Chart of the Week - Bullish Commodities
Extremely bullish technical chart -- rare that you see this type of setup...
This is one of the most interesting charts in my files right now
…I’m actually almost reluctant to share it.
It’s rare that you see such a compelling setup.
We’re talking about commodities...
And before you switch off !! —> it’s important to remember that when it comes to assets like this, there is both the direct opportunity (in the thing itself), but also the flow-on macro implications.
And on both fronts this is a big deal.
First a quick explainer on the chart: what we are looking at is the S&P GSCI “light energy“ (more diversified version) Commodities Index, and its associated 200-day moving average breadth indicator (proportion of individual commodities trading above their respective 200-day averages).
Why is this chart interesting?
Two main things.
1. The index has successfully tested a major long-term support level.
2. The breadth indicator has turned up from oversold levels, AND put in bullish divergence (higher low in the breadth indicator vs lower lows in the index).
These developments also come after a significant (time and magnitude) cyclical bear market in commodities — one that has rattled investor confidence in the space, with sentiment and positioning sinking.
And unlike the various tests of support in the early-2010’s, we are in a time where commodity producers have been underinvesting vs overinvesting in supply, and numerous thematic demand drivers are in play (capex, energy transition, reshoring, infrastructure, space, geopolitics, etc).
Meanwhile on the macro, global trade and manufacturing are undergoing a process of reacceleration after experiencing recessionary conditions over the past year.
And as recently outlined, by my metrics: commodities are cheap.
So this is a very compelling bullish setup.
As for the macro implications: more inflation, higher for longer rates.
Key point: Commodities are at a bullish turning point.
See also: Archive of previous Chart Of The Week reports
Topics covered in our latest Weekly Insights Report
Aside from the chart above, we looked at several other charts, and dug into some intriguing issues on our radar in the latest entry-level service report:
Global Markets Update: frontier markets, China, credit spreads, DXY
Commodities Cyclical Outlook: how things are quickly changing
Macro Radar: plenty of central bank meetings this week
Ideas Inventory: list of live ideas, risks, macro themes
Subscribe now to get instant access to the report so you can check out the details around these themes, as well as gaining access to the full archive of reports.
For more details on the service *check out this recent post* which highlights:
a. What you Get with the service;
b. the Performance of the service (results of ideas and TAA); and
c. What our Clients say about it.
But if you have any other questions on our services definitely get in touch.
Thanks for your interest. Feedback and thoughts welcome.
Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts
Follow me on Twitter
Connect on LinkedIn