From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Are Softs finally showing signs of life?
Base Metals, Grains, and even Energy have posted strong rallies over the last year. Yet the Softs -- Cocoa, Coffee, Cotton, and Sugar -- have continued to struggle below overhead supply.
But we’re seeing all the traditional signs of a structural trend reversal from this lagging group right now.
Let’s take a closer look at Coffee futures to pinpoint why we believe this bear-to-bull trend change is underway…
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Pockets of strength are once again emerging within the Commodity space.
We pointed out that both the CRB Index and the ASC EW33 Commodity Index were breaking above key resistance levels, pointing to a burgeoning upside move last week.
That upside move has now materialized!
We saw Industrial Metals -- including Copper, Steel, and Aluminum -- continue to follow-through as they grind higher.
But this week’s biggest moves came from the Agricultural Commodities.
Let’s take a look at the recent strength in Ags using our custom ASC Equally-weighted Agriculture Index.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Many of the same themes that we came across in last week's Commodity Report continue to play out.
Overhead supply keeps demand at bay while price churns sideways, offering mixed signals.
Like many areas of the market, Commodities are a bit messy.
While sideways price action and choppy market conditions are the norms at the moment, there is one consolidation in the Commodity space that demands our close attention.
As JC pointed out in last night's Monthly Strategy Session, one of the most important charts right now is the Copper/Gold ratio as its intermarket implications span far and wide.
From the desk of Steve Strazza @Sstrazza and Ian Culley @IanCulley
In this week’s Commodity Report, we saw a continuance of many of the same themes that we've been pounding the table on for months now.
Mainly, strength in the procyclical areas of the market like Energy and Base Metals. This fits with what we’re seeing in Equity Markets as the rotation out of Mega-cap growth and into more cyclical sectors takes hold.
However, Crude Oil and Copper aren’t the only Commodities catching a bid right now. We’re also seeing strength in the grain markets.
One of the charts that caught our attention this week was Palm Oil Futures.
Palm Oil is one of the most important Commodities in Asia and combined with Soybean Oil it accounts for roughly 63% of the global production of vegetable oils. Its uses vary from cooking and producing processed foods to personal care products like soaps and fragrances. It also plays a key role as feedstock for biofuel production.
From the desk of Steve Strazza @Sstrazza and Ian Culley @IanCulley
When reviewing our chartbook this week, one major theme that stood out is the relentless bid we continue to see in Crude Oil.
Most risk-on commodities have consolidated or pulled back recently as the dollar has rebounded back to its highest level in over three months.
But, not oil...
Crude has completely ignored this action from the US Dollar and tacked on an additional 12% gain since DXY bottomed about two weeks ago.
Ever since trading at negative prices last spring, Crude has been on an absolute tear.
Price just broke above its key prior highs and closed the week at its highest level since 2018. As long as Crude is above this key former resistance around 65 the bias is higher and we're targeting the 2018 highs just above 75 over the near-term.