What Commodities and Transportation Telling Us – PART I
Our ongoing efforts to dissect these markets and to help educated and inform traders has led us on an exploration path into the general market activities of two leading market indicators; Commodity prices and Transportation Prices. These two core elements of any regional or global economy are usually about 3~6 months ahead of the general markets. When viewing the Transportation Index, remember that transportation is key to any growing economy and a healthy economy. When an economy is doing well, the transportation sector will be busy shipping and delivering consumer product and staples as well as manufacturing equipment and supplies. When viewing the Commodity Index, remember the Supply and Demand equation where greater demand for commodities needed to manufacture, create, deliver or sell a product will drive prices higher as supply remains relatively constant, prices will increase.
Therefore, the theory of today’s research post is “are Transportation and Commodity prices telling us anything important about the future stock market valuations?”. Let’s get into the research.
First, the NASDAQ Transportation Index is painting a very clear picture that the upside price move starting near the end of 2016 drove prices well above historical normal ranges. Even today, we are well above historical ranges originating from the lows in 1998 and including the range expansion from the highs of 2007 to the lows of 2009. Given the premise that the Transportation Index would be highlighting increased economic activities across the planet and particularly those of more mature economies, one should expect that global trade/economic activity should be near all-time highs.
We would like to point out a defined upward price slope, highlighted by the RED LINE on this chart. We believe any potential downside price swing will find clear support near the $5025 level (the first upper range level from historic deviation ranges) or near $4690 (the RED LINE support channel).
In order to further our research, we’ll take a look at our “Custom Smart Cash Index” which highlights a broad range of global market indexes and weights them in a US Dollar basis. Obviously, the results of this Smart Cash Index is designed to highlight the total global valuation levels of a variety of mature economies/markets. We can easily see the volatility range established by the concerns prior to the 2016 US Presidential Elections created a very deep volatility range. We believe this is important because it establishes a “relative high point” and a “relative low point” that reflects human psychology and expectations. In other words, we believe the high point in early 2015 reflects an optimistic investor sentiment and the low point in early 2016 reflects a pessimistic investor sentiment.
This range can help us determine if current Smart Cash valuations are reflecting optimistic or pessimistic expectations by determining if the current price is near the lower areas of this range or the upper areas of this range.
Currently, the Smart Cash Index is moving higher after reaching an ultimate low point near December 24, 2018. This would indicate that optimism is increasing in the global markets. Additionally, The Smart Cash Index has breached a downward sloping price channel, drawn in BLACK. We believe continued optimism will drive global market valuations higher over time. Yet, we believe numerous 4~7%+ price rotations will occur in the US Stock Market as the total valuations continue to rise over the next 12~24 months.
What we would expect to find to help confirm our analysis is the price levels of general commodities would be increased to match the renewed optimism we believe is growing in the global markets. Obviously, if the global economies are doing well and trade/sales are increasing, then we would expect core commodity levels to increase as demand stays strong which we have seen this happen time and time again during economic cycles.
This concludes PART I and how we identify market opportunities for us to trade. Analysis like this has allowed us to generate substantial profits in the past 30 days with UGAZ 30%, NIO 21.6%, ROKU 18%, GDXJ 10.5%. IF you want to know our conclusion on what commodities and transports are telling us then visit our website to read PART II in the next 24 hours.
If you want to learn how we can help you find success throughout this shifting market and throughout 2019 and beyond, then visit www.TheTechnicalTraders.com to learn how we help our members create success.
Technical Traders Ltd.