Commodities Are Alive and Well

From the Desk of Ian Culley @IanCulley

The commodity supercycle will not be televised.

Jim Cramer will not provide commentary on cotton, cattle, and/or the crack spread.

Hollywood will not make a movie on crude oil trading below zero.

Nor will jeera futures have their turn in the limelight.  

That doesn’t mean we should plug in, turn on and cop out.

Instead, let’s focus on the charts…

Here’s the S&P 500 versus the CRB Index, a simple stocks/commodities ratio:

It’s been commodities over stocks since crude traded below zero in the spring of 2020.

Yes, the correction favoring stocks off the 2022 lows has been significant.

But it’s retreating from a logical confluence of potential resistance – a multi-year downtrend line and a key retracement level. 

Let’s call the recent correction a “commercial interruption.”

I expect many such interruptions during the cycle. As we all know, price doesn’t move in a straight line.

Commodity rallies challenge that notion over shorter time frames yet give the impression of a yo-yo when zooming out on the charts. 

That’s what commodity contracts do.

More precisely, that’s how the supply and demand dynamic unfolds for raw materials: escalator up! elevator down! and repeat...

I believe commodities are now on repeat.

The December corn contract has climbed more than a dollar over the past four weeks.

For the uninitiated, that’s a huge move that might have legs.

Check out the December contract:

The 14-day RSI is breaking out of a bearish regime, posting a bullish momentum thrust.

Explosive moves such as this tend to kick off sustained rallies.

(Also, note the breakaway gap on June 12.)

But corn has reached a logical level to digest its recent gains, falling 36 cents during today’s session.

A pullback in price could take a few days or a few weeks. Or corn could head back to four bucks. 

Regardless, when grain markets start moving, it’s a fast and furious affair to the finish line. 

I’m buying the December contract if and when it breaks above Wednesday’s high at approximately 630, eyeing a move back to 675.

Corn futures could run it back to eight bucks – or even higher. 

Grains are ripping across the board.

I outlined well-defined risk levels in Chicago wheat on Wednesday.

And I’ll go deeper into corn, the wheat and soybean complexes, and even oats next week.

Perhaps I’ll cover livestock; hogs have my full attention right now.

Remember, the volatility in these markets is not for the faint of heart. Trade accordingly. 

Be careful. The commodity supercycle will be no re-run.

It’ll be live!

And I plan to be out front.

Will you join me?

COT Heatmap Highlights

• Commercial hedgers remain near three-year extremes after hitting a record-long position in Palladium.
• Commercials unwind their net-long position in Lean Hogs, dropping almost 24,000 contracts over the trailing four weeks.
• And commercials hold their largest short position for the British Pound in three years.

Click here to download the All Star Charts COT Heatmap.