The general rally in commodity prices that started with a couple of bottom extensions in grains has now produced the first top extension, in crude oil:
Just because this commodity rally started quite uniformly, it would be a mistake to assume that all commodity markets will continue to move equally - they each still have their own unique dynamic. This first top extension probably just shows that the initial surge is over and that crude and the other energy markets will soon subside from hereabouts. For new readers, it is worth pointing out that top extensions mark the end of up-moves, not necessarily the start of the next down-move. There may need to be some price churning before we can see that prices will fall back. Accordingly, if you have long positions in crude or another related energy market, sell now (we had not advised any long position) but start short-selling cautiously. It is a good idea to begin short-selling now too, but only to start a campaign of selling. Any early dip may be used to cover some of the position before re-selling again – we will advise what we see at each step of the way.
This advice to sell now does not apply (yet) to other commodities, where we are still waiting to re-short after advising caution at the beginning of this rally. Bear in mind that there are lots of commodity turns due early next week, as written in the ‘Turns’ edition of 2nd July which may offer further opportunities to sell.
The exception to this general observation is the gold market. There we expect further gains, which may be substantial, as the market rises up from weekly-scale bottom extensions. The life of such weekly signals is three months or so, during which time gold may rally a lot more, in these feverish times.
Stocks have risen past the turn point that we expected on Monday 8th which calls this equity turn into question. The normal accuracy of these turns is +or- a day and stock markets continue to climb to new highs for this move as I write, three days later. Our usual favourite Southern European short candidates have not joined in the rally but France (our suggested target this time) has risen almost 2% from the levels of the turn day. Depending on your tolerance for risk, this may be enough to warrant taking the loss by covering now. There is a bigger equity turn cluster due next week, starting on the 16th (see that 2nd July edition for details) when we may re-advise selling. We remain pessimistic about all the Southern European equity markets (including France) for reasons often given.