Login

Late-Cycle Commodity Surge Under Way

Share on Facebook Tweet on Twitter

Posted by Frank Barbera - Financial Sense

on Thursday, 19 April 2018 07:08

According to the Game Plan for Late-Cycle Investing, as the economy moves towards its latter stages, commodities tend to outperform equities and other asset classes. Frank Barbera—market technician & portfolio manager believes we're likely in that process right now & if Gold pushes through $1,365 the first push up will take it to $1,480 to $1,525 - R. Zurrer for Money Talks

Listen to this podcast on our site by clicking here or subscribe on iTunes here.

Volatility Is a Return to Normal

Stock market volatility has picked up this year, though in percentage terms this really just a return to historical norms, Barbera explained.

The real anomaly occurred over the last 2 years where the market was moving straight up in parabolic fashion before culminating in a blow-off top late-January.

“Think of this more as a return to normal than anything else,” Barbera said. “Comparatively speaking, it is a rise in volatility, but at least so far we really haven't seen the stock market averages breakdown below major key levels.”

Possible Topping Process

One disquieting point is that after the big break we saw in early February, we swung from very high momentum to deep oversold conditions without anything in between, Barbera noted.

“We had this abrupt break in the market,” he said. “That's very historically unusual. Usually, when you have high momentum, you'll get a pullback, getting a push to new highs or maybe two pushes to new highs before you get a decent-sized break, and this just flipped on a dime.”

westpac-risk-aversion-index

Larger Chart - Source: Bloomberg, Financial Sense Wealth Management

 

This is consistent with a parabolic move, and it can sometimes mean that we’ve seen the final peak. Even if that were the case, however, Barbera believes we’ll likely see an approach or retest of the highs before the market definitively turns down.

“For the time being, I would give the stock market the bullish benefit of the doubt, but I don't think we're going to see another runaway advance on the upside,” Barbera said. “I think what you're seeing here is the market moving into a distribution top. There is some potential for a double top … but the real message is it's getting very late in the cycle.”

Gold and Bonds May Shine

Barbera thinks we're likely in the process of a late-cycle run in commodities.

If the economy turns down, this does pose a risk for most industrial commodities, but we’re not quite there yet, he said. Bonds, on the other hand, especially Treasuries and high-grade corporates, appear to be making a base. Now might be a good time to follow traditional risk-off bonds, high-grade corporates and some of those funds that can do really well in a down cycle.

Gold recently attacked the $1,365 area, which has been key resistance, while $1,305 to $1,310 has been key support. If we go through $1,365, gold may target $1,480 to $1,525 on the first push up, Barbera believes.

For more information about Financial Sense® Wealth Management and our current investment strategies, click here. For a free trial to our FS Insider podcast, click here.


Free Subscription Service - sign up today!

Exclusive content sent directly to your Inbox

  • What Mike's Reading

    His top research pick

  • Numbers You Should Know

    Weekly astonishing statistics

  • Quote of the Week

    Wisdom from the World

  • Top 5 Articles

    Most Popular postings

Learn more...



Our Premium Service:
The Inside Edge on Making Money

Latest Update

A Change in the Weather

Has Goldilocks left the building?  As 2018 rolls on, markets have become more uncertain about future direction and most have stalled out,...

- posted by Eric Coffin

Michael Campbell Robert Zurrer
Tyler Bollhorn Eric Coffin Jack Crooks Patrick Ceresna
Josef Mark Leibovit Greg Weldon Ryan Irvine