Commodity Price Indices Produce Rally Fireworks

I must admit, it feels good to finally see some progress on my commodities’ obsession. 

As the stock market indices are stuck in a large trading range, several commodities are beginning to show signs of life.

Looking at the US Oil Fund ETF (USO), that changed phases to Recuperation or in other words, cleared the 50-DMA.

Corn, soybeans, wheat, wood and cotton also rose in price.

Silver, gold and the miners gained.

Even cannabis stocks through the ETF MJ, which I consider another commodity of a different ilk, had some fun today.

Two factors we watch which impact commodity prices are the dollar’s strength and interest rate yields.

financial markets fireworks

The US Dollar, after breaking down into a caution phase, was flat.

The 20+ year Treasury bonds rose slightly, which means the yields fell a bit.

So, with all that, will this trend continue as we head into the end of a tumultuous 2019?

Here are the Daily charts for the US Commodity Index, USCI, iShares GSCI Commodity Index Trust GSG, and Invesco Agriculture Fund, DBA.

USCI signaled a long in early October when it cleared the 50-DMA (blue line). 

Then today, it rose by 1% tackling the recent highs at 36.58. Should that level clear, I’d expect a further rally closer to the 200-DMA or green line.

GSG moved up further from its 50-DMA. That now must clear and hold over 15.52 to keep the party going.

DBA is consolidating. If you look back at early September, DBA made a new low, and immediately did a classic bottoming reversal pattern.

Now that all three ETFs are in stronger Recuperation phases, next we want to see them clear their 200-DMAs and enter Accumulation phases.

Besides the opportunity to make money in areas that have been basically dormant for a while, the bigger implication is what does a rally in these commodity ETFs mean for stocks and the economy?

The worst case is that given the repos by the Fed and all the geopolitical uncertainty, inflation at manageable numbers, becomes hyperinflation at unmanageable numbers.

Best case is that this rally means global demand is increasing for commodities, thereby signaling overall economic growth.

Worst case is bad for equities. Best case probably means we finally see new highs in the S&P 500.

Either way, you can look up at the fireworks in amazement, or you can make money here if you understand risk/reward.

S&P 500 (SPY) 296 pivotal support. 300 so pivotal 

Russell 2000 (IWM) 153.50 pivotal support. 156 resistance

Dow Jones Industrials (DIA) 270 pivotal resistance. 265.50 support

Nasdaq (QQQ) 193.50 pivotal resistance. 190.45 key support.

KRE (Regional Banks) Inside day. 53.00 support 55.00 resistance.

SMH (Semiconductors) 120 key support and 122.75 resistance.

IYT (Transportation) 190 support 195 resistance.

IBB (Biotechnology) 105 pivotal support 108 resistance.

XRT (Retail) 43-44 resistance. 41.50 support.

Twitter: @marketminute

The author may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity. 

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