In some of our recent posts regarding commodities we’ve noted the large declines the majority of this asset class has seen in recent months. Some of the hardest hit sectors have been the energies, grains, and precious metals just to name a few. However, in further examining this universe it’s important to note there have been certain commodities showing pockets of strength when compared to the rest of asset class in general. We noted this in a previous post regarding live cattle, which recently made a new all time high. We will continue with our theme of identifying commodities which have been outperforming their peers. One primary reason for doing so is reaffirm that having access to a number of investment products during times of increased market volatility can allow investors to remain tactical and continue to find strong performing markets. At Dorsey Wright Money Management, we have a number of products that allow investors to gain access to alternative asset classes such as commodities and currencies should their relative strength ranking be high enough to become part of the portfolio.
Coffee Futures (Dec ’14): Point & Figure
The below point & figure chart of the Dec 14 Coffee futures contract is displaying some interesting technical developments. Let’s take a closer look to see what the current supply & demand of the coffee market is telling us. Currently, coffee futures are approaching a previous area of supply located at 224 which thus far has helped form a double top. In order for the double top break out pattern to be confirmed, price would need to advance through the 228 level. A development such as this may be a sign the relative strength ranking of the coffee market may be poised to increase further when compared to those of other commodities.
RS Chart (Coffee Futures Dec ‘14 vs. DWA Continous Commodity Index)
Note below we have inserted the RS chart of Coffee futures vs. the DWA Continuous Commodities Index. This is a great visual tool in confirming our above statement that coffee futures have been outperforming the majority of other commodities in recent months. Exposure to a highly RS ranked commodity such as coffee has proved beneficial when compared to others such as crude oil or silver.
Conclusion:
Although not the most commonly discussed asset class when it comes to investing, commodities can offer opportunities and diversification away from traditional asset classes s when market volatility begins to increase. As we have shown above, coffee futures are a great example of a market building a rather large base and possibly on the verge of a substantial move higher. This could help lead to an even higher RS ranking for coffee futures when compared to its other commodity peers.
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