Commodites Market Trend Analyzer Triggers

The Market Trend Analyzer (MTA) for the Commodity Index (GSCI) triggered today suggesting a maximum cash position in the asset class.  It is important to note that the Commodities MTA has a very different set of rules than equities.  It is shorter-term in nature due to the extreme volatility that can occur in commodity markets.  Basically, the price crossing a long-term moving average will cause a trigger.  That is where we are today.

In the chart below, which shows the MTA's recommendations since 2001, you can see the triggers to raise cash for the Commodity Index indicated by yellow and red lines.  When the MTA is suggesting to be in maximum cash in the asset class, the line is highlighted red, and when it's suggesting to be half cash, the line is highlighted yellow.  Green and blue highlights show when the MTA suggests a minimum cash, or fully-invested, position.  You can see these recommendations more clearly by clicking on the image below to view a larger chart.

Click on image to view larger chart.

The last time that this trend analyzer triggered was in the spring of 2010, as you can see in the chart above.  This turned out to be a shorter-term move as commodities rebounded and began a strong bullish advance a few months later.

Based upon our current positive economic and market outlook, my guess is that this commodity trigger will be similar to 2010 and will not result in an extreme downside in commodities.  The strength of the market trend is that it is designed to protect against the massive declines like we saw in 2008, but the re-entry trigger is quick.  So if last year's scenario plays out again, the MTA should get us back to a fully-invested position in commodities fairly early on in a bullish move.

Click here to read today's full Market Comment.

Keith A. Hays

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