parts or sort of submarkets of commodities look particularly bullish and attractive to you now? And on the flip side, I guess, anything that looks particularly bearish as far as a standout performance?
Garner: So, the things that I've got my eye on are crude oil, which I've already mentioned. We're looking to play the upside and any real big dip. I do like the grains we started recommending to our clients, nibble on the long side of corn, using some relatively conservative option strategies where we have plenty of room for error because there is some near-term risk there.
But as far as bearish positions, I'm guessing most people watching this video probably don't follow the softs, but cocoa is trading near an all-time high. It had a pretty big break today. But historically, when cocoa gets the silver standard, you generally see a haircut of like 50%, 60%. So, I don't think we're done in going down in cocoa.
Larson: Before we part ways here: stocks? Any thoughts you'd want to I guess offer on that front, given what your outlook is for that part of market?
Garner: Sure. So, I think that we've seen obviously a little bit of volatility over the last week or so as people are adjusting to the new year. And like I said, I think tax consequences are playing a part in what we're seeing. But, you know, the market has had every opportunity - and when I say “the market”, I'm talking about the S&P 500 - we had every opportunity for the S&P to melt down, and it really didn't. It found some support.
And I'm thinking we're looking at about 4,900 to maybe 5,000 on the upside here in the next, let's say, two to four weeks. But we personally will probably be looking at those levels as a place to be a bear or at least to hedge your portfolio, as you could do some sort of risk reversal where you sell calls and buy puts so that you can insure your portfolio just in case something goes south. Because as we all know, when the market decides to turn, it does it fast.
Larson: I'll tell you, it seems like there's more and more swans out there for us to watch out for it. I don't know exactly what color, though, but thank you so much for your time. Thank you for your insights.
Garner: Thanks, Mike. You too.
For further details see:
Trends, Trades, And 2024 Commodity Market Outlook