Chart Of The Week: Have Commodities Bottomed?

This week’s chart is of the GSCI Commodity ETF (GSG) which may or may not have made a bottom.

As you can see, this rally has produced a higher low on the chart, something most technicians take as a positive. The problem is that we’ve seen this movie before, back in early 2015, and the rally eventually failed which is how we found ourselves at these low levels to start 2016. Our favorite momentum indicator is also acting in a similar fashion, giving us an intermediate buy signal just as it did in late March last year. If I posted the monthly chart though you’d see that a long term momentum buy signal has not been triggered – and wasn’t in 2015 either. So is this just a re-run of last year? Will the commodity rally roll over and head for new lows? That probably depends on the direction of the dollar which is currently sitting near support around 95.

Until we get a long term momentum buy signal, I’d treat this very carefully. Aggressive investors might try to front run the momentum based on the action in gold which tends to lead other commodities. But moderate and more conservative investors should probably wait for confirmation from the long term indicator.