How To Play The Bear Market Rally In Commodities

commoditiesWe talk a fair bit about commodities here at Dent Research. That’s largely because Harry’s research has consistently pointed to deflation – not inflation – as the dominant force in this winter economic season.

Indeed, commodity prices have sucked wind for years now.

Crude oil fell to a low of $36 a barrel last year – a whopping 83% below the July 2008 peak, at $212.

Gold peaked in 2011 and has since lost as much as 46%.

So while everyone and their brother has spent the past five years worrying about inflation – cursing the Fed, of course – we’ve warned that deflation, instead, will drag down asset prices. That includes the price of commodities, which are practically worthless in a deflationary environment marked by weak demand, oversupply, and falling prices.

Harry has consistently said that long-term investors should stay out of commodities. And that’s been a great call for several years now.

But just because commodity prices are stuck in a long, multi-year bear market doesn’t mean you can’t make some nice short-term profits along the way.

As we say: “Nothing moves in a straight line.” And short- to medium-term bear market rallies can be great opportunities.

These pockets of bullish opportunities appear every so often in commodity markets, even though the longer-term, deflation-driven trend continues to point down.

For one, we’re entering a time of the year that typically treats commodity prices quite well.

My seasonality research shows that the materials (XLB) and energy (XLE) sectors enjoy a tailwind between January and April. The same goes for commodity prices, which tend to be the most bullish during the first four months of the year.

What’s more, my forward-looking Cycle 9 Alert algorithm is already picking up on a ramp-up in bullish momentum all across the commodity complex – from oil to copper to base metals, my system’s buy signals are triggering left and right.

That means the market-beating momentum in commodities is likely to last another two to three months – certainly enough time for a short-term play.

The PowerShares DB Commodity Index ETF (NYSE: DBC) is a “broad-based” commodity ETF, which holds positions in oil, gasoline, natural gas, gold, copper, base metals, and more.  And it’s one of the easiest ways to make a diversified, short-term play on commodities – aimed at riding the sector’s seasonal strength between now and April.


Note: The author of this article is Adam O’Dell from Economy & Markets Daily.

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Category: Commodity Trading

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In Economy & Markets Daily, the Dent Research team, featuring editors Harry Dent and Rodney Johnson use the power of demographic trends and consumer spending patterns to accurately identify economic booms and busts well ahead of the mainstream. Harry & Rodney believe demography is destiny. It is the future that has already been written. You just need to know how to read it.