Commodities
Diamond Rated - Best Financial Markets Analysis ArticleCommodities have had a rough go lately, especially before this week. You couldn’t open a financial newspaper or turn on CNBC without seeing endless bearish prognostications for raw materials’ prices. Ongoing global economic fears led to the widespread belief that commodities are doomed to grind lower.And indeed this was an extrapolation of the short-term trend. Between June 1st and July 8th, the flagship Continuous Commodity Index (CCI) plunged 11.0%. This may not seem extreme to stock traders in our wild times, but it really is by CCI standards. This index’s unique construction (17 equally-weighted commodities geometrically averaged) means it usually moves with all the sound and fury of a glacier.
Naturally after such fast commodities selling, sentiment in this realm is pretty poor today. Investors are racked with doubts, unwilling to commit more capital and very tempted to liquidate existing commodities-related positions if they haven’t already. And I don’t blame them if the last 6 weeks is the extent of their perceptions. Commodities have been much weaker than the general stock markets (-6.7%) over this span. Realize that always in the markets, price action drives newsflow. It’s not the other way around as most people assume. When prices are weak, we all have a natural selection bias to seek out bearish stories in an attempt to “justify” the decline. The financial media greatly amplifies this tendency, telling its viewers/readers exactly what they want to hear at any time in order to maximize advertising revenues.
So today’s bearish commodities sentiment is the result of the recent CCI retreat, not the cause of it. But with some perspective beyond the last 6 weeks, it soon becomes apparent the technical case for commodities is actually quite bullish now. I’ll run you through it in this essay, starting with a multi-month overview and gradually zooming out to a multi-decade one. Commodities are quite cheap, great buys.
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