Fall Forecast – Craving for Commodities

Fall Forecast – Craving for Commodities


By: Marco G.

September 21, 2010

http://goombarhsedge.blogspot.com/


Fall officially started yesterday, and the leaves are turning red; and this morning on my monitor screen, all my stock indicators are mostly green. Never mind the leaves, it is now time to stay indoors and grow some green in the markets. The author decides to examine some of his favorite charts for indications of what will happen up coming this Fall.

Volumes for TSX-V are High

The author specializes in commodities and mining stocks and the first screen that I glance at for indications of health is the TSX Venture exchange. This is the smallish Toronto, Canada based exchange where the majority of the world’s small mining companies are listed. The chart below, tells quite a tale of almost a continuous run upwards since July 20th, 2010.

The market volumes are high since the beginning of September, supporting the move upwards. The Chaikin Money Flow (CMF) displays a positive mountain of cash buying moving in.

And the PPO is showing strong momentum in this market. The PPO or Percentage Price Oscillator is another moving average indicator, but expresses the output as a percentage.

For examining the longer term picture we use the chart for the TSX Venture below, we can see that the trend is continuing upwards after the hiatus for the “Sell in May” in the early part of this Summer.

The risk appetite for smaller junior miners appears to be back. The volumes compared to the volumes in Fall of 2009 are higher, earlier and more positive, indicating buying.

Copper Shortage Looming

In the news, the commodities forecasters have been telling us about the upcoming shortage for copper that is looming nigh. We examine the chart following for Copper Futures.


We see that since June the copper price is trending upwards and is regaining the high ground lost since prior to the 2008 crash. The copper futures price is known as Doctor Copper, for giving good indications about the state of the future economic activities.

TSX Golden Cross

Next we look at the TSX Composite Index based in Toronto Canada. This index is resource heavy and is a larger and quite reliable leading indicator as Canada is America’s largest trade partner and is much influenced by the American economy. The chart below of the TSX is indicating bullish activity moving forwards.

There was a bullish Golden Cross of the 50 DMA over the 200 DMA that happened last week on about Sep 15th, 2010. The positive CMF over the summer is telling the early positioning of the smarter monies. We need to watch for higher volumes in this market to confirm this bullish indicator in that the bull market is back.

Wilshire leading US Economy Back

The author likes using the Wilshire 5000 Composite Index as it is more sensitive than the traditional large index indicators (Dow Jones, S & P 500) of economic health. The chart indicates that the moving averages may be converging and may be possibly follow the TSX index in a Golden Cross of its own. The CMF has been positive, which is supportive.

Steel Versus World Wedge

The author uses this Steel Stocks versus the World Stock Index ratio displayed in the chart below as another measurement of economic health. Steel demand is a strong leading economic indicator.

From the chart above, we see a narrowing wedge displayed whilst the market has been in oscillation up and down and indecisive as to which way to go. The answer it seems will be pretty quick in coming as the wedge is rapidly coming to a point. Which way will this indicator break towards?

Craving for Commodities

From my previous charts, the author is forecasting a resumption of the recovery in North America and especially for metals, mining and commodities stocks. This will be supported by a broad based recovery in the overall stock markets as the public comes to this realization. You the astute reader will be best positioned for this recovery by looking in the commodities, metals and mining sectors for good values.

Disclosure: The author is long junior mining equities.



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Doctor Copper Tells the Tale

A recent Seeking Alpha article by Dr. Stephen Leeb describes an interesting way to look at today’s market. His main point was that there was burgeoning growth in the emerging economies and slowing growth in the developed world. However, he was optimistic as to the American leaders in maintaining support for growth and thereby giving rise to inflation.


As I am an investor in mainly mining and commodities driven equities, I wanted to ascertain for myself, what was up, and what is ahead. So I undertook a travel around the world, through stock charts (apologies for the European theatre, and other theatres that I have missed) and tried to correlate and assimilate what the market indicators were saying.

Figure 1: Doctor Copper Rising

Doctor Copper again tells the main story. Copper futures are indicating that the world economic growth is moving higher since the beginning of June. Yes, this is simplistic, but we are looking at the big picture with mainly a focus as to how it should impact my commodities investments.

Figure 2: Shanghai Stocks Surging Higher

A stop in the Far East in China to evaluate what is happening there. Now the Chinese Composite Index in Shanghai seems to confirms Doctor Copper by bottoming at the beginning of July and moving higher since. As the Chinese economy is the main consumer of commodities, this is good news.

Figure 3: Wilshire Indicates Indecision

Now back to North America, for a look at the Wilshire 5000 smaller cap equities index. I tend to trust the smaller cap equities as being more sensitive and more realistic as to what the real economic situation is. The Mainland US does not believe the growth story and is creeping lower since peaking at the beginning of August. Note that the big boys were accumulating throughout much of August and are now being indecisive. There is uncertainty here about the economy in the US moving forwards.

Figure 4: TSX Composite Buoyed by Resources

Now we stop north to peek at the northerly neighbour’s large cap index in Toronto. A glance at the resource based economy in Canada, at the TSX reveals the TSX still holding strong in August since moving higher in July. Notice that the CMF is still at a fairly high level, indicating accumulation and an optimistic outlook.

Figure 5: TSX Venture Showing Optimism

Now looking at the much smaller and maligned Canadian Venture exchange, where much of the world’s beginning resource companies start out, indicates there has been much optimism since mid July. The Venture marketplace is recovering from the large drop of May 2010. The sell in May and go away truly works for the Canadian Venture exchange. This index chart looks like it is readying itself for a robust up swing this fall.

Figure 6: MSCI Emerging Markets Growing

Finally a global look at the Emerging world economies through the eyes of the MSCI Emerging Markets ETF and one sees that the rise in June was tentative, and was followed by a second try in July which finally got the big boys involved in accumulating via the CMF indicator by the time August rolled around. This is further confirmation for Doctor Copper.

So in summary, there is a dichotomy in the world today. The emerging economies are gearing up for better times. They will be requiring more metals and commodities. Meanwhile there is much uncertainty afoot in the Mainland United States. The government supports for the economy will cause inflation which is good news for the precious metals. The author believes, the emerging economies should finally prevail and drag the US into a growth mode this fall.



Disclosure: Author long metals, commodities and precious metals, GBG