However, during that time, commodities continued to rip higher.
Now that the rally in raw materials is reaching significant areas of overhead supply, it would make sense for this leadership space to follow stocks and enter a corrective period.
In other words, the uptrend in commodities that has persisted since 2020 is likely to take a breather and turn into a sideways trend.
Let's talk about it.
Here’s a weekly chart of the CRB Index running into a logical supply zone at its 2012 and 2014 highs:
This shelf of former highs is a natural level for the current trend to pause and digest some of those gains from the past few years.
Whether we correct through price or through time is the bigger question for us.
It’s not just the index that’s stuck beneath overhead supply, this is also the case for many individual contracts.
Here's crude oil coiling below the March pivot highs around 115.50:
When we zoom out, you can really see the importance of the current level:
Not only is there near-term resistance at current prices. There's also a shelf of former highs from 2011-13 that coincide with this level.
It could take some time for crude to absorb all that overhead supply.
As for gold, the yellow metal continues its lengthy consolidation below its July 2020 highs:
Meanwhile, copper is still wrangling with resistance around 4.88 after a failed breakout attempt earlier this year:
When we look at agriculture, overhead supply near the highs from early March is keeping a lid on Chicago wheat:
And sugar futures have repeatedly challenged resistance around 20.40 since last year with no real success:
These are just a handful of examples in a commodity space where most components remain rangebound.
The CRB Index is also hitting overwhelming supply at former critical highs, suggesting a potential prolonged corrective period.
The bottom line is commodities look like they’re due for a little sideways action. There's nothing wrong with that!
The CRB Index is up more than 35% year to date and almost 56% over the trailing 12 months. The rally has been near vertical for this index and many individual commodities.
Digesting these monster gains through price or time would be constructive and set the stage for the next leg higher.
Remember, the uptrend remains intact. After some consolidation, we're anticipating the primary trend will reassert itself and lead to higher prices.
But, for now, patience is the best course of action. Let's see how prices react to these logical levels.
COT Heatmap Highlights
Platinum: Commercials reduced their long position yet remain less than 5% away from last week's three-year extreme.
US Dollar Index: Commercial hedgers increased their short positioning to less than 9% away from a three-year extreme.
Palladium: Commercials added to their net long position, inching within 4% of a three-year record.
Bitcoin: Commercial hedgers hold their largest short position to date.
