Change To Commodities Trading In Coffee, Grains, Gold?

2022-04-05

This multidirectional market appears to function as though it were stuck in a roundabout.

The market has repeatedly shifted from bullish to bearish, and back around again. To navigate the volatility, Simpler’s traders often look into commodities trading opportunities as a “break” from market uncertainty.

(Check out the free video, above, for insight into trading this changing market.)

Market switching from bearish to bullish?

The market has recently experienced bearish equities and bullish treasuries, but historically the market leans toward reversing to become bullish on equities and bearish on treasuries as new money enters the markets.

This week kicked off fresh beginnings for a new quarter as market participants take a look at what they like and then determine trading strategies.

Traders are preparing for a change to bullish movement in equities, but are keeping in mind that this uptrend could also break down quickly.

The S&P 500 looked at a potential to shift into bull territory, but gave it back following comments from the Central Bank. This caused traders to keep their options open for shorting the index should confirmation appear.

Within the S&P 500, price action could see a move up and find support to hold.

Should the S&P 500 continue upward, traders could aim for targets in the upper range of the index or even $4,608 – which was the previous quarter's pivot – or even higher.

Volume matters for trading plans

The S&P 500 index tracks the 500 large companies listed on U.S. stock exchanges and it is one of the most commonly followed equity indices.

Participation – number of active traders, or volume – in the index makes it particularly valuable as a measure of the equity markets. At last count, more than $5.4 trillion was invested in assets tied to the performance of the S&P 500.

One of the skills needed for navigating the market is for traders to use a trading plan with strategies designed to anticipate movement, or market direction, either up, down, or sideways. This movement follows whether buyers commit to higher prices on the S&P. While the equity index is bullish this week, we could see market participation in the upper levels fade and not accomplish much in the long term.

Traders also have to consider that market participation in the S&P 500 may weaken during the midrange of $4,540 and $4,580 – between the lows and the highs.

Opportunities can still be found in volatile movements for traders who use setups designed for a choppy environment.

The treasuries market is also an area of interest in this volatility, as the U.S. dollar is giving the appearance of a long buy potential. With an advance upward, the dollar index could shift to a long-dollar, short-euro environment. If the dollar uptick presents while the euro – which has an inverse relationship with the dollar – pulls back, investors could pursue opportunities there.

Embrace unknown directions, strongholds 

Market participants may not know where the market strongholds will be tomorrow, but that doesn’t mean it is an unsuitable place to gain trading wins. While traders should consider all risks, the market is arguably still available for traders to strategize gains for portfolios.

Savvy traders spend less time predicting market behavior and, instead, let the market come to them. The team of traders at Simpler Trading follows stock charts and indicators that provide volume and momentum data to determine the probability for profitable trades.

The indices showed a bit of strength at the start of the week, then turned soft with movement to the downside. This resulted in traders looking into the indices and sectors of the market to find where market participants are placing investment dollars.

A movie from the 1990s had a famous football star telling his manager, “Show me the money!”

Simpler’s traders are asking, “Where is the money going in the market?”

After all, market participants – industrial and retail traders – display confidence by where they put investment dollars. Traders do well to follow the charts to determine those areas of confidence and how they are behaving.

News cycle vs. chart confirmation 

This cycle in trading never ends – traders follow the charts and rely on indicators for confirmation that show whether a move, up or down, is really a trend or it is merely a sideways shift.

Headlines and news outlets may “paint a picture” about stock market movement, but charts may present a better view, or confirmation of direction. All traders should do their homework before placing trades.

When traders rely on time-tested strategies and create index, sector, or stock watchlists based on the technical signals of the charts, this provides context to gain an understanding of price action and what makes markets move.

Change to commodities trading?

When equities start to lose favor with the market, Simpler’s traders often give serious attention to commodities held within an exchange traded fund (ETF).

Commodities – different from stocks in a company – are raw goods or materials, like those that are essential to industry and agriculture. These offer traders a broad range of opportunities and multiple setups to trade.

There are several opportunities within the commodities sectors to watch:

  • Coffee may give traders a boost in the morning, but it also can signal sector strength. In this volatility, Simpler’s traders are watching for a move to the upside in coffee price. 
  • Natural gas is holding steady, but just can’t seem to give traders solid buy signals. Traders are looking for a pullback in this sector – although a long trade for an extended period could work into a play in this environment.
  • Crude oil is struggling on the world stage. Saudi Arabia is raising prices and U.S. strategic reserves are being released. Due to the push-and-pull of supply and demand, risk is high in this commodity even as crude oil holds its position in a tight market.
  • Grains and gold are also historically solid players in the commodities market. Keep in mind the volatility here. These two agricultural commodities don’t appear to be showing signals that they are ready to pursue, but are worth watching based on global events.

While commodities may have spots on traders’ watchlists, the task at hand remains – watch for a pullback for a long buy or a move upward to allow for short trades. Traders who look back at historical movement in these commodities may uncover  “seasonal” opportunities.

As the new quarter kicks into gear, Simpler’s traders know this market can suddenly move in any direction. This signals to our traders that it’s time to maintain focus on solid entries and well-researched targets.

The Simpler Trading team knows that trade setups are only as good as solid entry points.