EDITOR NOTE: We know the saying that price, and by extension price charts, already reflect every market assumption and known fundamental affecting the markets. Technicals make for a good way to tactically enter or exit a trade. Yet, we have to be careful not to assume that the assumptions or known information is right or correctly interpreted. What does the rise in commodities tell us? Well, inflation is rising; inflationary “expectations” are rising. And in the coming months, we’re going to see higher commodity prices transferred over to consumer goods. Take that a step further and what does it tell us? Well, you can buy commodities, or just the commodity-based “money” that’ll protect you from inflation--gold and silver. It makes fundamental sense. And if you trust the charts, it also makes “technical” sense. How much more information do you need to be convinced of what’s been all too obvious for several months?
Are commodities ending a 5-year trading range, inside of a 50-year bull trend? Sure is looking like it!
This chart looks at the TR Equal Weight Commodity Index, based upon quarterly pricing, dating back to the 1950s.
Since the early 1970s, the index has created a series of higher lows and higher highs, forming rising channel (1).
The index hit the 2008 lows in March, where it created back to back bullish reversal patterns at support. Commodities struggled with resistance numerous times at (2), forming a strong overhead price level.
The rally off the March lows has the index breaking above 5-year resistance at (3), which sends a positive message from a sector that has lagged stocks for years and years.
Commodities have been a place to avoid since the highs back in 2011. A successful breakout at (3), would suggest this weak sector is about to start an intermediate new bull trend.
Originally posted on Investing.com