In our last Summary report (Feb 22) we talked about the GSCI index in bearish terms. We suggested the index had posted a “major top.” We talked about how gold and copper appeared ready to plunge through trendline support (weekly charts). We suggested traders approach oil from the short side. In the weeks following our report, oil, gold, copper, silver and sugar all strengthened, contrary to our bearish concerns. The absolute moves posted in these markets since late February were certainly nothing to sneeze at if you were nimble and long — kudos to those who bucked our nervous Nelly outlook. However, relative to how much these markets have moved over the past two to four years, recent moves look somewhat less impressive. This context is useful to watchful chartists, since absolute moves are fodder for headlines, while accumulation of smaller moves is what ultimately forms important trends and patterns we follow in this report.
While we buy into the great global economic expansion theory that suggests commodity prices will be buoyant and rising for many years, we do not believe cyclicality has been eliminated. The GSCI, the CRB and other broad indexes are almost guaranteed to experience their own versions of the 1987 US equity market crash as some point (i.e., a crash that occurred in the context of a very long-term bull market, which served as the launching pad for a significantly higher market). Along these lines, one recently espoused theory which we think has merit, is the idea that long only passive indexers have a significant hurdle to overcome due to negative rolling yields, which have been increasing. As one of our readers remarked last week, indexers will be “S.O.L.” when it comes time to liquidate. These are not the kinds of risks traders and fund managers can afford to ignore, and neither are we in our technical assessment of the US futures markets.
Our views and recommendations on financial markets over the last several months have been timelier than our views on metals and oil. Our bearish outlook on the Canadian Dollar, and Bonds/Notes, has been generally correct. Interest rates have lagged inflation in hard assets by several years, and it appears the gap is finally on its way to narrowing.
Read full PDF report, here: http://www.charttricks.com/040506_FUT.pdf