\*All rights reserved! Redistribution of this publication is strictly prohibited. There is substantial risk of loss in trading futures and options.


*All rights reserved! Redistribution of this publication is strictly prohibited.

There is substantial risk of loss in trading futures and options.

Past performance is not indicative of future results

On the radar:

* The Dow Jones-USB Commodity Index is lagging crude oil, this could signal bullish opportunities in the "other" commodities in the coming weeks and months.


Crude might be recovering, but the commodity indices are still in the dumps

There are a handful of published commodity indices that track the value of commodities as in a pre-arranged “basket”. Generally, the indices are highly weighted in crude oil and, therefore, tend to be decidedly correlated to the value of a barrel of crude oil. However, we’ve noticed that during the recent recovery in oil, commodity indices haven’t really followed in a meaningful way….but our guess is, eventually they will. We hate to beat a dead horse, but assuming the greenback continues to decline, as we suspect, commodities should post a productive year in 2015.


Keep an eye on the Dow Jones-UBS Commodity Index

Unfortunately, commodity indices are more useful as a tracking and speculative tool, than a trading vehicle. Commodity indices in both the futures and equity markets tend to be illiquid and inefficient. Nevertheless, they might give us some clues into the direction of the asset class enabling for more comfortable positioning in individual sectors of the commodity market.

A popular gauge of commodity values is the Dow Jones-UBS Commodity Index because it provides a diversified representation of the commodity futures markets. In fact, the Dow Jones-UBS includes 20 commodity futures contracts with a weighting assigned to its economic significance and market liquidity. Specifically, according to MRCI Online, the index is comprised the following break-down:

• Energy (natural gas, crude oil, Brent crude, heating oil, and gasoline) – 36.69%
• Agriculture (soybeans, sugar, corn, wheat, cotton, coffee, and Kansas wheat) – 28.21%
• Industrial Metals (copper, aluminum, zinc, and nickel) – 16.74%
• Precious Metals (gold and silver) – 12.62%
• Livestock (live cattle, lean hogs) – 5.74%

The weightings are rebalanced annually to compensate for market movement and price changes, so it is possible for the actual weightings to stray from the target levels.

The trend has obviously been down trodden in commodities as a whole, but the chart of the Dow Jones-UBS Commodity Index shows some promising signs of bottoming action. The index has found support near the psychological level of 100, which also happens to be the area in which we saw a significant low in 2009. Further, we haven’t seen a reading beneath 100 for any length of time since 2002. Given inflation, albeit modest price pressure, and the massive amount of Quantitative Easing that has taken place since, it seems sub-100 levels simply aren’t sustainable in the long-run.


Is crude oil a sign of things to come in other commodities?

Crude oil prices have recovered nearly 50% from the March lows, yet the Dow Jones-UBS Commodity Index has only seen a 10% increase. Much of the commodity index appreciation can be directly attributed to the heavily weighted crude oil, but there has been some support coming from the meat complex and copper. The fact that the index is lagging could be a sign that the other commodities will soon soar. Accordingly, we like the idea of scouring the commodity markets in the coming weeks, or months, for bullish opportunities in the coming months as the Dow Jones-UBS index potentially recovers. Markets we have on our radar include the grains (specifically corn, wheat, and soybeans), sugar, coffee, natural gas, and even gold….stay tuned!

*There is substantial risk of loss in trading futures and options.


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Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.

Seasonality is already factored into current prices, any references to such does not indicate future market action.

There is substantial risk of loss in trading futures and options.

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