Evidence of a Commodity Bull Market Continues to Grow
I have written about commodities several times in the last four months or so as evidence of a major reversal had begun to appear. Now, more indicators are starting to turn. Near-term, things look overdone, but if this is really is a bull market, that will not matter, as short-term indicators almost invariably have less of a downside punch compared to their pro-trend behavior in primary bear markets. A big test is coming; Chart 1 shows that the CRB Composite is just slightly below its 12-month MA, where it could find some resistance.

That said, there are other lessons to be learned from the chart. The middle window features my Inflation/Deflation Ratio (!PRII:!PRDI). You can read about it here.It is the stock market's way of foreshadowing swings in the inflation-deflation battle. The Inflation Index comprises industry groups that benefit when commodity prices are strong (risk-on), whereas the deflation-sensitive series tends to do well at the beginning of the business cycle, when rates are declining and investors are defensive (risk-off). As you can see from the chart, its movements are fairly close to those for the CRB Composite. The dashed arrows connecting the two series show that, a great deal of the time, the ratio actually leads at important turning points. The fact that it is still rising is therefore a bullish factor. Also, this relationship has recently broken above a 4-year down trendline, which should mean that it will extend its advance.
The action of the KST for the ratio in Chart 2 is also positive. The solid arrows show that long-term KST upside reversals have usually been followed by a CRB rally. The two dashed ones indicate failures. The conclusion I get from these two charts is that the stock market is forecasting higher commodity prices.

The Dollar Index has recently dropped below its 12-month MA, which is usually a bullish sign for dollar-denominated commodity prices. However, as we can see from Charts 3 and 4, the resource-sensitive Australian and Canadian dollars are even more responsive to swings in commodity prices. For example, the arrows in Chart 3 show that KST buy signals for the Aussie Dollar can also be used to time reversals in the CRB Composite. (There was one exception in 2014.) The KST recently turned up again in conjunction with a major trendline break in the currency.

The same analysis can be applied to the Canadian Dollar. Its KST has gone flat, so it is not yet bullish. However, the currency itself has started to edge through its 2012-2020 down trendline. That, plus the fact that the Dollar is also above its 12-month MA, suggests that the KST will soon turn.

Looking at the momentum of the CRB itself, Chart 5 tells us that the CRB recently registered a post-1996 low, but that its 13-week ROC in late July achieved a record high, surpassing its 2009 level. Usually, off-the-chart momentum such as this, only occurs at the start of a young vibrant bull market. By way of proof, you can see how the 2009 reading was followed by a couple of years of strong commodity performance. It is not unreasonable to expect current action being followed by a strong move as well.

Not all of the long-term commodity indicators are bullish yet. However, there are enough green shoots to justify looking for some commodity-related ETFs that have begun to emerge in a positive way.
One example is the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), as shown in Chart 6. The price has recently jumped above its 2018-2020 down trendline and the 65-week EMA. The RS line against the S&P Composite has achieved a similar feat. This ETF used to sell in excess of $250 in the early part of the decade, so there could be lots of potential upside.

The Global X Copper Miners ETF (COPX), shown in Chart 7, has a similar pattern, as all four indicators are above their respective EMAs and are therefore in a positive trend.

The US Copper Fund (CPER) is also classified as bullish, but, unlike the shares included in the COPX, the RS line for the metal fund is confined in its recent trading range.

The Global X Uranium ETF (URA) is exposed to uranium mining and the production of nuclear components. Uranium has been unfashionable in recent decades despite its clean energy aspects. Not surprisingly, the ETF has fallen from $100 to a pandemic low of $7. Now, it appears to be turning around, as you can see from Chart 9. This view is based on the fact that all four series are above their respective EMAs, and both the absolute and relative prices have violated resistance trendlines.

Good luck and good charting,
Martin J. Pring
The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Groupof Walnut Creek or its affiliates.