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. $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $Invesco QQQ Trust-ETF(QQQ)$
Key point: Commodities are at a bullish turning point.
https://entrylevel.topdowncharts.com/p/chart-of-the-week-bullish-commodities
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