Good Times Ahead for Raw Commodity Sector

 | Nov 10, 2011 | 12:30 PM EST  | Comments
  • Comment
  • Print Print
  • Print

The European Union (EU) sovereign debt crisis and the overall tepid world economic growth the past few months have been significantly bearish fundamental anchors on the raw commodity market sector. However, there are early clues that most commodities at their present price levels are now value-buying opportunities.

The EU debt debacle and sluggish major world economies have sapped some of the bullish enthusiasm that gripped the commodity market sector during the first half of 2011. Slowing world economic growth and the uncertainty regarding the EU's financial health have led to decreased demand for raw commodities.

Importantly, China, now the world's second-largest economy and a commodity-consuming juggernaut as of late, has also seen its gross domestic product growth tempered. In fact, Chinese economic planners have tried to dampen that nation's commodity consumption and its commodity imports due to the domestic inflationary implications. But make no mistake: The "genie is out of the bottle" regarding China and its capitalistic ways that include a voracious appetite for commodities.

In the past several weeks the US, the leading commodity consumer in the world, started to show some better economic signs. This has led to a rally in the raw commodity sector leader crude oil. Nymex crude oil futures on Wednesday scored a fresh, three-month high of $97.84 a barrel. Indeed, crude oil futures prices have been trending higher for nearly six weeks, from the early October low of $75.15.

The Continuous Commodity Index (CCI) is a basket of 17 major raw commodity futures prices rolled into one composite index price. The CCI is an excellent barometer of the overall price trends in the raw commodity market sector. The longer-term weekly chart for the CCI shows that its price has been trending higher since late 2008, despite a recent corrective pullback in the index that occurred from late April until early October. The CCI scored an all-time high (for its present iteration) in April of this year. The overall technical posture of the CCI is bullish as its longer-term price trend remains up. That's a good signal for commodity market bulls.

The fact that sector leader crude oil is trending higher and seemingly ignoring the European Union debt saga offers a clue that other commodity markets can and will do the same in the coming weeks. While the world economies have hit another speed bump in 2011, there is no denying that worldwide demand for raw commodities has been and will remain strong for the foreseeable future. The world's population recently hit the 7 billion mark, which is a strong reminder that the supply and demand balance for most commodity markets will tilt even more toward the bullish camp in the coming weeks and months.

Columnist Conversations

Last week's sell-off in Big Blue appears to have run its course. As of 10:03 AM IBM was up $2.50 /share or + 1...
When asked about the difference between genius and stupidity Mr. Einstein answered, "Genuis has its limits."
Lang:
Many markets are closed today following Easter, these include: Australia, France, Germany, UK, Italy, Brazil, ...
Futures are slightly higher and pointing to a small gain to start the trading week. Could we get five straigh...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.