Commodities Breakout

The S&P bounced off support to continue its upward grind within the rising wedge I noted earlier today.  It looks to me like a pattern that could break down at any time.  But I wouldn’t want to bet much on it.  So I am pretty agnostic about the broad U.S. market right now.  However, one sector has grabbed my attention: commodities.

Unlike most equities, which have been rampaging higher for the better part of five years, commodities and commodity-driven stocks have struggled over the last two-plus years.  It has been a steady beat-down for most things affiliated with agriculture and mining.  But alas, that tide may be turning.  The broad commodity ETF, DBC, has broken above a falling line of trendline resistance.

2014-02-14-DBC_CHARTS

Without making any prediction, I do think it’s worth noting that commodities broke to the upside in 2007 just as the market was making what proved to be its multi-year top.  With all the liquidity sloshing around global markets, it strikes me as possible that once again commodities will attract hot money as it flees equities in a low-growth environment.  Below is a chart of the 2007 top, with S&P in black and DBC in pink.

2014-02-14-SPX-DBC-2007_CHARTS

With that pointed out, have a look at some of the more specific commodities that look like attractive to me a this time.

Coffee (JO) appears to have clearly broken to upside of a multi-year beat-down.

2014-02-14-JO_CHARTS

Silver (SLV) is still near its support line, but has popped above its resistance trendline.  Gold (GLD) has too.

2014-02-14-SLV_CHARTS

Gold miners (GDX and GDXJ) also appear poised to move higher.

2014-02-14-GDX-CHARTS

2014-02-14-GDXJ-CHARTS

Grains (JJG) have also broken above resistance.

2014-02-14-JJG_CHARTS

I think the gist has been communicated.

I am short some things (namely financials and Japan), but am long (utilities, Treasuries), so I don’t feel like I have big directional bet at this time.  Except for commodities: I am bullish.  This is about as bullish as I have felt about anything in quite a while.  That probably means this sector is doomed.  :)  But we shall see.

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  1. Anonymous
    February 15, 2014 at 12:58 pm

    given Treasuries, utilities and commodities are the most hated asset classes, I believe your call is spot on – if just for that reason alone…

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