Fall Forecast: Craving Commodities

 |  Includes: CU, DBC, GDX, GDXJ, SIL, SLX
by: Goombarh

Fall officially started on Thursday, and the leaves are turning red; this morning on my monitor screen, all my stock indicators are mostly green. Never mind the leaves, it is now time to stay indoors and grow some green in the markets. I've decided to examine some of my favorite charts for indications of what will might be up coming this Fall.

Volumes for TSX-V are High

I specialize in commodities and mining stocks and the first screen that I glance at for indications of health is the TSX Venture exchange. This is the smallish Toronto, Canada based exchange where the majority of the world’s small mining companies are listed. The chart below (click to enlarge), tells quite a tale of almost a continuous run upwards since July 20th, 2010.

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The market volumes are high since the beginning of September, supporting the move upwards. The Chaikin Money Flow (CMF) displays a positive mountain of cash buying moving in.

And the PPO is showing strong momentum in this market. The PPO or Percentage Price Oscillator is another moving average indicator, but expresses the output as a percentage.

For examining the longer term picture we use the chart for the TSX Venture below (click to enlarge), we can see that the trend is continuing upwards after the hiatus for the “Sell in May” in the early part of this Summer.

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The risk appetite for smaller junior miners appears to be back. The volumes compared to the volumes in Fall of 2009 are higher, earlier and more positive, indicating buying.

Copper Shortage Looming

In the news, the commodities forecasters have been telling us about the upcoming shortage for copper that is looming nigh. We examine the chart following (click to enlarge) for Copper Futures.

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We see that since June the copper price is trending upwards and is regaining the high ground lost since prior to the 2008 crash. The copper futures price is known as Doctor Copper, for giving good indications about the state of the future economic activities.

TSX Golden Cross

Next we look at the TSX Composite Index based in Toronto, Canada. This index is resource heavy and is a larger and quite reliable leading indicator as Canada is America’s largest trade partner and is much influenced by the American economy. The chart below (click to enlarge) of the TSX is indicating bullish activity moving forward.

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There was a bullish Golden Cross of the 50 DMA over the 200 DMA that happened last week on about Sep 15th, 2010. The positive CMF over the summer is telling the early positioning of the smarter monies. We need to watch for higher volumes in this market to confirm this bullish indicator in that the bull market is back.

Wilshire leading US Economy Back (click to enlarge):

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The author likes using the Wilshire 5000 Composite Index as it is more sensitive than the traditional large index indicators (Dow Jones, S & P 500) of economic health. The chart indicates that the moving averages may be converging and may be possibly follow the TSX index in a Golden Cross of its own. The CMF has been positive, which is supportive.

Steel Versus World Wedge

The author uses the Steel Stocks ETF (NYSEARCA:SLX) versus the World Stock Index ratio displayed in the chart below (click to enlarge) as another measurement of economic health. Steel demand is a strong leading economic indicator.

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From the chart above, we see a narrowing wedge displayed whilst the market has been in oscillation up and down and indecisive as to which way to go. The answer it seems will be pretty quick in coming as the wedge is rapidly coming to a point. Question: Which way will this indicator break towards? Hint: Ask Doctor Copper.

Craving for Commodities

From my previous charts, the author is forecasting a resumption of the recovery in North America and especially for metals, mining and commodities stocks. This will be supported by a broad based recovery in the overall stock markets as the public comes to this realization. You the astute reader will be best positioned for this recovery by looking in the commodities, metals and mining sectors for good values.

Disclosure: The author is long junior and other mining equities.

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