Is the commodity bull market about to end?

April 4, 2022No Comments


Hello, and welcome once again to the Smart Money, Dumb Money show. And I am your host as usual, Keith Richards, I’m president and chief portfolio manager of ValueTrend Wealth Management. And today we’re going to look at a few commodity stocks. We’re going to look at actual charts of the commodities themselves in most cases. And we’re going to attempt to determine if the run on commodities, those high-performance numbers that we’ve been seeing coming out of the commodities sectors are likely to continue, or is it coming to an end? So that’s a question that I think some people might be asking. The run on commodity stocks has been strong. I know I’ve tooted my own horn a few times on this show and on the blog, but I’m going to do it again. Craig and I called this commodity boom two years ago.

It was as plain as the noses on our faces. As far as we could say, we, nobody has a crystal ball, but when we saw all the factors lining up, despite the Fed in the US saying it was a, what they call transient inflation, we saw anything but that. I’ve explained this enough times that I don’t think I need to get into that on this video, you just have to go to the blog and type in the word inflation, and you will see all kinds of the talk by myself about inflation and buying commodities going right back to 2020. And we’ve made a very good return from doing that. In fact, I’m very pleased to say that even with the stock market being down on the year, now this is March 30th as I record this, with the market being down on the year, I am happy to say that we have actually had a positive performance.

And that’s because of our now almost two-year stance of holding inflation-based securities, which largely entailed commodities. So is the gravy train over? Let’s address that right now and I’ll do that by sharing the screen. And by the way, I’ve done a couple of things here. I’ve tilted my camera so that you can see my very favorite picture in my office, which is what’s called The Smokers, the Tour de France in, I think this was around the early 1900s. And also I’m breaking the law here because my wife’s law is that you must have contrast. And I did in one of the very, very, very early videos I did was called Big Pink. And, my opening comments were, my wife, says, never wear the same color bow tie as your shirt. Well, when the wife’s not looking, I pull out the same color bow tie and I put it with my pink shirt.

So you know, I’ll be under arrest when the wife sees me today. So anyway, I’m going to go and share the screen and we’ll just take a look and see if we can’t find out if the commodities are in fact poised to begin breaking down. So I’m going to start off with gold. Now, anybody that follows these videos and my blogs, I have done both a video and a blog on gold over the past two months. And I was back here actually in January saying that this is a triangle. It is a bit of a symmetrical triangle and if it breaks out, it’ll be powerful. Well, it broke out and it’s been pretty powerful so far for gold. This is gold bullion. So it’s not the commodity producers. Whatever the case, you saw the rally, you saw the test of the old highs, and that will be, of course, resistance.

And it’s pulled back a bit, but is this an unhealthy pullback? Heck no, the market looks very good for gold still. I do think that now that we’ve tested the highs, but it is most definitely just consolidating at this point, we haven’t even broken the fifty-day moving average. My 2 cents worth is that at some point you will probably see a breakout to go through the 2020 high prices of gold. So I don’t think that this is a break in the trend by any stretch. I think this is a pullback and a natural one to happen after a good run. So let’s take a look at the next chart, which is silver. Silver, some people put gold and silver together as precious metals, but silver really has more of industrial use. Not many people collect silver as a purely ornamental precious metal type of commodity.

It really does actually have an industrial use, whatever the case. And in fact, by the way, silver’s used in some of these new applications for electric vehicles and things like that, they’re used in electronics, all kinds of ways to use silver. So silver doesn’t have the neat and tidy chart that gold does. Nevertheless, a bit of a double bottom possibly, and a neckline break followed by a current test of that neckline. So long as silver does not break that neckline, which would lie right around where it is right now around 24 to $25, then silver’s still in the game. So not quite as pretty of a chart as gold and not quite as easy to interpret, but still silver is not out of the runnings just yet. So let’s take a look at good old oil. Now this is my favorite and I called oil, as you know, back in 2020 when it was around $40 and now oil is well over $100.

And I know I’m getting a lot of inquiries from our clients after such a marvelous run. Now we bought oil stocks. We didn’t buy the commodity, but same difference. Actually, oil stocks in our opinion, have more room to go than the commodity, but whatever the case I am getting asked if that’s it for oil. Perhaps there will be a peace settlement reached in Russia, although I will not hold my breath waiting for that just yet. Nevertheless, it’s had a strong run and perhaps that’s a little bit of an overdone run and maybe that’s it for oil. Well, my answer would be it’s way too early to determine that because all we are seeing on the chart here is a small consolidation. And in fact, just like the big consolidation we saw on gold, this is really just a symmetrical triangle consolidation.

And those things are often very, very positive particularly when the underlying is already in an up trend. And most certainly that’s what the case is here. So again, so long as we don’t see any breakdown from that triangle, a break of the lower part of the triangle, I would say that oil is fine and yes, it’s bound to consolidate and take a rest after such a strong run. Heck I mean, if it goes from, you know, when I was buying it back in the fall of 2020, which was somewhere back here and here it is today, well, yeah, it deserves to pull back a bit and you can see it’s pulled back a few times along the way. In fact, even from the point where I was buying it. So it’s normal, it’s natural. We gotta get over these corrections people. It’s not a straight ride up.

We need to flush out the non-believers within a trend. Now, again, I’m never a thematic investor. If the trend breaks, if this consolidation breaks down to the downside, I am out. You don’t have to be emotional about it, you just have to follow your system. And by the way, some of you are aware, I have a technical analysis course online. You can register for it on my website at ValueTrend.ca and somewhere down the middle there’s, you’ll see a link for the online technical analysis course. And this is the kind of stuff I teach on the course. So let’s go to the next chart. I’m still bullish on oil and all it is doing is consolidating. So let’s take a look at the agriculturals. Now this again is a commodity index. It’s not the producers. Okay? So you can buy the agricultural commodity index.

It’s DBA, the Invesco DB Agricultural Food Index, and it’s got the grains and the various softs and pork bellies and you name it’s in there. And that is obviously making up the agricultural index and you can see it’s really gone. It’s just been parabolic. Time for a pullback. You can see, I haven’t been referring to this much in this particular video, but you can see this is money flow. And when it’s moving up, that means money is moving into this ETF. Well, the money flow’s pulling back a bit. Well, that’s normally a bad thing, but it was so parabolic here that it, really to get back onto this trendline, it deserves to pull back. And this consolidation, if we look at this particular ETF, which represents, I think it’s about 10 different stocks and commodities agricultural commodities, you’ll see that it’s really just consolidating.

There’s nothing alarming here whatsoever, except for the fact that it was uber over bought. You know, it got into the $22 range and the 200 day is more around the $20 range. So that was over 10% past its 200 day moving average and you know, the way I think. If you don’t know then read my blogs and take the technical analysis course. We talk about this a lot. As soon as you get more than 10% past the 200-day moving average, you’re starting to get a little overbought. Doesn’t mean an automatic correction, but it often works out that way and you can see that here. And you can see that here when it was oversold, it was well over 10% below the 200 days moving average. So it was perfectly normal at this point that with that much of a gap between the moving average, you would get a pullback.

So the pullback and the consolidation though is pretty benign. If you really take a look at this, nothing’s going on. This may end up looking something like this. It may consolidate for a while. And I kind of suspect that many of the commodities may go sideways for a while. As I think it was Bob Marley, he sang “Don’t Worry, Be Happy, man” and that’s what I’m telling you here. If you see a consolidation within an otherwise positive trend, don’t worry, be happy. You’re in the trade. If you have a perspective beyond a few weeks, you’ll probably be making money again before you can say Bob’s your uncle. So that is the look of the agricultural trade. It’s over-bought, time for consolidation, that’s what it’s doing. That’s good. It’s positive. In fact, possibly a good opportunity for those of us who would like to buy more of this sort of thing in the future.

So final chart is the base metals and I have been in and out of this trade since 2020. I originally played it here. It got overbought. We sold some, I don’t know if we sold at very top. I think we sold in this cluster here, but we did quite well. And we literally, this is the BMO Equal Weight Gold Medals producer. So this is the stocks. This isn’t the actual metals. So all those other charts where the actual commodities, this is the underlying producers for the metals, but it’s a good benchmark. And so we’ve traded it. It went parabolic. We sold it. We re-bought it recently on this breakout. We saw it do a little cup formation. We saw the neckline, we bought it on the breakout. Here we are. We’re actually breaking past the old highs.

I actually don’t even see any consolidation on this chart yet. But once again, don’t be surprised if it consolidates for a while. In other words, it goes up and down like a toilet seat. As I like to say, up and down the toilet seat for a while. And that while maybe a month or two months or three months, we don’t know, but stocks do that. Stocks consolidate, but in a trend, if it’s positive and if the fundamentals are there for a further move upwards, then you can choose to live through the consolidations, or you could trade it, just get out and wait for the breakout again. But I’m still in the trade. Now I will tell you that we have reduced some of our exposure to commodities recently. We recently took a little bit out of our agricultural exposure and we took a little bit out of our oil exposure.

All right? Our metals, we don’t have any plans yet of pulling out, but we’re watching. As you can see, the chart is still okay, but we have no qualm about reducing these positions. What I won’t be doing personally, it’s not a recommendation to you, but what I am personally looking at doing for the ValueTrend platforms is keeping our feet in the water and living through any consolidations, staying there so long as these consolidations don’t turn into a breakdown. And that’s how a good technical analysis program works. You can’t predict, you can have a plan. You can prepare as Howard Marks like to say, “you can’t predict, you can prepare.” I talk about this a lot in that technical analysis course. And I talk about having that plan in place. So you know exactly what you’re going to do at all times. You don’t get emotional.

You don’t fight the market, you trade the market and you do what it’s telling you to do. Right now, the commodities are just saying, Hey, it’s been a great ride, time for a rest. And as long as that rest doesn’t end up in being a breakdown, I’m saying stay with the trade. So that is my view on the commodities. In case any of you are wondering if now is the time to get out, my opinion is so long as you don’t see technical breakdown, it’s fine to stay in them. You might wanna take some profits if you wish to reduce your positions if you’re overweight. That’s one thing any prudent investor will do. If you’ve made a whole block of profits, as we have on our commodity trades, and I’m not joking, it’s been an incredible ride and our performance, which you will see as of the end of March, it’ll be coming up next week, I suspect.

Our numbers are very, very good. Even in a market that’s gone down, we’ve had very positive performance. It’s because we made these trading decisions around inflation and commodities. It’s okay to take a profit. It’s okay to reduce your positions. But generally speaking, when something’s in an uptrend, you don’t bail out. You can trim, but you don’t bail out unless there’s a breakdown. Now, if there’s a breakdown, you got to get out. So refer to my course to learn how to do that. Thanks for watching. I hope this helped and we’ll see you again next week.

 

Never miss another video!

Get Smart Money Dumb Money videos delivered directly to your inbox.

Recent Posts

gold

It’s not just James Bond’s nemesis Goldfinger who love gold

2

Investing in Canada, eh?

XLRE

Getting Defensive

compq

Whats next for the NASDAQ?

1

Is it time to buy Canadian REITs?

crude oil

Is the commodity bull market about to end?

Keith's on Demand Technical Analysis course is now available

Scroll to Top