Commodities Share Indecisiveness with Other Markets

Monday night’s nationally-televised addresses by party leaders did little to clear the air in the debt-ceiling debate. Once some form of resolution is born (good, bad, or indifferent), the early reaction, especially in terms of market leadership, will be important. If commodities can regain some traction, it would be a bullish signal for the economy and markets.

The weekly chart of the CRB Index, a basket of commodities, is the poster child for an indecisive market. The index sits right in the middle of the trend channel. A break higher would probably be followed by a move toward the upper end of the channel (near point B). A break lower by the CRB Index might be followed by a move toward the lower bound of the channel (see B2 for a similar move).

Near point A, the orange arrows show the recent bearish bias has not been cleared in terms of the Relative Strength Index (RSI). Healthy and stronger markets tend to see RSI stay above, not below, the orange horizontal line. Near point C, the Williams %R indicator has been unable thus far to clear the midpoint hurdle of -50, which shows an understandable lack of conviction from market participants.

Commodities (DBC), gold (GLD), silver (SLV), and bonds (TLT) will all provide clues about the tone of the post-debt-saga market that is just around the corner. The first three days of trading after some clarity in Washington will help determine which of the two major scenarios is like to play out:

  1. The market can stand on its own, based on fundamentals, and stocks move higher.
  2. The fundamentals cannot support stocks; stocks drop and then the Fed begins more chatter about stimulus.

As we discussed on July 13, gold and silver have been looking better relative to stocks. On July 25 we showed the bond market, like commodities, is giving some mixed signals, but bonds are holding up well given recent debt-related events in the United States and Europe.

We are fence-sitting in the commodity markets at the present time. We own both gold and silver. Gold is the better choice if the post-debt-saga market takes on a bearish tone. Holding silver will most likely be more advantageous under more favorable conditions for risk assets.

About Chris Ciovacco 73 Articles

Affiliation: Ciovacco Capital Management

Chris began his investment career with Morgan Stanley in Atlanta in 1994. With a focus on global macro investing, Chris uses both fundamental and technical analysis to assist in managing risk while looking for growth opportunities around the world in all asset classes.

Chris graduated from Georgia Tech with Highest Honors earning a degree in Industrial and Systems Engineering in 1990.

He is now the Chief Investment Officer at Ciovacco Capital Management.

Visit: Ciovacco Capital Management

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