SP:SPGSCI   S&P Goldman Sachs Commodity Index
Commodities: In January I reviewed the long-term technical and fundamental positions of the big four: Bonds, Equities, Commodities , and the Dollar. Those pieces are extensive in terms of both fundamental and technical outlooks and are linked for your review.

January Conclusions: The trend from the pandemic low is higher, mirroring the economic recovery. But, while the trend higher is intact, it appears to be weakening. My sense of the economy is that the best growth has already occurred as the result of historically supportive fiscal and monetary. Now, both paths are turning restrictive and markets will likely reflect that reality. One of the expressions of that restriction will likely manifest in the form of weaker, particularly industrial, commodities .

-The most notable/useful current chart feature is the clear uptrend from the 2020 pandemic low. Until that uptrend is broken, the most immediate trend is to higher prices. In general, higher commodities suggest continued economic growth.

-A break of the uptrend would strongly suggest that economic demand was weakening or that supply constraints were loosening. I think economic demand is the strong story.

Where is the market now? Commodities continued to rally for three months before running into supply at the March- June 2022 high. The appearance of supply across a wide variety of commodities , and with the GSCI within 5% of the major resistance at the 2008 high, suggests that the cycle has likely run its course. Note that price exceeded the top of the channel to a significant degree. This overthrow of the supply line is consistent with a market in the blow-off phase of a trend. More broadly, the uptrend from the pandemic low remains intact and survived a test in July. Until either the uptrend falls or a secondary test of the high occurs, the monthly trend must be presumed to be neutral - higher but the evidence suggests to me that the commodities rally is over, at least for now, and that either a period of consolidation or distribution is likely.

Bloomberg Commodity Index Weekly: You can clearly see the footprint of supply (strong hands selling) across the March-June highs and the bearish engulfing /outside reversal pattern at the June high. However, volume was lower than I would have expected at a long-term buying climax. The character of the next rally will be important in assessing the vitality of the supply.

Commodities Triple Screen:

-Monthly momentum is still bullish , but overbought. This is a momentum position from which I typically monitor for ending action and the early stage of a trend change.

-With weekly momentum having turned bearishly and daily crossing over bullishly, the configuration suggests that daily perspective strength will likely fail. The big question, can the bearish weekly can pull the monthly low enough to generate a momentum sell signal?

Many other commodities have produced similar price behaviors. For instance, the big three of the AGGS , (beans, wheat and corn ) have tested major overhead resistance, uncovered major supply and are now producing signs of weakness.

Conclusions: Its pretty clear that commodities have made an important inflection, but intact trends and the lack of a monthly perspective oscillator sell signal leaves at least some room for doubt. I believe that commodities are in the process of building an important top and I intend to be a better seller of weekly perspective strength over the last half of the year. The main caveat must be geopolitics, particularly in terms of energy. Demand destruction takes time, while geopolitical disruption is a jump function.

Good Trading:
Stewart Taylor, CMT
Chartered Market Technician

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