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Friday, May 05, 2017

Commodities Complex In Trouble

When investors want to know the state of commodities complex, they will look at the Thomson Reuters/CoreCommodity CRB Index (TR/CC CRB or simply CRB). According to Wikipedia, this index provides dynamic representation of broad trends in overall commodity prices (here). After ten revisions, CRB index today is made up of 19 commodities that are quoted on the NYMEX, CBOT, LME, CME and COMEX exchanges. The 19 commodities that made up the index are Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat.

These commodities are sorted into 4 groups:
  • Petroleum based products (based on their importance to global trade, always make up 33% of the weightings)
  • Liquid assets
  • Highly liquid assets
  • Diverse commodities.
CRB broke the line connecting its low for the past 12 months at 182 in late April. It struggled to hang onto the psychological 180 level for nearly 2 weeks. Yesterday it finally broke thru the 180 level and closed at 177.01.


Chart 1: CRB's daily chart as at April 4, 2017 (Source: Stockcharts.com)

The breakdown of CRB coincides with the breakdown of the uptrend line for WTIC on May 2. Yesterday, WTIC dropped 5% and broke thru the low of USD47 recorded in March to USD45.52!! Where's happening!

 
Chart 2: WTIC's daily chart as at April 4, 2017 (Source: Stockcharts.com)

Between Dow Jones trading near its all-time high and WTIC & CRB index breakdown, somewhere somethings are not going right! Of course, China!! We can see from the chart below, SSEC has broken below its uptrend line.
  

Chart 3: SSEC's daily chart as at April 4, 2017 (Source: Stockcharts.com)

The weakness in commodities and Chinese stocks could come to our shore. We should be careful in our investing approach and must avoid over-trading in the near term.

1 comment:

KL Tan said...

hi alex,

what's your take on sign 7246.
I read your past article on it last year that the company has lower earnings.
Is the current price 1.02 a good entry?

Thanks!
KL