Despite concerns about a slowing global economy, several commodity markets could see some well-defined uptrends in 2019.
Certainly the failure to get beyond the Brexit situation, the US government shutdown, and Chinese trade battle will create demand headwinds for all commodities. However, into the end of January there are signs of progress in the US/China trade talks, and evidence of severe slowing in China should prompt them to offer more conciliatory terms. It is a very rare case for China to admit to such significant slowing, and we suspect the markets will soon be presented with very aggressive actions on the part of their government to support their economy. It is also possible that Chinese policy makers will come to the conclusion that the most effective support would be from the lessening of trade tensions. Still, our prediction of “well defined” commodity uptrends in certain markets is primarily based upon tight fundamentals, not big-picture, macroeconomic prospects.
The markets that are capable of consistent uptrends include copper, corn, natural gas, soybean oil and gold. Markets that appeared to be overdone and vulnerable to corrective action are cattle, sugar, cocoa and palladium.
Strategy over Opinion!
Given the prospect for slow, grinding gains in certain tight markets, we think strategy will help to facilitate long-term positions. Traders should consider purchasing futures, protecting that position by buying a just out-of-the-money put, and financing part of the long put by selling an out-of-the-money call.