[Chart Of The Week] CRB Index Hits 42-Year Lows
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This is a 20-year chart of the CRB Index, widely considered to be the benchmark for commodities. CRB is to Commodities as the S&P500 is to U.S. Stocks and the U.S. 10-year yield is to Interest Rates. Since Energy is by far the largest component of the index, the crash in Oil prices, along with Unleaded Gasoline and Heating Oil, has dragged this thing down to fresh 42 year lows. I mean the Miami Dolphins were still winning Super Bowls last time the CRB was this low. As a life-long Dolphins fan, I can tell you how much it hurts me to say that.
Let's remember that the market tends to be very emotional. When we really need to get out of something ,we just puke it out and worry about the consequences later. Price is an after thought. After losing this much money, it is no time to be fighting for pennies. It's the, "Just please get me out of this thing, I can't take it anymore", sort of mentality. We saw this in February and March of 2009 in U.S. Stocks just before one of the most epic stock market rallies in American history. I think we could be setting up for something similar as we enter 2016.
This time of year generally sets up incredible Q1 mean reversions as fund managers just want to get certain names off their books. This leads to an overshoot of selling that quickly unwinds to start the year. The 182-183 level in the CRB Index is that key level we want to watch. This represents the 1999-2001 lows that were recently taken out in the 4th quarter. I would argue that a swift recovery into year end, or perhaps in early January, back above 182-183 could spark a tremendous rally in Commodities, led by Crude Oil and Energy.
I would not be shorting any of this down here, but would prefer to stay patient and look to put on aggressive long positions in this space ONLY if the CRB is above 182-183. There are CRB Index and Energy ETFs, Futures and options contracts that will allow you to take advantage of both near-term and long-term upside in this space. I think this is one we need to watch and why I consider this to be my Chart of the Week.
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Tags: $CRB $CL_F $USO
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