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Agriculture Index: From Giant Breakdown To Major Breakout

It was just one month ago when we wrote The Bear Market Of 2019: Agricultural Commodities. May 2019 was a horrible month for agricultural commodities with the start of a major breakdown. As June 2019 kicks off though we see an attempt for a major breakout. What’s going on? Is this already a buy opportunity even though a month ago it looked ultra-bearish?

Just to be clear: a bear market is a bear market until proven otherwise.

Agricultural commodities are in a bear market, until proven otherwise.

Their monthly chart below started to break down. In recent weeks, especially this week, there was a monster rally. This may mean one of the two things:

  1. Either selling did dry up, and there is only buyers left. Because of fundamental and/or technical reasons the May lows were the bottom of selling which was attractive enough for buyers to take over control.
  2. Either this is a fake rally, with a fake breakout, which is meant for the last investors which long positions to offload their long positions.

Fundamentally, as said by the U.S. Fed yesterday the inflation rate is quite low, below their targeted 2 pct inflation rate. However, inflation expectations are breaking out strongly! This certainly helps commodities.

inflation expectations

Last month we said this:

It is wise to follow agricultural commodities as they are becoming a bargain for the long term. At “a” point in time they will become interesting again, not in 2019, potentially in 2020 or later. That’s when you want to apply the magic rule of “buy low sell high.”

Right now it is way too early to confirm a new bull market in agricultural commodities. It may happen, it may be fake, it may be an attempt to start a consolidation as opposed to a downtrend.

This is the tip for investors: strong bull markets develop over time, and there is time to get in. Getting in a bit late is fine, and it’s much better than getting in during a temporary pop in the context of a bear market.


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