From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts
In a post last month JC discussed the recent strength in Commodities and posed the following question...
If the CRB Index is above its 2016 lows and Crude Oil is above all those former lows from the past decade, how can we be bearish commodities?
Over the last few quarters, we've seen more and more intermarket relationships make a significant shift in favor of risk-assets.
Many are showing early signs of a structural reversal and others simply accelerating in the direction of their underlying trend.
From Bonds and Agriculture, to Chinese equities, and cyclical stocks like SMIDs, Materials, and Transports - Well, now we're seeing it show up in Commodities.
Today we'll follow-up on JC's post with a comprehensive look at the Commodity complex and discuss whether the recent rally is simply a counter-trend move, or if a potential structural reversal is underway for this long-forgotten asset class.
To kick things off, here's this week's mystery chart.
It was an inverted ratio chart. Sorry to do that to you guys, but it's no fun if we make it too easy!
The CCI Index (Equally-Weighted Commodity Index) relative to the S&P 500 is at the exact level it bottomed and began a new long-term uptrend back in the late '90s.
With downside momentum waning, this would be a logical place to see some outperformance in Commodities. I mean, they've been underperforming for a decade now... we're expecting a mean-reversion move here at the least.
As JC pointed out, the inverted ratio of the CRB Index (Cap-Weighted Commodity Index) relative to stocks is yet another data point that suggests we could be in for a serious reversal in favor of Commodities.
While it's far too early to question the structural trend on relative terms, as long as this ratio is below 23.50, the bias is toward Commodities.
Let's look at these indexes on an absolute basis now. Here's the CRB.
It's fair to say there's a new uptrend taking place in Commodities as long as the CCI Index is above 450.
It's a similar picture for the CRB Index.
Price recently took out significant resistance at multi-year lows in the 168 area.
It's now coming up on the 200 level, which is also a big one. It acted as resistance in the '90s, support in '09, and resistance again in 2018. The weight of the evidence currently suggests the CRB Index will ultimately break above this 200 level and follow the CCI higher.
Now let's take a look at some of the individual Commodities driving this strength.
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