Riding the Bear Market Rally

Everybody’s been obsessed with “Dow 20,000” lately.

The Dow Jones Industrial Average is perhaps the most widely-watched gauge of the U.S. stock market. And “20,000” is a big, fat, impressive-sounding round number. So it’s not surprising the financial media latched onto “Dow 20,000” like a dog to a bone.

U.S. stock indices are indeed breaking to new highs. And that’s generally a positive sign for stocks ahead. Even though stocks are valued fairly richly right now, the current trend is still bullish… and Trump’s election seems to have conjured investors’ animal spirits.

But while everyone is distracted by stocks (and tweets), a milestone bigger than “Dow 20,000” is quietly going unnoticed.

On Friday, commodity prices made a new 52-week high.

In fact, the PowerShares DB Commodity Index ETF (NYSE: DBC) hit its highest price since July 2015. The broad-based commodity index is now up a full 35% from its January 2015 low.

Unlike stocks, though, commodities are still in a longer-term bear market.

After peaking in 2011, commodity prices fell a whopping 63% into last January’s lows. And even after the recent 35% rally, prices are still 50% below the 2011 top.

After so many years of carnage, investors had all but given up on commodities as a viable investment.

But as I shared with you a month ago, the bear market rally in commodities is nothing to ignore!

Dent Research has, as you know, been quite bearish on commodities.

Hard assets, like commodities, tend to struggle in deflationary economic environment. And while most mainstream economists have been worried about inflation being “just around the corner,” Harry’s research continues to point to deflation as the dominant force. And that means lower commodity prices, in the long run.

But as I said in my January 6th Economy & Markets piece, “nothing moves in a straight line.” And even though the longer-term trend in commodities is still down… we’re smack in the middle of a four-month “sweet spot” for commodity prices.

For one, the first four months of the year typically provide a seasonal tailwind for commodities and materials sector stocks. And so far this year, this positive seasonality appears to be holding strong.

Year-to-date, the materials sector (XLB) is up 4.1% – more than every other market sector, with the exception of technology (XLK).

Energy markets – like oil and natural gas – have struggled a bit. But other commodity markets are absolutely booming!

Gold (GLD) is up more than 6% year-to-date…

Silver (SLV) prices are up 10%…

And both copper (JJC) and base metals (DBB) have already gained more than 12%.

Even the “softs,” or “agricultural” markets are doing well… with corn, soybeans, cotton and coffee each up 5% to 6% in 2017.

Now, I attribute some of the recent strength in commodities to the bullish seasonality they tend to enjoy between January and April. But there’s another factor at play. That is… the U.S. dollar.

Since commodities are largely priced in U.S. dollars, the two tend to have an inverse relationship. That is, when the U.S. dollar is strengthening… it puts downward pressure on commodity prices. And vice versa, when the dollar weakens… commodity prices tend to firm up.

So let’s take a look at the good ol’ greenback and see what it’s been up to recently. Here’s a chart of U.S. dollar futures going back to 2016.

Trump’s election win turned out to be an immediate boost for the U.S. dollar, which gained nearly 6% between November 6 and December (a massive move for a major currency).

No doubt, everyone one their brother was feverishly speculating what a Trump presidency would mean for the U.S. dollar (and everything else, really). And for whatever reasons – well-informed or not – everyone traded on the belief that Trump was bullish for the dollar.

Now, though, everyone’s no so sure. Not even Trump himself.

I read the other day that Trump recently called his National Security Advisor, Mike Flynn, (at 3am in the morning) to ask him, essentially, “do we want a strong dollar or weak dollar? Which is better for our economy?” Flynn reportedly advised Trump to consult with an economist.

Our long-term forecasting here at Dent Research continues to suggest dollar strength ahead. But like the recent bear market rally in commodities, it seems a (bearish) countertrend move in the dollar is unfolding.

I told my Cycle 9 Alert subscribers the dollar was likely to fall as I was recommending a bullish commodity play in late December. My Trade Alert hit their inboxes on December 20. And since then, the U.S. dollar (UUP) has lost nearly 3%… commodity prices have gained 3%… and my subscribers are currently holding a profit of around 20% on the specific commodity play I recommended.

Needless to say, while everyone is fixated on “Dow 20,000”… we’re riding the stealth bear market rally in commodities.

The question is: Are you?

There’s still time to get in on the action, as I’m targeting a further 7% rally in commodity prices between now and April. And with that rally, the position I’ve recommended to my Cycle 9 Alert subscribers is poised to hand us a profit of 120% or more. Click here to join in on this trade today.

 

 

 

 

Adam O’Dell
Editor, Project V
Follow me on Twitter @InvestWithAdam

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About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.