Back in 2009 I thought the best comparison to the 2008 crash in Commodities was the 1987 crash in stocks. These were crashes within secular bull markets. The template of the 1987 crash in stocks and ensuing recovery called for Commodities to reach a new high two years later.
The chart below shows the S&P 500 from 1984 to 1993. Following the 2008 crash, the S&P was able to reach its old high in less than two years, then make a new high. As you can see, there was about a 20% decline and mild bear market in 1990 before the bull would resume.
Please note that we use the CCI (continuous commodity index) for Commodities and not the CRB, which as the result of the most absurd weightings, obfuscates what is really going in Commodities. Below is the chart of the CCI.
Recently we’ve been quite cautious on Commodities. Unlike various day traders and short-term oriented media, we realize that Commodities are in a bull market and this is only a correction. We do expect it to go further and run longer in terms of time. Furthermore, Commodities have followed the post 1987 stocks template very closely. The template calls for a 50% retracement a decline to 510. We are looking at 525-550 as a downside target.
What do you do in the meantime? In our premium newsletter we’ve discussed the one sector that is likely to benefit should Commodities continue to correct or consolidate. Consider a free 14-day trial to our premium service.
Jordan Roy-Byrne, CMT