Commodities are at a crossroads (as an asset class, i.e. looking at the broad investable index, in this case the GSCI Light Energy Index). Speculative futures positioning has collapsed from the most bullish (net-long) point in more than 10 years, and market breadth measures have rolled over. At the bottom of the market in 2016 I had high conviction that commodities would rebound, and they did in a meaningful way, but now commodities are at a sort of crossroads in that it's tough to really build conviction one way or the other, and thus deferring to the indicators is going to be important in the coming weeks and months.
We previously flagged the downside risks to commodities given how the indicators have changed in a previous edition of the Weekly Macro Themes report, since then commodity prices have rolled over. Although this is a price-based technical indicator, it really does reflect the fundamentals, and from a fundamental demand standpoint we have seen a solid, synchronized global rebound in growth momentum, but at this point that rebound - like the rebound in commodities - has come into question. So this is an area we will be watching the indicators closely on, and doing further work and research to help inform our clients and subscribers to make the right calls for their investors and portfolios.
The broad commodities speculative futures positioning indicator has rolled over from decade highs, and essentially represents a reset in positioning, yet the current level is higher than previous washouts.
Commodities market breadth has pulled back significantly after displaying bearish divergence. Similar to futures positioning it represents at least a partial washout to somewhat oversold levels.
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