We warned of the imminent end to the bear market in grains in several times in Spring, culminating in the May 8th edition when we showed that three commodity indices were all making bottom extensions. Here is an update to that same group, with May 8th arrowed:
The first two indices rallied from low points made just after those extensions, as we would expect, while the third one made subsequent lows before it too made a sustained rally.
These indices are differently composed. The first two versions have a constant weighting that preserves the 'old CRB' index contributions last changed in 1995 for consistency, whereas the third Bloomberg version is regularly re-weighted toward the most heavily traded commodities, meaning mainly energy contracts. Energy markets fell steeply from a daily-scale compression, to a low point in early June, marked by an extension, as shown in the first chart below, pulling that index down too. Grains began their up-move 3 days after that 8 May edition, but energy markets had to wait for the later signal:
Subsequently all grains and energy markets have rallied more or less together. Sugar, Cotton, Copper and a few others have not, and Sugar has broken down from compressions, arguing for more weakness to come:
We have just covered the shorts that we reported in Sugar and Cotton and are now preparing to buy new long positions in various commodity markets. We think the bear market in grains is over and so would buy dips there (this is a dip). Wheat seems to have the slightly better outlook but Corn too is a candidate. Copper has been resilient in spite of the mounting gloom about a global economic slowdown (we don't agree, by the way) so can also be bought and energy markets also look to have good upside potential - buy dips there too (this is a dip).
More detail, as we see it. All of these markets will probably remain volatile or even get more volatile, so don't get caught buying strength.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com