Business

George W. Commodity

No, this isn’t a big reveal that George W. Bush had some great commodity trade a la Hilary Clinton’s infamous Hog Trade back in 1978. And it isn’t our official endorsement for a presidential candidate (then or now).

No, we’re still just talking the commodity markets, and that close cousin of the V shaped reversal – the W. reversal. The “V-shaped Reversal” is when a trend ends quickly, basically coming back up as quickly as it had gone down. Now, that’s not a bad thing, necessarily, if it happens over a few years (see Crude Oil in 2007 and 2008 – actually a reverse V). But, typically, the faster and sharper the reversal in a market trend, the faster and larger the loss for a systematic program tracking that market. We’ve touched on this before (here and here), and have even seen past W-reversals.

The latest W. scare comes from the commodity sector, as seen in our monthly asset class scoreboard post.

Commodities 2015 W Move George W. Commodity
George W. Commodity

(Disclaimer: Past performance is not necessarily indicative of future results)
Data Courtesy: Morningstar

Now, of course – this is only a couple months of moves, and putting it on a much longer time scale brings some much needed perspective to things. If we take a step back and look at the past 12 months, we certainly see a different story, with this scary W. just a blip on the proverbial radar down there on the bottom of the screen, and prices still below their longer term moving averages.

Past 12 months Commodities Move(Disclaimer: Past performance is not necessarily indicative of future results)
Data Courtesy:Morningstar

Now, we know where George W. hailed from… and we shouldn’t be surprised that the commodity W. is from the Texas are as well. If looking for a reason for the alternating up down months, look no further than good ‘ol Texas Tea: Crude Oil, where you can see nearly the exact same pattern as the overall commodity index. Now, most of that is due to the fact that most commodity indices are heavily skewed towards the energy markets – so as Oil goes, so goes commodities. But we’ve also seen the US Dollar reverse its strong upward trend (or an upside down W = M), in turn putting pressure on many commodities, not just Oil.

Crude Oil W(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

USD M Move(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

No one knows when a big rally in commodities will come, if at all. After all, OPEC just said they expect Oil to be below 100 for the next decade. And then there was the cheeky, as always, take from Josh Brown:

“It would be both hilarious and par for the course to see a major breakout for commodities right now. With disinflation being the Fear du Jour and the whole world busy hedging against the strengthening dollar, this would literally be the last thing anyone expects.”

It’s the last thing anyone would expect, and just the type of outlier move we would welcome. Thanks W.

George W. Commodity Tweet