Here it is, my first post in 2018. I won’t give you NY resolutions or something. Let me first give you a quick overview of my past posts to gain a perspective before we dive into today’s topic. I think this is relevant because some of these trends started in 2017 and they could pick up steam in 2018.
The theme that could be very big this year is a big rally in commodities in my opinion. I’ve been writing a lot about commodities and commodity related products/assets in the past. When oil was at $45 and everyone was screaming it’s going lower I was taking the other side. It’s above $60 now. When gold was at $1300 I was suggesting it could drop by $60-80 at which point it could be a great level to pick it up as a long-term hold. It did precisely that and is sitting at $1320 now. Not to mention bullish copper and some other ones. Even though the above calls went great not everything did. Cocoa (and other softs) showed some signs of life during the second half of ’17, but were very quickly brought back to reality; I wouldn’t call it a day just yet.
US dollar is very important to the whole commodities story. While I had second thoughts about my bearish thesis as I see some head winds at the moment the dollar continued its slide lower. If my assumption is correct and the dollar continues what is doing, this would be a great tell and an even bigger tail wind for commodities.
Let me show you one of the most interesting charts everyone should watch right now. This is Thompson Reuters Commodity CRB Index. The price is sitting at a crucial level right now! If it manages to get above 195-200 level it could have at least 35% of upside if not more on a bit more longer term time frame!
One can read a bit more about the index here. It is a weighted average of different commodities. To not put too much weight on your favorite commodity I created an equally weighted commodity index of commodities stated in the chart title below.
I normalized the price of each over the whole time horizon so that I can compare them. This is what I got. We see that it is already breaking above an important resistance where possibly a major bottom was formed in Jan 2016.
While the price stays above the current resistance, and if CRB index gets above 200 level, the market would offer us a great risk reward opportunity with potentially big moves occurring in 2018! Good luck!