I would opt for short-term trading strategies for the rest of the year since trading typically gets thin going into the holidays and certain movements may be meaningless until January. Let's take a look first at the U.S. dollar, which has been influencing many commodities, including gold and crude oil.

U.S. Dollar Index

The U.S. dollar has been influencing price action in a number of commodities markets. Below is the daily chart of the March U.S. Dollar Index futures contract, traded at ICE Futures U.S. This index represents the dollar’s standing against six major currencies. The dollar saw a nice upside breakout last week, and continued to rally at the start of this week. There was a nice breakout above the 50-day moving average, and we’ve seen impressive gains since the November 27 low at 74.80. However, technically, I think this rally is showing signs it may have run its course. Momentum indicators are showing the market is approaching an overbought status. The relative strength index (RSI) was at 74.50 Monday, December 17, and readings above 70 are considered to be overbought, while below 30, oversold. There is also a shooting star candlestick formation on the chart, indicative of a reversal pattern. I see a small pullback coming, or at least some consolidation, given these technical signals. As the dollar has moved up, it’s pulled down crude oil and gold, so let’s take a look at those markets.

Source: CQG

Gold

Gold futures closed unchanged Monday, December 14, 2007, after heavy losses last Thursday and Friday. I’m recommending short-term buying positions as this market seems to have established a near-term bottom, and $795 an ounce looks like a good support area to buy February gold futures. The next obstacle is $807 on the upside, but I’m looking for a move as high at $815 - $818. I’d recommend using a stop at $788 on this short-term trade.

Source: CQG

Crude Oil

NYMEX crude oil futures fell for a fourth straight session, as market participants considered a reduced demand picture amid prospects of a slowing U.S. economy and on forecasts for mild weather ahead in the U.S. Northeast.

The last trading day for the January contract is Wednesday, December 19, so let’s take a look at February futures. February held the nine-day moving average at $90.27 and also held the 50-day moving average at $89.37 a barrel, and has bounced. For day traders, I recommend looking for an opportunity to buy near $90.00, just below current prices. If we get a resumption of the longer-term bearish trend in the dollar or at least some consolidation, that should be supportive for crude oil. Keep in mind, going into next year, crude oil could be struggling with where our economy is headed. If the odds of recession increase, or it actually materializes, we may see prices stall out. So longer-term, the picture could change.

Source: CQG

Corn

Corn has been relentless and may need a short-term correction, but I’d be looking to buy dips. The demand story has been amazing with weekly U.S. exports in the millions of metric tons going to China, India, Egypt--every market in the world. Even as the dollar has been rising and sending many commodities down, corn kept marching higher. This is indicative of a very strong market. The relative strength index is overbought at 86.72 and may signal a corrective pullback. I would view this scenario as a buying opportunity around the area of $4.25 to $4.30 per bushel in the May corn contract.

For more specific trading strategies to suit your particular situation in this or other markets, please feel free to contact me.

Carol Hurley is a Senior Market Strategist with Lind-Plus. She can be reached at 866-790-4371 or via email at churley@lind-waldock.com.

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