Commodities as an Inflation Hedge

February 2, 2011

This nice graphic came from a post on Clusterstock, by way of Chris Martenson. (You can read the whole article here.)

I’m not going to rant about inflation or what will happen to the stock market like the guy who wrote the article. As usual, I have no more insight into what will happen in the future than anyone else. What is apparent, though, is what is happening now. Commodity prices are inflating at an alarming rate.

As always, you have a choice of what to do about this. You can sit and watch your dollars shrink in purchasing power or you can measure where the relative strength is and go with it.

Disclosure: Dorsey, Wright owns DBA, JJA, DBS, DBP, SLV, and GLD in some of our account styles.

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High RS Diffusion Index

February 2, 2011

The chart below measures the percentage of high relative strength stocks that are trading above their 50-day moving average (universe of mid and large cap stocks.) As of 2/1/11.

High relative strength stocks don’t seem to be in too much of a hurry to pull back too far as the one-day reading of this indicator has now risen to 80% after getting down to 69% on Jan. 20.

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