Big Four Macro Update: Commodities

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Trend Analysis – Chart Patterns – Technical Indicators

There are extensive fundamental comments, context, and observations in the prior commodities pieces linked below. The 2022 Midyear Conclusion was that commodities were making an important top and that I intended to be a better seller of weekly perspective strength over the last half of 2022.

For most of the last 20 years commodities  have been trapped in a wide range between the pre and post great financial crisis extremes.

Primary Chart Features:

Macro lateral support and resistance zones are wide but well defined.

Last March, the appearance of supply across a wide variety of commodities and with the GSCI within 5% of the major resistance left suggested that the 2020-2022 rally has run its course. The show of weakness removed any doubt.

An overthrow of top of the trend channel, a near classic buying climax that occurred near macro resistance, the break of the channel uptrend drawn from the 218 Covid low and the rollover in the MACD oscillator are all consistent with a new bear.

Generally speaking, commodities tend to produce long trends as they move higher and lower with business cycles that typically last several years.

Recent weakness is consistent with a weakening of the business cycle. The fiscal stimulus related to the pandemic has ended and the lagged results of the Fed’s rapid tightening campaign is becoming evident. Commodities weakness has alleviated some of the goods sector inflationary pressure but it will have little effect on service sector pressures.

Daily and weekly perspective rallies should become selling opportunities.

Weekly:

While monthly charts and macro both suggest weakness, the weekly chart has moved into a zone that may produce a counter trend rally. MACD is trying to turn higher and the market is holding over the midpoint of the channel. But a rally appears premature to me. Particularly since the low volume lateral movement over the last several months doesn’t appear to be accumulation.

Not only are there few signs of demand in the shorter-term price volume relationships but the market isn’t near compelling support, particularly the kind of support confluence strong enough to typically turn momentum. None the less, a weekly close above the downtrend A1-A2 would strongly suggest a near term momentum change.

A rally, while perhaps representing a trading opportunity, should ultimately provide a significant selling opportunity.

I think a much better opportunity for support is found at the 494 – 536 zone where I would be interested in taking a trading long on a bullish setup.

Commodities Triple Screen: The triple screen suggests a similar story. A trend reversal in the monthly with an initial decline that is becoming oversold in the weekly perspective. Rallies in the weekly perspective are likely corrective to the weakness in the monthly.

Bottom Line: I am a better seller of strength and bearish setups. I believe that this chart continues to support the idea of a weakening/topping business cycle.

Many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.

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Originally Posted February 27, 2023 – Big Four Macro Update: Commodities