- The ongoing economic cycle in the US has already seen Treasury prices and stock indexes move into long-term uptrends.
- Usually this is followed by an upturn in commodities, the complex gaining strength from lower interest rates and a weaker US dollar.
- While still early in the month, the Three Kings of Commodities are showing different stages of possible bullish turns on long-term monthly charts.
I could have a great deal of fun with this piece on a late Friday afternoon. After all the subject is the Three Kings of Commodities, bottoms, and May’s full moon expected to rise tonight. It all fits perfectly, and certainly the dying embers of a teenage mind still alive in my brain want to make a joke more fitting for a locker room than an internationally renowned news source. So instead, I’ll just chuckle and move on, fully aware that you can probably read what’s left of my mind.
The subject of the commodity complex, or at least three of the major markets, turning up is no laughing matter. Recall from previous discussions on normal economic cycles, an upturn in bonds (prices) is followed by a similar move in stocks before commodities turn back up. If we simplify things, this all makes sense. Bond prices go up on the idea interest rates are going to peak and start coming down. To this we can add US Treasury futures completed long-term bullish reversals on monthly charts at the end of November. In this particular cycle, stocks actually led the way with all three major US indexes posting bullish patterns during October. Again, investing in stocks should be bolstered by the idea of interest rates starting to cool. But what about those Three Kings of Commodities?
Let’s start with gold. For long-term analysis and investment purposes I like to use cash indexes as it takes futures spreads and rolling out of the equation. The monthly chart of the cash index (GCY00) I track for gold is showing an interesting pattern, hitting a high of $2,070.48 during August 2020 then another high of $2,065.89 during March 2022 .If we consider this a double-top, then the break below the interim low $1,677.64 from March 2021 completed the bearish pattern indicating the long-term trend has turned down. However, this doesn’t fit the narrative of expected lower interest rates, stronger Treasuries, and a weaker US dollar. That puts the spotlight on the latest rally that had the index posting an early May high of $2,059.31, within sight of its previous marks.
Crude oil (CLM23) is a fascinating market these days. We all remember the $5 gap the spot-month contract left on its daily chart coming out of a weekend after OPEC+ announced its latest round of production cuts. The immediate rally to a high of $83.53 took out the previous 4-month mark of $83.34, one of the more reliable bullish reversal patterns I look for. A side note: All a mere 3 years after the spot-month contract hit (-$40.32) as it expired back in 2020. What happened in early May? Did the market see follow-through buying interest? Absolutely not, as this past week saw the spot-month contract plummet to a low of $63.57 before rallying back above $71 Friday. Here, market technicians have to decide. A strict reading shows the new 4-month high was erased with the new low, the market rejoining its previous long-term downtrend. On the other hand, those of us who view technical analysis through the lens of the Horseshoe Proximity (close is close enough) would view early May activity as a possible double-bottom. If so, the key will be which is taken out first: The initial May low or the April high. Given monthly stochastics are well below the oversold level of 20% already, a move to a new uptrend seems more logical.
And then there’s King Corn. A look at the monthly chart for the Barchart National Corn Price Index (ZCPAUS.CM), the intrinsic value of the market, shows it extended its downtrend to a low of $6.01 this week before rallying back above $6.30. There are a number of technical factors at play on this chart:
- First, the selloff took the NCPI to its initial target near $6.0175, the 38.2% retracement level of the previous uptrend from $2.7265 through the high of $8.0515. Given market fundamentals remain bullish, the 38.2% retracement level would be expected to hold.
- Monthly stochastics have dipped below the oversold level of 20%, setting the stage for a potential bullish crossover by the end of the month.
- The NCPI has already done enough to complete a bullish spike reversal, confirming the previous long-term downtrend has come to an end and a new uptrend has begun.
But it is only May 5, and a lot can still happen. I’ve talked before of how cash corn from 2020-2021 through the present has been following the path laid out from the 2010-2011 marketing year through 2013-2014. If this continues to hold true, there is more downside. Again, though, I don’t believe in analogous years and market fundamentals remain bullish. We’ll see if that is enough to bring buyers back to the corn market and the NCPI completes its bullish reversal.
Have commodities bottomed? It’s too early to say conclusively. Check back with me when June’s full moon starts to rise.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
