The “Power of the Pattern” has been suggesting for months that their will be very few places to hide (a very short list) when it comes to portfolio construction. Why?
The CRX Commodity index broke multi-year support back in May, suggesting that lowering exposure to risk assets was the key. In September an update to the Dollar breakout/CRX breakdown reflected more of the same (see post here)
CLICK ON CHART TO ENLARGE
I’m not much into labels such as inflation/deflation/recession/contraction/hyper-inflation/growth/depression.
My goal…work towards helping investors to “enlarge portfolios regardless of market direction!” Can this be accomplished every single day…NO WAY!!! From a big picture this goal, remains my focus and the above chart is intended to reflect this big picture goal.
The Dollar/CRX combo above has a been a pretty “Guiding Light” to portfolio construction for the past few years, per when investors should overweight and underweight towards risk assets. Since May the above combo, from a “Power of the Pattern” perspective, has continued to send a message that risk assets are not the place to be and that their will be very few places to hide!!!
CRX is at the lower end of a flag/pennant pattern at (3), inside of a falling channel and the flag pattern ahs to end soon!!! If the CRX breaks down out of the flag/pennant pattern, risk assets across the board will be put under very strong downside pricing pressure!
Chris, I agree that the CRB is overweighted toward oil.
I don’t doubt your charts, but in trying to gain familiarity with the CRX I find that 25% of its components are energy related. (and I was suprised to find out that this is a stock index)
So if your looking for a broad based commodity index I would suggest looking at the Jim Rogers related commodity indices (though I have no idea if they will help quantify market direction, as I have not tested them)
A direct ratio comparison ($CRX:$SPX)shows that CRX is declining faster than the SPX. In fact, the current value of 0.67 is right at a yearly low.
Some other values from the last decade:
08/31/00(Previous all time high for SPX): 0.14
05/31/02(Last CRX high before massive upswing): 0.26
09/30/02:(Low for CRX this decade) 0.27
Somewhere along the way, the CRX outpaced the SPX by a large margin.
10/31/07: (S & P all time high) Value was 0.55
02/28/09: (Lows for both indexes): Value was 0.59
04/30/11: (CRX all-time high) Value was 0.79
05/31/08: (Previous high for CRX). Value was 0.69
12/31/10: High for year at 0.77
02/28/10: Low of 0.67
06/28/10: Low of 0.66
04/01/11 thru 12/16/2011: Ratio declined from 0.81 to 0.67
In 2008, CRX began its decent in May while the S & P did not begin to decline until October.
Are we going to see a repeat of 2008? CRX had an intraday high on 02/25/11 while the SPX peaked on 05/02/2011, so maybe yes
The ratio has dropped 20% since April.
As Chris has said, CRX is leading the market lower.
The numbers do not lie
Ty…Thank you! Not only do I hope to give ideas that can help enlarge your portfolio, I also hope to share ideas that can help each of your preserve the hard earned savings you’ve set aside.
Appreciate your viewership and kind words Ty!
All the best,
P.S. you are not corny…I am though, witnessed each day by you the viewer!!!
CRB I belive has been around the longest of the key commodities index’s. CRB is overweighted towards oil, which could give us an unclear/true picture of the overall commodity index. If you look at the CRB over the past few years, it looks a good deal like the Crude Oil chart.
The MS Commodity index (CRX) is more equally weighted, which I am of the opinion is a better reflection of what commodities are doing.
Not to sound corny but thanks for all you do. You have saved me a lot of money this year…and convinced me of the power of the pattern.
Ironically the USD will be the only place to hide. This will confound so many investors they will get completely confused. And also they will forget to buy gold/gold miners in the correction you outlined!
Chris, I am unfamiliar with “CRX”. Is it related the the CRB Index of commodities?
Secondly, does the relationship of you’ve shown on the chart hold true going back farther in time?
is that a small H&S bottom formation in the CRX?
spells relief rally imo