During the recent weeks we have seen commodities especially precious
metals continue to drop in value. Market participant sentiment has
become more bearish on commodities and couple that with a rising dollar
it's no wonder why we continue to see commodities as a whole fall in
value.
Money has been flowing out of bonds at record levels this summer
telling us most of market participants are feeling bullish on the stock
market. This shift in sentiment of the masses are typical as they move
their money from the risk on safer assets (bonds & commodities) and
rotate into risk-on assets like stocks. While this is a bearish
(contrarian sign) stocks could easily continue to rally for an extended
period of time and possibly several more months before they actually top
out.
Let's take a look at the financial market business cycle diagram:
Bond prices have been falling for months and they typically lead the
stock market lower. I feel we are starting to enter the phase where
stocks will soon top and head lower also. Once this starts money will
naturally flow into safer assets that are more tangible like
commodities.
Keep in mind this cycle is very slow moving and rotation from one
phase to another takes months. This is a process not an event but it is
still very tradable.
Precious Metals
Now let's fast forward to precious metals both gold and silver are
likely to do in the next couple months. If you review the charts below
you will see gold and silver bullion prices are looking primed for a
bounce/rally from these deep oversold levels.
Gold Weekly Price
Silver Weekly Price
Take a look at a basket of commodities through the GCC ETF.
GreenHaven Continuous Commodity Index Fund (GCC) is an
Exchange-Traded Fund (ETF) that provides an innovative and efficient way
to deliver broad based, diversified commodity exposure. It aims to
achieve this by using futures contracts to track the Thomson Reuters
Equal Weight Continuous Commodity Total Return Index (CCI)†.
The CCI-TR is an equal weighted index of 17 commodities plus an
additional Treasury Bill yield. Because of the equal weighting, GCC
offers significant exposure to grains, livestock, and soft commodities
and a lower energy weighting than many of its peers. In addition, GCC is
rebalanced every day in order to maintain each commodity's weight as
close to 1/17th of the total as possible.
So, knowing metals are 24% of the index it bodes well for a bounce in
the overall commodity index. Keep in mind this report is only focusing
on precious metals, but many other commodities look ready to rally also
like natural gas.
GCC - Continuous Commodity Index Fund Weekly Trading Chart
The chart below shows a very bullish 4 year chart pattern. At the very minimum a bounce to the $29 is highly.
Commodity Basket Trading Conclusion:
In short, commodities as a whole remain in a down trend. Until they
show signs of real strength I will not be trying to pick a bottom.
Several commodities are starting to look oversold and ready for a bounce
like sugar, coffee, copper and natural gas.
Last month I talked about how a major market top is likely to unfold
during the second half of this year. I still believe this to be true.
But keep in mind these major market tops which only happen every few
years are a MAJOR PROCESS. They take time to form and often we will see a
series of new highs followed by quick sell offs as the market gets more
people long as they big money distributes their shares/contracts into
the new money rotating into the market.
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