By Kris Sayce, editor, Casey Daily Dispatch
Despite all the denial, inflation is here.
And it won’t go away.
Day after day, we see more evidence.
More companies raising prices.
More people noticing higher prices.
Yet the government and Federal Reserve won’t admit it’s a problem.
But it is.
So you should pay attention to it. And we’ll help you do that.
Importantly, we’ll use our resources to figure out how serious the inflation problem could get, and what you can do to combat it…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
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To introduce you to the most important investing themes of the day, and
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To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.
And right now, inflation remains one of the biggest themes they’re following today.
The Evidence Mounts
As we say, we’ve seen the news stories. You’ve probably seen similar ones. First, from Barron’s:
Reckitt Benckiser, the maker of health and hygiene products like Lysol, Durex, Veet, and Clearasil, is the latest consumer-goods giant to come under pressure from cost inflation, which has pinched profit margins and dampened the group’s full-year outlook.
And this from MarketWatch:
Stanley Black & Decker on Tuesday said it is raising prices as it faces commodity inflation. It reported higher profit and sales for the second quarter and raised its earnings outlook for the year.
Stanley Black & Decker (SWK) said it saw commodity price inflation in transit costs, in industrial costs… and it was passing on higher prices to consumers where possible.
It’s clear: Inflation is a problem. The evidence piles up each day.
So our aim in today’s Dispatch is to give you some ideas about the potential impact… the direction of commodity prices… and whether the inflation problem really will get worse.
To do that, we’ll look at the charts. For that, we turn to colleague and technical analysis expert, Imre Gams…
This Is the Perfect Market “Snapshot”
To get the best clue on where commodity prices and inflation are heading next, Imre suggested we look at the Commodity Research Bureau Index (CRB).
Although you can’t trade the CRB, you can trade the components. And Imre tells us the CRB is a useful way of seeing overall commodity price action in one place.
It’s like a “snapshot” of the market.
As Imre explains:
If I have a strong conviction on where the CRB is going… it can be incredibly helpful for my trading portfolio.
It’s a great way of getting a comprehensive snapshot of various commodities. Right now, the index comprises 19 commodities, broken down into four groups: Energy 39%, Agriculture 41%, Precious Metals 7%, and Base Metals 13%.
So let’s look at a chart of the CRB, to see if there are any meaningful conclusions we can draw about the future price action of commodity markets.
As you can see on the chart, Imre has included two of his favorite long-term trend indicators, the 100 (blue line) and 200-period (red line) moving averages.
And as he explained to your editor:
I’ve also marked an important multi-year high going back to 2018. This level is at $206.56. After staying well below that level for the past three years, the CRB traded through it in June this year.
That’s a key point, as Imre explains:
These two technical factors combined [moving average and support/resistance line] support the argument for a continued rise in commodity prices.
In fact, the 100 & 200-period moving average golden cross is a very powerful signal. Just look at the death cross that occurred in early 2015 [top left of the chart] when these two averages crossed to the downside… the result was a powerful selloff in the CRB that finally resolved itself in April of last year.
[Editor’s note: The “golden cross” is a technical term for when a shorter period moving average (blue line in this case) crosses above a longer period moving average (red line). The “death cross” is when a longer period moving average crosses below a shorter period moving average.]
Stay on the Right Side of the Trend
In short, Imre says that the CRB is a good way to look for strong technical evidence that identifies the bigger-picture trend. He then uses that information to:
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Pick the right commodity markets or stocks to invest in, and
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Make sure he stays on the right side of the trend… which means avoiding countertrend trading at all costs. If the CRB tells him the oil price is heading higher, he won’t try to short oil or energy stocks.
The upshot is that at least for now, the CRB has broken through what is now a key support level. If it remains above that support line, it likely means that commodity prices in general are rising.
That’s good news for the commodity sector at least.
But it may not be so good for businesses if it causes their profit margins to shrink. And it may not be so good for consumers if businesses pass on any of those increased costs in the form of higher prices.
In our view, this continues to confirm a strong case for commodities. If the CRB remains above Imre’s key support line, it means most commodity prices will be high.
And that means opportunities for investors to make the most of this trend by buying into commodities-related stocks. Now is the perfect time.
Cheers,
Kris Sayce
Editor, Casey Daily Dispatch
P.S. The remaining question is, “how to play these opportunities?”
Our preference is to play them in a way that results in the biggest bang for our buck. That’s why we’re such big supporters of Dave Forest’s warrants plays.
Dave has commodities-related warrants plays that are buys right now. The good news is that the market still hasn’t fully caught on to this trend. It means that these plays are still below Dave’s buy-up-to prices.
If you haven’t yet checked out warrants, and how they’ve helped deliver some investors gains of 4,942% and 2,805% in relatively short order, go here to check out how to add this niche asset class to your portfolio today.