Commodities are Breaking Out All Over

The Fed has pumped a lot of money into the system -- and that liquidity has to go somewhere. We know a lot of it has already been flowing into stocks. Now it looks like it's time for commodities to participate. So much money, combined with bottlenecks in the economy, may well to send commodity prices substantially higher. The charts are certainly not disagreeing.

Long-Term Commodity Indexes

Chart 1 shows that the Goldman Sachs Commodity Index ($GNX) is breaking above its 2011-2021 secular down trendline and inching above its 2018 peak. We can see the same thing for the DB Commodity Index Tracking Fund ETF (DBC). Also, both long-term KSTs in the lower windows look to be in the early stages of an advance.

These are, of course, monthly charts, and they need to close at current levels or higher on Friday; otherwise, these tentative breakouts will not count. That does seem likely, though, because many indexes and individual commodities have been digesting gains in the daily charts for the last couple of months. In the last few days, many of them have started to break out of these small trading ranges and appear to be ready to renew their uptrends.

Short-Term Commodity Indexes

Chart 3 shows that the broadly-based Bloomberg Commodity ETF, the DJP, has just broken decisively to a new recovery high. The daily KST is in a bullish mode and therefore supporting this move. The RSI is definitely overextended, but, since this is a bull market where overbought readings do not have a great deal of power, its importance is downplayed. Look at the three instances of an overstretched "blue" condition that developed since December. None, until the third at the end of February, resulted in any serious correction.

Chart 4 shows the same period for the DBC, which has a higher energy weighting than the DJP. It is also breaking out, but not quite so decisively because energy has been lagging very slightly.

Individual Sectors

The Invesco DB Agriculture Fund (DBA) appears to be leading the way, as it initially violated its 2011-2021 dashed down trendline at the turn of the year. More recently, it has broken out from a broadening formation with a flat top. These formations are particularly bullish. This is largely, I suspect, because they are in such a hurry to move higher that they do not have enough time to form what would be the right shoulder of an inverse head-and-shoulders pattern. Note also that the long-term KST has only just cleared its equilibrium line, suggesting that lots of unrealized potential lies ahead.

Chart 5 features the Invesco DB Base Metal Fund (DBB) along with the US Copper Fund (CPER) and Global X Copper Miners. They are all breaking to the upside in a pretty consistent fashion.

The one key area that has not yet broken out is energy. Chart 6 shows that the Invesco DB Energy Fund, the DBE, is in a bullish trend. That's because it is above its 65-week EMA and sporting a positive long-term KST. Note also that the KST is slightly below zero compared to some of the other charts. This underscores the lagging nature of energy in the current cycle. The chart also shows that it is presently experiencing a declining short-term KST, so a further digestion of gains may be in order before it moves higher.

Individual Commodities

Chart 7 features palladium and platinum, two metals that appear to be currently driven by industrial demand rather than their association with the precious metal sector. Both are in solid uptrends, especially palladium, which is one of the few commodities in a confirmed secular bull market.

Soybeans and wheat are also looking stronger, as we can see from Charts 8 and 9. Note that both short-term KSTs are relatively undeveloped and therefore likely to support higher prices in the near-term. I would feature corn, but it's literally off the charts.

Finally, Chart 10 shows that coffee has tentatively broken out from a 2 ½-year base. The short-term KST has only just started to turn up, so a more decisive upside breakout looks to be a strong probability.

Conclusion

If these breakouts turn out to be valid, it will likely put downward pressure on bond prices. On the plus side, commodity-sensitive stock market sectors, such as materials, mining and energy, should benefit, along with commodity-sensitive country ETFs such as Canada, Australia and South Africa.

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.