Sunday, May 10, 2009

Chart of the Week: Breaking Out Recent Commodities Moves

This week’s chart of the week looks at commodities, where base metals (blue line) and energy (red line) began to bottom just after the middle of February, about 2 ½ weeks before stocks put in a bottom. Interestingly, agriculture (green line) bottomed on March 2nd, just before stocks found their bottom. Precious metals, which marches to the beat of a very different drummer during periods of economic stress, bottomed back on November 12th and made its most recent high on February 23rd, just as base metals and energy began to rally.

The chart below captures the action in four commodity sub-sector ETFs since February 17th. The chart shows the base metals ETF (DBB) to be the strongest performer during this period. While DBB has faltered in the past few days, energy (DBE) has surged. Agriculture (DBA) has recently joined the bull party and with concerns about rising interest rates heating up, even precious metals (DBP) have started to rally as well.

It would not surprise me if 3-4 of these commodity sub-sector ETFs outperform the S&P 500 index for the rest of 2009. At the very least, they could provide some important portfolio diversification and a potential hedge against inflation.

[source: StockCharts]

Disclosure: Long DBB at time of writing.

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