Commodities as an asset class are an unwieldly beast. Some analysts go so far as to say that commodities writ large are sufficiently diverse so that calling this slice of global markets an asset class is misleading at best. But whatever you call it, commodities are useful to review as a group for a simple reason: they’re not stocks, bonds or real estate/REITs.
Labels aside, the trend for commodities remains weak. This, of course, is a recent development, following a red-hot commodities markets earlier in the year. But the trend began to shift from bull to bear in June. Running numbers through today’s close suggests the downside bias remains intact, virtually across the board for our set of proxy ETFs.
The main exception (maybe): palladium (PALL). Per our proprietary set of trend analytics (see details here), this metal is an upside outlier, posting the strong aggregate trend score: +3. In turn, we’re cautiously optimistic on PALL, although until the Signal score rises to +4 we’re on the fence, albeit poised to lean over to the bullish camp. (Note ETFs are ranked by 5-day returns.)
Nonetheless, with most commodities markets posting losses lately (and trending behavior implying more to come), there’s good reason to keep an open mind about whether PALL can buck the trend for any length of time. As the weekly chart of the ETF shows, the fund is still struggling to regain a bullish footing, although the forces of a positive bias may be set to start winning in the near future.
Natural gas (UNG) and gasoline (UGA) are the only other ETFs on our list that may soon jump over to the bullish camp, although both funds at the moment look weaker vs. PALL via softer Signal scores of +1 in the table above.
The rest of the field, by comparison, looks decisively weaker. Commodities overall (GCC) tell the story. As the chart below suggests, it’s best to stand back and avoid the risk of trying to catch a falling knife. ■
I'm a little confused about the methodology. " Weighted results are then summed with scores ranging from 0 (extreme bearish momentum) to 1.0
(extreme bullish momentum)." What are the time frames scaled against to generate 0-1 score?