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By Jordan Roy-Byrne

Even though Commodities as per the CCI are within 2% of an all-time high (and at an all-time high when priced against a basket of foreign currencies), there is absolutely no sign of a bubble or froth in the commodity complex. Various data will show that both Commodities and the commodity stocks are under-owned and have more room to rise.

One way to measure the value of a sector is to look at a sector’s overall size as a percentage of the S&P 500 (NYSE: SPY). The chart below is from Ryan Puplava of PFS Group. It is a bit dated, but as of today Energy and Materials comprise 15% of the S&P 500. The 2008 peak was about 19%. The 1980 peak was 43% while Technology peaked at 35% in 2000 and Financials and Consumer Discretionary accounted for 35% of the S&P 500 in 2005.

In addition, some sentiment indicators show there is little interest in Commodities. Assets in the Rydex Commodities fund (c/o of Sentimentrader) were over $300 million at the 2008 peak and dwindled to as low as $40 million. The CCI has recovered to near an all-time high and even the CRB is at a two-year high, yet assets in the fund are only $43 million! Moreover, we can clearly see what happens in a bubble as in 2008, assets surged about 300% in six months.

Also from Sentimentrader, we see 59% surveyed as bullish on Commodities. While this is a two-year high, it is well below the levels of 2006-2008.

Despite the solid performance of the commodity sector, investors don’t seem to be enthusiastic. For one, the stocks comprise 15% of the S&P 500 compared to 19% in 2008. Perhaps investors don’t want to get burned again as in 2008? Perhaps they like the safety of bonds more (which fund flows do indicate)?

In any event, contrary analysis tells us that skepticism, a wall of worry or outright indifference to a clear uptrend indicates that uptrend has the ability to move higher. Commodities are in an uptrend and sentiment analysis shows that the long side is not too crowded.

Source: What Bubble? Commodities Have More Upside in 2011