How to Play the Bear Market Rally in Commodities

adamWe talk a fair bit about commodities here at Dent Research. That’s largely because Harry’s research has consistently pointed to deflation – not inflation – as the dominant force in this winter economic season.

Indeed, commodity prices have sucked wind for years now.

Crude oil fell to a low of $36 a barrel last year – a whopping 83% below the July 2008 peak, at $212.

Gold peaked in 2011 and has since lost as much as 46%.

So while everyone and their brother has spent the past five years worrying about inflation – cursing the Fed, of course – we’ve warned that deflation, instead, will drag down asset prices. That includes the price of commodities, which are practically worthless in a deflationary environment marked by weak demand, oversupply, and falling prices.

Harry has consistently said that long-term investors should stay out of commodities. And that’s been a great call for several years now.

But just because commodity prices are stuck in a long, multi-year bear market doesn’t mean you can’t make some nice short-term profits along the way.

As we say: “Nothing moves in a straight line.” And short- to medium-term bear market rallies can be great opportunities.

My Cycle 9 Alert readers have profited from a number of them in recent years.

In 2013, we locked in a 154% profit on a steel manufacturer in just two months.

In 2014, we closed out a trade on an oil refiner, for a 135% profit.

And last year, a silver-miner’s stock handed us a fat, 225% profit in just a few months.

These pockets of bullish opportunities appear every so often in commodity markets, even though the longer-term, deflation-driven trend continues to point down.

Right now, I’m seeing another one of these short-term opportunities. In fact, I just sent a Trade Alert to my Cycle 9 Alert subscribers two weeks ago, alerting them to a commodity play that has the potential to hand us another triple-digit profit, thanks to a convergence of positive factors between now and April.

For one, we’re entering a time of the year that typically treats commodity prices quite well.

My seasonality research shows that the materials (XLB) and energy (XLE) sectors enjoy a tailwind between January and April. The same goes for commodity prices, which tend to be the most bullish during the first four months of the year.

What’s more, my forward-looking Cycle 9 Alert algorithm is already picking up on a ramp-up in bullish momentum all across the commodity complex – from oil to copper to base metals, my system’s buy signals are triggering left and right.

That means the market-beating momentum in commodities is likely to last another two to three months – certainly enough time for a short-term play.

The PowerShares DB Commodity Index ETF (NYSE: DBC) is a “broad-based” commodity ETF, which holds positions in oil, gasoline, natural gas, gold, copper, base metals, and more.  And it’s one of the easiest ways to make a diversified, short-term play on commodities – aimed at riding the sector’s seasonal strength between now and April.

I’ve already positioned my Cycle 9 Alert readers in a specific play. They’re up 15%, but since we’re targeting the potential for 100%-plus gains between now and April… there’s still time to get in.

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Adam
Editor Cycle 9 Alert

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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.