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Is commodity bull run over?
Hello everyone. I believe that we have read enough news regarding the surge of commodity prices recently, which is one of the major reasons to tank the market. Will the commodity prices continue to rise or has it reached the top?
When general markets are dipping, we know that most stocks are dipping. Many stocks especially speculative growth stocks already crashed 80-90%!
The exception was commodities related stock or ETF. For example, $Energy Select Sector SPDR Fund (XLE.US)$ , an energy ETF, which is closely associated with crude oil price, it surged for almost 68% when the major market were entering bear market!
Not only oil stock. Many commodities have seen their values sharply increasing
Will the commodities continue to run? In this video, I will share my analysis using stage method, which show that the commodities run is most likely over.
Please watch the video below for a much better illustration.
From YouTube
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There are a few reasons on the surge of commodities price.
There are a few reasons on the surge of commodities price.
1st: Russia-Ukraine war. The $Crude Oil Futures(FEB5) (CLmain.US)$ jump was largely attributable to the market’s assessment that sanctions are to be placed on Russian energy exports.
The crude oil price was increasing almost 1900% since the covid-19 low!
2nd: Russia and Ukraine supply roughly 30% of the global wheat export market while Ukraine supplies roughly 17% of global corn exports. Export disruption, combined with the expectation of lower crop yields in the Ukraine, has contributed to wheat and corn prices surging.
We could also see that $Chicago SRW Wheat Futures(MAR5) (ZWmain.US)$ price (based on Chicago SWR wheat future) has also increased almost 200% when it reached the top on 7 of March 2022.
3rd: For the fuel price increases, it is because lifting of covid-19 measurement which increase the demand of travel.
There are other reasons such as supply chain disruption etc that also causing the rise of commodity prices.
Impact
The direct impact of the rising of commodities price are the inflation. Look on the US inflation rate data. It has been keep increasing since Oct 2021!
Then, FED was removing the liquidity from the stock market by tightening the monetary policy to fight inflation and high prices.
When FED is removing the liquidity from the stock market, the stock price would plunge. FED would keep increasing the rate aggressively as long as the inflation is still out of controlled. More rate hike, more liquidity is removed, the market will be lack of catalyst to recover from the bottom, or even continue to plunge. Thus, it is important to monitor the commodity prices.
Some reports, even mentions that time to buy commodities and to trim stocks recently. The date of this report is 9 of August. However, I am having the total different perspective. Based on the stage analysis, the chart told me that the commodity bull run is over.
Disclaimer: My video does not provide any advice on buy, sell or hold on any stock or derivatives mentioned in the analysis later.
First, let's look on the $Crude Oil Futures(FEB5) (CLmain.US)$ weekly chart (Please watch the video here for a much better illustration)
The first step is always pull out the weekly moving average-30. It is very clear that stage 2 bull run started in November 2020, where the stock closed above MA30, and MA30 starts to sloping up.
Recently, the crude oil price closed below MA30, and the MA30 starts to flatten. In addition, do you notice the change of slope for the last 2 tops? The crude oil also failed to achieve higher high- the pattern looks like a double top pattern. Moreover, we could see that now MA30 has become a strong resistance to the crude oil price. It has rejected the price twice. All of these observations suggest that the stage 3 – the topping phase is formed. The current support is at $85-88. If it breaks below $85, it will be very bearish and we shall anticipate a stage 4 crashing phase is coming.
However, also take note that the MA30 is still sloping up. Thus, it may still, although to me it is less likely, to break above MA30 and a new phase 2 advance bull run starts.
Please watch my previous videos on stage analysis if you have not watched them yet.
Stages 1 and 2 (market bottom and bull run): https://youtu.be/gPwKhvpGmSk
Stages 3 and 4 (market top and crash): https://youtu.be/NMJAeIW95lo
Stages 3 and 4 (market top and crash): https://youtu.be/NMJAeIW95lo
Next, let’s look on the $Chicago SRW Wheat Futures(MAR5) (ZWmain.US)$ weekly chart (Please refer to the video for a much better illustration):
It was in a nice uptrend since Aug 2020, where the price was traded above MA30. When the Russia-Ukraine war started, the price surged for almost 70% within 1 week! Then, do you observed the similar pattern to the crude oil chart?
i) The price is now closed below MA30.
ii) The changed of the sentiment or slope.
iii) Failed to achieve higher high, with a double top pattern formed
In addition, the MA30 is clearly flatten! All of the above observations suggest that the wheat is reaching the stage 3 topping phase. I anticipate it will go to phase 4 crashing phase soon or later.
Furthermore, if we look on $Ishares S&P Gsci Commodity Idx Units Of Beneficial Interest (GSG.US)$ ,where itexposes to a broad range of commodities, has also closed below MA30. It further suggests the commodity bull run is over.
Future contract is a lot volatile and need more skills to manage. The risk is a lot higher if we do not know how to manage the future trades as well.
Thus, instead of buy or sell future contracts, we can buy or short sell the ETF that tracks commodity instead. Here are list of commodities ETF provided from seeking Alpha (https://seekingalpha.com/etfs-and-funds/etf-tables/commodities)
They are all closed below MA30. If only 1 or 2 of the commodities fall below MA30, it may not so convincing. But now, it is the broad commodity market and almost all commodities are closing below MA30, which further suggesting the commodity bull run is over!
This will be definitely a good news to stock market. As this would slow down the FED to continue removing the liquidity, this is an important turning point for FED to start to pump the liquidity back to the stock market again.
Ok that is all I would like to share in this video. Do you have any commodity that you would like me to analyse in details? Let me know in the comment!
Before you go, please like my video and subscribe my channel. Thank you and see you in the next video.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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