Three commodity indices that we follow have made daily-scale bottom extensions in the last few days:
This comes at a time when there is thought to be an excess of supply over demand in grains and some other crops and sudden doubts about ending the escalating trade war between China and the US and the consequent re-drawing of routes as China buys elsewhere. This excess of worry is the perfect condition for the end of a bear market.
We have been writing for some time that we think agricultural commodities are 'bumping along the bottom'. In fact most grains are not at contract lows (except for soybeans) - wheat and corn have already lifted off their recent lows so these new commodity index extensions reinforce our desire to buy. Those who need a fundamental reason to do so need only look at the world population numbers which are increasing by 80m people each year - a new Germany (or Iran) every 12 months. This is the fastest numerical increase that has ever been and because it is constant it attracts a lot less attention than weather-related crop prospects or harvests. Surpluses won't last long in the face of all this new demand.
Meanwhile, coffee has continued to drop and the monthly and weekly-scale bottom extensions we reported in the last edition have now (finally) been joined by a daily-scale version in the London contract:
This makes the bull case even stronger and a turnaround is now almost certainly imminent. As ever, when buying a market that seems to be accelerating downward, wait a bit for signs that the drop has ended - being a day or so early can be costly. We bought a part position already, which we exited yesterday before this new signal was apparent and will look to re-buy very soon.
Equity markets have dropped in volatile conditions, as we warned would be likely in the May 5th edition. The turns that come thick and fast this month (see the turn schedule on the front page) will probably mean more violent swings and we will try to navigate them as best we can, as usual. In the meantime, there is no reason yet to abandon our bearish view.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com