It’s often a good idea to take a step back when viewing the markets and look at, what I believe, are the three major asset classes: stocks, bonds, and commodities.
Earlier this year I wrote a blog post about the basic trend of these three asset classes. I said that they were all still firming in an uptrend which was a positive for the business cycle and the markets as a whole. While this still may be true for bonds and stocks, the up trend in commodities is currently being threatened.
There are many different ways and vehicles to use to view the commodities market. With the surge of ETFs we can drill down and look at just agriculture, precious metals, or even just the grains market. However, for today I’m using the broad iShares S&P GSCI Commodity Index ETF (GSG).
This chart shows the up trend for GSG since the 2009 low, while we had been seeing a series of higher lows and higher highs up until the peak in 2011, things have flattening out since then. While the up trend still has had a higher low, the highs have begun to retract. With this flattening of the trend, it’s pushed price closer and closer to its trend line. The 2014 high has created a double top with the August 2013 high and price now sits just above the blue trend line on the chart above.
As John Murphy has written in several books, typically commodities are the last asset class to break its up trend prior to a shift in the business cycle. If we do see a break of the up trend here and a violation of the January low, which would be the first lower low, a down trend in commodities may be in the works. Of course we’ll let price lead the way, but at the moment, commodities are at an important juncture right now.
Disclaimer: The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.
