Everywhere you look, commodities argue a strong case for the next supercycle.
Live cattle, feeder cattle, sugar, cocoa, and orange juice are all amid historic rallies. Even gold’s resilience in an environment where it should struggle speaks to an underlying demand for raw materials.
Well, perhaps not everywhere…
While orange juice busts loose on a parabolic advance and cocoa rips toward all-time highs, copper futures barely exceed their year-to-date lows.
On the bright side, it stopped falling.
Check out copper digging in at key pivot lows from earlier this spring:
While some of these explosive rallies pause, other areas of the commodity space are forming tactical reversal patterns.
Let’s check out one of my favorites,…
Corn.
Here’s the December corn contract carving out a ten-week base:
I bought yesterday’s close above 500’0. That’s our risk level. As long as corn trades above that level, I like it long toward the July high at approximately 570’0.
However, during today's session, I was abruptly stopped out of my position.
Did you think inflation was just going to come and go?
Just like that? And now we all move on?
I highly doubt that it's that simple.
According to the bond market, inflationary pressures are likely just getting started.
This is a $120 Trillion asset class that's so big there's just no where to hide.
For instance, take a look at the Inflation-protected Treasury Securities, that we refer to as TIPs. And when you compare them to nominal yielding Treasury Bonds, you'll notice the new 52-week highs this week in the ratio between the two.
This is what the bond market is pricing in for inflation. Not the angry economist on the internet. Not the pretty lady on basic cable.
This is the bond market. This is whose opinion actually matters:
Earlier in spring, I wrote a note highlighting wheat’s tendency to lead crude oil at key inflection points.
While this statement is mostly true, it needs clarification.
Chicago wheat does have a tendency to lead crude oil at significant market tops. But crude leads at critical troughs.
Check out the crude oil overlaid with Chicago wheat futures:
Notice crude bottomed in Q1 of 2009, 2016, and earlier this year. Chicago wheat followed roughly six to nine months later, marking critical turning points in late Q3 of 2009 and 2016.
