Commodity Index Is on the Verge of a Breakout

Sometimes I REALLY want to make sure you get the message. That’s why I tend to harp on major themes and strategies that I have a high confidence level in.  Especially when most other investors are looking in different directions. Through this blog, you’ve witnessed many accurate contrarian calls on inflation, markets, and sectors, including the commodity index. Today, I will continue to drive my stagflation message home, as I have been doing for nearly 3 years. It’s important to understand so you can position your portfolio correctly. I’ve got your back.

“Few are prepared for any kind of sustained 3-4% inflation regime, everyone is positioned for 1-2%” Larry McDonald

 

Here’s a simple math:

A: Inflation will remain at 3%

“Damn the torpedo’s. Full speed ahead!” Admiral David Farragut

 

It’s an election year. The Fed will be forced to cut, despite the persistent inflation. Expect more money printing (spending) too. Damn the inflation, full spend ahead!

Three quotes from Biden, not the Fed. Courtesy of BearTraps:

  • “There will be a rate cut before the end of the year.”
  • “I stand by a prediction for a rate cut.” “
  • “A rate cut may be delayed for a month”

Um, OK. So Joe Biden is conducting monetary policy now? Clearly, Powell has his marching orders. Fed independence? Yeah right.

 

Rate cuts and money printing to win votes = inflation pressures!

BTW – you can expect to see similar money printing as the Canadian election approaches in 2025.

“Damn the inflation, full spend ahead!”

 

Applying Technical Analysis to US CPI. You can chart anything! CPI (inflation) chart below: Base breakout, successful neckline test, heading up.

Sticky-Price CPI September 2017 | Commodity Index

B: Signs of Slowing

A sign of slowing:

FED’S GOOLSBEE: “RISING BLACK UNEMPLOYMENT IS SIGNAL FOR CAUTION”
FED’S BARKIN: “AI IS GOING TO EXPAND RAPIDLY, REPLACE SOME JOBS”

A sign of slowing: I shared this chart in my previous blog on inflation.

Number of new 90 + day FHA loan delinquencies by Reason for delinquency: Unemployed (2008-2024)

A sign of slowing:

The percentage of companies that have defaulted on their debt more than once has reached its second-highest level since 2008, according to a new report from S&P Global Ratings. Corporate defaults up 80%!

Wait, lemme think. What happened in 2008-2009? Anyone? Anyone? I somehow vaguely recall some sort of credit collapse or something like that, I think. Perhaps, maybe, I guess.  Didn’t that drive the markets down by 50% – or am I wrong? Just can’t seem to remember.  Chart above.

A + B = Stagflation

Inflation + tightening economy = Stagflation!

Solution

Commodities can do well in stagflation. Our focus at ValueTrend over the past few months has (correctly) been gold, silver, industrial metals, oil, value stocks. Recently, we bought a first leg (see my online trading course) in natural gas positions, although we need a breakout per the small triangle consolidation seen on the chart here to add to them.

We tend to pick away at the sub-sectors within the commodity index, per my comment above. However, commodities in general may break out, creating a new bullish environment for hard assets in general. Here’s the chart – note the bullish MACD divergence.

S&P GSCI Commodity Index - Spot Price (April 11, 2024)

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Sentiment Cycle

I’m doing a free webinar with the MoneyShow Wednesday, April 17, 2024, 10:40 am – 11:10 am EDT.

I’m covering my favorite topic – contrarian investing and behavioral finance.  The webinar will draw from my most recent book, Smart Money/ Dumb Money, and I promise to inject some humor into this fascinating way of discovering market risk/reward tradeoffs.

Here’s the link to register. 

Final Thoughts – Commodity Index

I want you guys to win. I want you to prosper by winning the trading game by reading this blog. Why would I do this? Well, I believe that after 34 years of successfully trading, I have an obligation to pass on the knowledge. I also believe that if you benefit from this blog, my books and the Online Trading Course – you will recommend ValueTrend to friends and family. Particularly those who don’t want to manage their own money. Or, perhaps you are at a point in your life that you want to have someone else manage your money, and you’ve come to respect our process.

If you, or someone you know, would like to find out more about how we manage your money prudently in – let’s face it – an overbought market… contact us here.

14 Comments

  • Thank you for taking my question. I have really appreciated your market insight Keith over the past year and technical analysis (and political analysis as well!! keep it up)

    With oil/ gas being seasonal but with the strong tail winds in this sector right now would you hold your positions throughout June-September at 100% this year or take 1/2 or full position off the table for the summer slower season until October and back in at that time? Thank you for your comments.

    Kind Regards
    Mike

    Reply
    • Mike I think that depends on signs of technical rolling over. If there is no sign of that, hold! And on what % of your portfolio you hold in the sector. At VT, we have rules to contain us to not overweight a sector – and if the sector outperforms – thus becoming outside of our max allocation rules –we cut it. Please take the Online Trading Course to learn how I do it.

      Reply
  • Trump was constantly and loudly badgering Powell to cut interest rates . You are very one sided . And oh yeah Trump wants to be a dictator so there is that

    Reply
    • Incorrect. I commented many, many times on that practice in this blog back when Trump was pushing Bernanke to soften. I disagreed strongly with him doing so. I side with logic and Libertarian principles — aka government should do the right thing for the people. Full stop. They rarely do. The left, however, has undeniably taken the spending, debt, deficit to new alarming heights, not to mention manipulation of things like the strategic oil reserves – in addition to carrying on monetary policy manipulation per your note on Trump. This, well beyond past governments -even the Dem/Lib leaders of the past. See my blog on MMT.

      Reply
  • Hi thanks for your charts. when i look at the charts for the tbt and tlt it looks to me that rates are going to go up and not down. your insights?
    thanks

    Reply
    • Just talking to my co-PM Craig about this — basically the bond market is breaking first support on the “higher for longer” talk. But, given its an election year (and Biden fed-push talk, per my blog note), I wonder if it actually will be higher for longer. This is a hard one, gotta admit. We decided to hold at this point and sell if it does not find support this week.

      Reply
  • The elephant in the room continues to be the insolvency of Western democracy governments, with political systems that leave state leaders with their hands tied, needing to pander to extremists on both sides of the political spectrum, not unlike social media makes the most profits from the most clicks on their pages, when stirring the pot of political rhetoric.

    Inflation can only persist and get worse. There are no simple solutions. The Laffer curve from 40 years ago in financial analysis, once suggested a ” tax the ultra-rich less, and government tax revenue will have a hockey stick movement to the upside” thinking. Later research articles demonstrated there is not a single optimal point in the Laffer curve, but several optimal points in that curve for several tax brackets, as to tax policy.

    Changing direction is not a simple task, in overall policy, therefore.

    So, I agree that minerals, commodities of all types are good investments as you cannot multiply gold, copper, platinum, nickel … reserves with the click of a mouse, as is done with the money supply, by the Fed, and other central banks etc.

    Reply
    • Interesting prognosis, doctor. I concur!
      You will have a chuckle if you see the movie “Catch me if you can” with Tom Hanks and Leo DiCaprio – when he delivered a line similar to that.
      Anyhow, good insights.

      Reply
  • Looking forward to the webinar on Wednesday. Also enjoying Larry McDonalds new book – about halfway through. Will definitely be looking to add some hard assets/commodities including uranium to the portfolio. You can include me on the future nuclear support team in order to meet future demands. Also helps I work in the industry and can see the potential not only in Canada but around the world. Would to see a uranium/nuclear energy focused blog. Thanks!

    Reply
    • Nathan–you should go to the video page (and subscribe!) –I did a bunch of stuff on uranium, including a recent video–just use the video search tool and type in “uranium”, as you can on the blog tool too.

      Reply
  • Your comment on TLT is interesting and I believe reflects the current market. Yes we are pulling back but nothing is crashing. Death by a 1000 cuts since the beginning of April particularly in the interest rate sensitive sectors. Sometimes doing nothing works best as you recently observed. This looks like a garden variety pullback for now.
    Do you have more patience with higher quality names supported by fundamentals or is a stock a stock and it gets traded on the charts?

    Reply
    • I’m a stock-by-stock guy mostly, although I will admit that when we have a large sector bet (which we have in materials lately) I will pare off individual stocks if the overall sector looks to be failing.
      So far we are at 15% cash in our conservative model. We sold some US-market sensitive positions (beta 1) a week or so ago. We really don’t like the bubble in AI, which are rounding over a bit. We will raise more if the TSX index fails to hold support per my recent “Look out below” blog, and also if materials pull back more than a (as you say) garden variety pullback.

      Reply
  • The latest announcement by the Finance Minister of squeezing blood from a rock…2/3 of capital gains are now taxable versus 50 % previously, confirms the years of warnings you made about reckless spending behavior by the current clique in power, it’s consequences.

    Even if only applicable at $250k and above, it is not impossible the added tax will again stimulate the demand for tax planning specialists for ourflows similar to those seen in Panama , Luxemburg, Isle of Man, or Switzerland by independent professionals ( dentists, MD’s, architects, money managers, etc) or even Sunshine list public servants, etc.) eager to hang on to the fruits of their labor.

    Reply
    • You forgot to mention that cap gains of ANY amounts for a business are 100% taxable now. Great way to attract business to Canada. NOT!
      I spend time in Florida and have met by chance (one at a bike race, one is a neighbor) people who make a living helping well off, successful productive Canadians relocate to the state! In Florida these former productive contributors to the Canadian economy now get lower taxes, less employment impedances (these are brutal in Canada, discouraging employment), less red tape and more personal freedom. Canadian emigration (aka outflow) by skilled and successful people is topping the 1970’s highs. It will now get worse. Very sad.

      Reply

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