Thursday Commodities & Currencies
All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |
Below is a look at the weekly trends of commodities. The gradual and steady strength in commodity prices continues. I believe this is favorable for commodity-related shares, commodity mutual funds and ETFs, and, at the moment, the overall equity market.
Note that the Goldman-Sachs Energy index has now broken above the 40-week moving average. The price of oil hasn't broken above yet, but is getting close along with copper. (Lumber continues to be very weak, perhaps related to the weakness in home building.)
Commodities and the related shares continue to be the place to be in this bull market. The out performance began back in early 2004, with a temporary pause last summer and fall, and has resumed this year. Generally out performance and leadership by this area is seen as a negative for equities in general, but this bull market has thrived on it, at least so far.
The strength in commodities is partly due to a couple decades of under investment during the 1980s and 1990s, and the enormous world wide demand led by the emerging Asian nations. But it is also due to the low interest rates in the US that bottomed in 2003, resulting in a plunge in the US Dollar.
The continuing (but more gradual) weakness in the US Dollar continues to support the prices of commodities. The trend in currency relationships has heavily favored Canada, Australia, New Zealand, and even the Europe and Britain, but at the expense of the Yen and the US Dollar. Now, even the Yen is starting to show signs of some strength compared to the US Dollar.
Three different looks at commodity prices are shown below via the three different commodity indexes. The CRB is the most closely followed and reflects the substantial correction in energy last year. It is still in a downtrend which should be respected until there is evidence the trend is broken, but the strength in the other indexes would suggest the CRB has been in a correction and is close to finishing.
Natural gas prices had a huge spike post hurricane Katrina, and have since settled back into the trading range. The related stocks settled into a trading range as well during this period and have lately been looking strong.
Changing topics ... below is a chart from VIX&More. I recommend reading his post about this chart.
