Commodities Weekly (04-16-2021)

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

Are Commodities poised for their next leg higher?

After weeks of sideways chop, we're beginning to see signs of strength that suggest an upside move is brewing.

Here’s some notable action: 

• Copper is resolving higher from a tight continuation pattern within the context of a primary uptrend
• Steel is again breaking higher from a quick coil pattern after making a parabolic move to record highs off last year’s lows
• Aluminum is next in line as it works its way higher within a massive consolidation
• Lumber continues to post new all-time highs day in and day out
• Other markets like Sugar and Wheat have found support at logical levels and look ready to resume higher

I think you get the idea...

In today’s post, we’re going to put these recent developments within the context of what they mean at the index level by taking a look at our custom index and contrasting it with the commonly used commodities benchmark, the CRB Index.

First up is the CRB Index. At first glance, the chart looks similar to Crude Oil, Gasoline, and Heating Oil. That’s mainly due to its 39% weighting toward Energy.

Interestingly, while most of the Energy group still churns below their respective 2019 highs, the CRB Index is back above those highs and a former area of critical resistance.

To see this index break above a former key resistance level -- while its most heavily weighted components still labor to digest overhead supply -- indicates growing strength within Commodities.

But how do Commodities look when we balance the weighting away from energy and create a more even distribution?

(As we would imagine…) Even better! 

To achieve a more balanced view of the Commodity space, we created a custom index that equally weights thirty-three individual futures contracts.

The differences between the two indexes are stark.

Unlike the CRB Index, the ASC EW33 Commodity Index is back above both its 2019 and 2013 highs as it pushes to new 8-year highs.

But the main focus today is their similarities and what they could mean for Commodities and risk assets in general.

Both indexes are showing strength and breaking above important former resistance zones following a period of digestion and contraction. To see price action begin to expand again is promising, especially at the index level. 

Commodities could be in the early stages of the next sustained move higher, and that’s something to keep an eye on in the coming weeks.

Thanks for reading. Let us know what you think, and be sure to check out this week's Commodity Report!