In technical analysis kindergarten, you'll learn there are 3 asset classes: stocks, bonds, AND commodities.
Without all 3, you're missing a piece of the puzzle and are putting yourself at a disadvantage.
Since commodities peaked in absolute and relative terms in 2022, they have dramatically underperformed stocks.
It's gotten to the extent where there's not any momentum to the downside remaining.
Commodities have carved out a massive bullish momentum divergence relative to stocks since the start of 2024:
As you can see, DBC/SPY has made lower highs and lower lows all year while the 14-day RSI (momentum) has made higher highs and higher lows.
In addition, the ratio is at the same level it was when it bottomed in the prior cycle and began a multi-year uptrend.
It's now or never. If the commodity bulls are going to reverse this downtrend versus stocks, they need to show up now.
The Invesco Commodity Index $DBC has carved out a textbook basing pattern:
The Invesco Commodity Index is composed of over 55% energy, 10% precious metals, 22% agriculture, and 12% base metals futures contracts. It's a lot of energy...
While the price hasn't triggered a buy signal for us yet, one of our favorite long-term momentum indicators, the percentage price oscillator (PPO), is curling higher at the zero line and is on the verge of a bullish crossover.
If and when this triggers, the path of least resistance for commodities will shift higher and the DBC will likely resolve its multi-decade base.
We're already seeing commodities make major upside moves under the surface.
The soft commodities like coffee, cocoa, and sugar have dramatically outperformed.
Uranium and uranium stocks have also been on fire.
AndNatural gas is on the cusp of reclaiming the VWAP anchored to the 2022 peak and entering a brand new primary uptrend.
Do you think commodities are about to begin a new period of outperformance versus stocks? Let us know what you think.
COT Heatmap Highlights
Commercial hedgers added 22,000 contracts to their largest net-short soybean oil position in over 2-years.
Commercials added nearly 5,000 contracts to their net-short coffee position and are approaching a fresh record net-short position.
Commercial hedgers trimmed their net-short gold position by over 22,000 contracts.
In honor of the Dow Jones Transportation Average recently printing fresh all-time highs, we're outlining our favorite setups in the transportation industry for Trade of the Week.
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