Tuesday, May 14, 2013

CRB Commodities and SPX Monthly Charts Comparison


If commodities are in demand the global economy is running on all cylinders. Not only are raw materials required to manufacture products, but iron ore and coke produce steel to erect buildings and highway bridges and coal and natty gas generate electricity to grease the wheels of progress. The wine is flowing like water and the living is easy. If commodities are not in demand, that is a sign of a weaker economy, less jobs, less income, less need for machinery, less plant expansions, less activity.  The CRB and SPX monthly charts show how the two indexes move together.  The blue boxes show the only times during the last fifteen years where the CRB and SPX did not move together.

Commodities bottomed in early 2002 and were an early tell on a stronger economy moving forward. The broad indexes (SPX) dropped into the March 2003 Iraq War bottom. Everyone was fearful at the start of the Iraq War which was an excellent buying opportunity for the stock market, human tragedy aside.  The 2000's were the housing bubble years fueled by low rates. Note how uniform the rise is in the SPX from 2003 into the October 2007 top, unlike the QE pumps in recent years breathing life into a fading stock market each time (shown by the jagged tops and bottoms). The situation from 2002 is not applicable to now.

The CRB peaked in the summer 2011 and is down ever since, two years running, on a slowing global demand. The SPX continues higher from 2011 ignoring the commodities. These are special markets. The broad indexes are fueled by central banker easy money. The expectation would be for the equity markets to respond to the commodity weakness in sympathy, moving to the downside as well but daily new all-time highs continue. The CRB is in the middle of its long-term multi-year range while the SPX is elevated above all its prior highs in history. Typically the entity that deviates the most would be expected to correct the most, in this case the SPX to the downside. This is interesting action and not what would be expected; a market that goes up wildly higher each day as commodities are less in demand. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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