#$gcc

Broad commodity indices are testing key support trendlines.

On a day when stocks are in full Fed-induced launch mode, we want to turn our attention to an asset class that has been less, er, buoyant of late — commodities. Commodities enjoyed a decent first half of the year before hitting the skids. They have been hit especially hard of late led by crude oil, which has lost a third of its value in just the past 6 weeks. It hasn’t been just crude, however, as demonstrated by the performance of our favorite broad commodity index.

The Thomson Reuters Equal Weight Commodity Index (EWCI) measures the performance of 17 commodities, on an equally-weighted basis: Cocoa, Coffee, Copper, Corn, Soybeans, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Platinum, Silver, Soy Oil, Sugar and Wheat. Therefore, in our view, it is a better measure of the state of the commodities complex as a whole versus more popular measures, like the CRB Index which is heavily weighted toward crude. And while the EWCI has had a rough go of it over the past 6 months, it does hold bounce potential right now based on technical charting factors.

We’ve mentioned on a few occasions in the past that the EWCI has been trading in a long-term pennant formation over the past 15 years. The upper bound of the pennant containing prices on the upside is the post-2011 Down trendline. Last May, we mentioned that the index was testing this trendline. The trendline would indeed hold and send prices back down toward the other end of the pennant.

At the other end of the pennant, supporting prices, has been the Up trendline stemming from its 2001 secular low and connecting the 2016 low. In August, the index arrived at the uptrend line as we noted at the time. Once again, the index respected the technical boundaries and bounced for the subsequent few months. Today, we find the EWCI back down testing the lower bound trendline once again.

Will commodities bounce again here? It remains to be seen, but we certainly wouldn’t be surprised by it, especially given another piece of technical evidence potentially bolstering the bounce case. Specifically, the CRB Index is also testing a key, though shorter, trendline of its own — the post-2016 Up trendline.

Again, we think commodities *should* manage to bounce here, at least temporarily. The real question is for how long? As TLS members know, let’s just say we don’t expect any “launch mode” type moves out of commodities.

If you’re interested in the “all-access” version of our charts and research, please check out our premium site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Given what we believe will be a treacherous market climate going forward, there has never been a more important time to reap the benefits of our risk-managed approach. Thanks for reading!

_____________

After failing at major downtrend resistance, commodities are testing a key secular support line.

Back in early May, we noted that the commodity complex, stuck in a multi-year malaise, was potentially on the cusp of a big move. At least, that was our read based on the chart of the Thomson Reuters Equal Weight Commodity Index (EWCI). As a refresher, the EWCI measures the performance of the following 17 commodities, on an equally-weighted basis: Cocoa, Coffee, Copper, Corn, Soybeans, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Platinum, Silver, Soy Oil, Sugar and Wheat.

We like to track the EWCI since, given its weighting structure, its fate is not unduly tied to just one or a few commodities like crude (as is the case with composites like the CRB Index). Rather, it is more representative of the broad commodity class. And, as we noted at the time, the EWCI was testing a potentially important juncture that could go a long way toward determining the next big directional move in commodities.

The juncture was the level near 435 on the EWCI chart which contained several key potential resistance points, not the least of which was the post-2011 Down trendline. Its reaction at that level, we surmised, may well dictate the next big move in the space. So what was the verdict? After a brief (e.g., 1 week) foray above the level, the index would fall back below it. And as false breakouts (and breakdowns) tend to do, the fakeout did indeed lead to a big move — down.

2 months later, the EWCI is some 10% lower than last May’s critical juncture point. Its plunge may be arrested soon, however, as the index finds itself at another potentially critical chart juncture near the 397 level. This time, it is an Up trendline stemming from its 2001 secular low and connecting the 2016 low.

The index has spent the past few days toying with the level, including Wednesday’s temporary breakdown. If that move results in a false breakdown, it could have a similar impact on the EWCI as the false breakout in May (this time to the upside). If so, commodity bulls may get some relief, at least temporarily, from the pounding they’ve received the past few months. At some point, the EWCI will have to contend again with the post-2011 Down trendline within a contracting, long-term pennant pattern. However, that would mean a nice, tradeable bounce first.

Then again, should the trendline give way, the bears may be able to back up the truck on the resulting down side.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Plus, our Pre-FALL Sale (25% OFF!!) is going on now so it’s a great time to sign up! Thanks for reading!

_____________

The following post was originally issued to The Lyons Share members on May 4, 2018.

This obscure commodity index could well hold the key to identifying the next big directional move in commodities.

After years of languishing, commodities have had a bit of a resurgence of late — or, at least a dead-cat bounce. Using the CRB Index as a measuring stick, commodities recently broke out to 3-year highs. Of course, with oil accounting for a 23% weighting in the CRB, recent new highs may be as an undue result of a rally in oil prices. In our view, there is a better measuring stick for the overall commodity complex: the Thomson Reuters Equal Weight Commodity Index (EWCI).

The EWCI measures the performance of the following 17 commodities, on an equally-weighted basis: Cocoa, Coffee, Copper, Corn, Soybeans, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Platinum, Silver, Soy Oil, Sugar and Wheat. Thus, unlike a composite like the CRB Index, the EWCI’s fate is not unduly tied to just one or a few commodities like crude. Rather, it is more representative of the broad commodity class. And at the moment, the EWCI is at an important juncture — at which its reaction could go a long way toward determining the next big directional move in commodities.

As the chart indicates, the EWCI is bumping up against at least a trio of key potential resistance points near the 435 level:

The Post-2011 Down Trendline

The 23.6% Fibonacci Retracement of the 2011-2016 Decline

The 38.2% Fibonacci Retracement of the 2014-2016 Decline

Furthermore, the EWCI has been rejected at this level roughly a half dozen times in the past 3 years. Needless to say, this level presents formidable potential resistance for the broad commodity rally. That said, here’s a little secret: sometimes when an abundance of resistance (or support) lines align at the same level, it is actually easier for prices to penetrate it. Why, probably because there is just one level to break through rather than a series of potential obstacles.

Whatever the reason, if the EWCI is able to penetrate this 435 level decisively, it opens the door to a further rise toward the mid-480’s, or about another 10%. Thus, we will be inclined to add broad commodity exposure through a broad-ranging ETP. Here are a few options: GCC, GSG, DBC or DJP. Of course, should the index fail here, or quickly fall back below following a breakout, we would stay away.

We will continue to monitor the status of this index for members in our Daily Strategy videos.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Plus, our SPRING SALE (25% OFF!!) is going on now so it’s a great time to sign up! Thanks for reading!

_____________

$GCC 2018-05-23 : Transcripts- Edited Transcript of GCC.I earnings conference call

[s2If !current_user_can(access_s2member_level0)] Please login to read the transcript. [lwa] [/s2If][s2If current_user_can(access_s2member_level0)]”

Full Year 2018 C&C Group PLC Earnings Call

Dublin 12 May 24, 2018 (Thomson StreetEvents) — Edited Transcript of C&C Group PLC earnings conference call or presentation Wednesday, May 16, 2018 at 7:30:00am GMT

TEXT version of Transcript

===========…

The drop in oil prices has gotten most of the attention, but commodities across the board have been selling off.

With prices down over 20% the first half of this year, much has been made of the deflation in crude oil. But while some blame the idiosyncrasies related to the energy sector, the deflation that we’re witnessing is actually a lot more widespread than is perhaps being recognized. In fact, while crude prices are hitting 7-month lows, much of the rest of the commodity complex is plumbing even greater depths, at least according to one broad measure.

Specifically, the Thomson Reuters Equal Weight Commodity Index (EWCI) measures the performance of the following 17 commodities, on an equally-weighted basis: Cocoa, Coffee, Copper, Corn, Soybeans, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Platinum, Silver, Soy Oil, Sugar and Wheat. Thus, unlike a composite like the CRB Index, the EWCI’s fate is not unduly tied to just one or a few commodities like crude. Rather, it is more representative of the broad commodity class.

And based on the EWCI, the broad commodity class is now at 52-week lows.

This, again, may be a surprise to some after the much-publicized “reflation” trade of 2016. And perhaps it is just a partial retracement of last year’s move. However, considering the effects that the deflationary commodity spiral had on the global economy and financial markets in 2014-2015, it also may be an unwelcomed development.

Now, we’re not suggesting that deflation is spiraling out of control again like it did during that period. However, given the breakdowns in some commodities, as well as some resource-heavy equity markets, folks that are expecting reflation to continue to lead a global economic resurgence may be, er, deflated when this reality hits.

If you want the “all-access” version of our charts and research, we invite you to please check out our new site, The Lyons Share.

_____________

Since breaking key support 1 year ago, commodities have continued to drop, setting a 13-year low today.

This post is not one that is going to spotlight a current potential investment opportunity. In fact, it actually shines the spotlight on a development we highlighted over a year ago. And no, it is not a “told-you-so” or a back-slapper of a post. Consider it more of A) an update and B) a public service announcement.

On October 30, 2014, we posted a piece entitled “It’s Make Or Break Time For Commodities”. In the post, we included a chart (as always) that detailed what we deemed to be a major area of support for the Thomson Reuters CoreCommodity CRB Index (CRB) around 266. It was so major that we suggested it was a “make or break” spot for the key commodity index. Specifically, a “make” could produce a “substantial and durable” bounce and even potentially usher in “a resumption of the post-2001 commodity bull market”. On the other hand, a “break” would “open the index up to further (perhaps significant) weakness” and maybe even “cast a doubt on the likelihood of resuming the commodity bull market any time soon.”

Here is that chart from over a year ago:

Just a few weeks later, the CRB registered a “break”, dropping below that key support level -- and it has not looked back since. The break did indeed produce “further (perhaps significant) weakness” as the CRB would lose 25% of its value in just 2 months. Furthermore, the index has continued to drop for another full year which has definitively “cast a doubt on the likelihood of resuming the commodity bull market any time soon”

Here is the update as of today:

We actually expanded the chart back another 9 years to include the post-1999 UP trendline that just happened to intersect the 2 lines of support in the original chart. As you can see, the CRB closed at a new 13-year low today, around 180. The index has now lost one third of its value since violating the “make or break” level that we highlighted over a year ago.

Now, again, this post is not meant to pat ourselves on the back. In fact, it is more about identifying the point at which we would know we are wrong. If you read the post from last October, you’ll see that we actually saw ample evidence to support a bounce in the CRB from that key level. However, we also recognized that, should such a bounce not materialize and the CRB fail to hold that key level, then the index was likely broken.

While our strategy is almost always to buy “relative strength”, i.e., things that are in strong uptrends, there are times when we will take stabs at mean-reversion, knife-catching type plays. However, we will only attempt such trades at what we consider to be major, longer-term support levels. That 266 level in the CRB would have been one of those levels.

That said, in the event that that major level was broken to the downside, we knew it would be time to cut bait on the trade and move on. In our view, that is an important lesson to keep in mind. It is OK to attempt to catch a falling knife at a level you deem to be of utmost significance on the chart. If you are wrong, at least you know where to cut your losses and move on. At worst, you come away with one small knife cut.

The worst thing you can do is to continuously attempt to catch the falling knife. When something is in free-fall, realize that it is normally for a good reason. Trends tend to persist so expect that something that is plummeting to continue to plummet. Just remember that there will be just 1 bottom. In the event of a multi-year collapse in a security or commodity, etc., the odds of picking the “bottom” day out of possibly hundreds of possibilities are slim. If you repeatedly try, the odds are all you will come away with are a multitude of knife holes in your hands -- and your portfolio.

Take the CRB, for example. Since breaking that key level a year ago, the index has made no less than 51 new 52-week lows. If you’ve been trying to catch the knife that whole time, your portfolio looks like swiss cheese right now. By the way, if you think that’s far-fetched because commodities sentiment was not too bad until just recently, think again. Remember that we wrote in our post last year that commodities were already despised then. They have undergone over a year of declines since then and they are still dropping.

The point is, if you are going to attempt to catch a proverbial falling knife on a chart, at least do so only at a point you deem to be a “make or break” type level. Whether or not you can likely accurately identify a “make or break” level is another matter. The point is that, should that level fail, like it did on the CRB Index a year ago, you know the security is broken and it is time to walk away.

________

Photo by Melancholy Rose.

More from Dana Lyons, JLFMI and My401kPro.

Pfff...The Post-2009 Commodity Gains Are Gone

The last time we dedicated a Chart Of The Day and Tumblr post to the Reuters/Jefferies Commodity Research Bureau Index (CRB) was October 30, 2014. In a post titled It’s Make Or Break Time For Commodities, we noted that the CRB was “at a potential make or break point for those investors looking for a resumption of the commodity bull market.” The rationale was that the index was testing some key levels on its chart around the 265 area, most notably A) the 61.8% Fibonacci Retracement of the 2009-2011 rally, B) the June 2012 lows and C) the top side of the post-2008 down trendline, broken earlier in the year. Here is the chart from that post.

That 265 level proved to be up to the task...for a month. On November 28, the CRB Index gapped down below the 265 level by 3% and has not looked back since. Verdict: Break.

Why do we bring it up today? Well, we ended that October post with this:

“...should this key level fail to provide support for the CRB, it opens the index up to further (perhaps significant) weakness. It would also cast a doubt on the likelihood of resuming the commodity bull market any time soon.”

Significant weakness did indeed follow and today the CRB reached a dubious distinction. It closed below it’s lows from 2009.

With the CRB, and many of its components, hitting or violating their 2008-2009 lows, we can pretty much stick a fork in the post-2009 commodity cyclical bull market. But what of the commodity secular “supercycle” that began around the turn of the century? Believe it or not, it may be premature to pronounce that over as well. No, the lower highs and lower lows now evident on the chart do not bode well. However, if the CRB can avoid too much more damage, it may be able to keep the possibility open the the secular bull remains intact, though bloodied.

One level, in particular to watch is the 194 level, which represents the 78.6% Fibonacci Retracement of the 1999-2008 rally. If the index can hold there, and bounce back above the 200 area, it could reasonably be considered a double-bottom/re-test/hold of the 2009 lows. That does not give the CRB room to go much lower, however.

The secular cycle’s fate will likely be determined by the energy and metals complexes which account for roughly 36% of the index. For, as badly as they have been beaten down, the other commodities, namely the grains and softs, have fared even worse. With the recent downside acceleration in energy and metals, it certainly doesn’t “look” good there. However, a case can definitely be made for a bottom there sometime soon. Sentiment and price action are about as washed out as they can be at the moment. And while the current downside move could certainly cascade further in the near-term, it could possibly be a capitulatory/exhaustive type move.

Perhaps then, commodity bulls can begin to finally reap some gains again. But for now, the gains from the 2009 low, like Keyser Soze, are gone.

_____________

Kevin Spacey as Keyser Soze from “Usual Suspects” video via https://www.youtube.com/watch?v=V1tmkAFb_Os

More from Dana Lyons, JLFMI and My401kPro.