How To Play The Bear Market Rally In Commodities
We 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.
Category: Commodity Trading
