Deleveraging of asset bubbles? Well, your central banker will undoubtedly deny it is taking place, but the charts will not: the world is going through a massive deleveraging cycle, right here right now. In this article, we look at 6 leading commodities which show an incredibly destructive chart pattern. We are looking at monthly charts, going back +2 decades, showing long terms trends (they never lie, trust me).
Crude oil has collapsed +70% from its 2011 peak, and +80% from its 2008 peak. Crude is back to its level of the 90ies. Seems like it cannot go much lower, can it? It definitely needs a long time to repair, so bottom fishing energy stocks is only for investors with a very long term horizon.
Silver has come down 70% from its 2011 peak. It is back to its 2006/2007 level. Interestingly, silver’s decline seems to be flattening. A strong bull market will probably take some time to develop, but it will be sooner there than the next one in crude. A sharp rally in silver, filling the 2013 gap (towards $25/oz) is certainly in the cards, in the coming years.
Wheat has lost 70% of its value since it peaked in 2008. It is still declining though the pace of the decline is softening. Nothing particularly bullish or constructive to see in this chart, apart from the fact that we are back in the area of the 90ies.
Corn has a similar pattern as wheat. It lost 60% from its value since its peak in 2013. It needs a long time to repair, although its chart shows aggressive and sharp moves, so don’t exclude a sharp bear market rally.
Last but not least, coffee is trading at multi-decade lows. Now this could be an interesting setup. Coffee has a track record of very sudden and extremely sharp rallies. We believe, honestly, that coffee is setting up for another mega rally, somewhere in 2016.
CONCLUSION: All leading commodities discussed in this article have truly collapsed in recent years. The chart setups are destructive. Contrarian investors could find this very interesting, but the key is to look for entry points at the end of a stabilization period, right before a new bull market (or a rally, for shorter term oriented investors). Most commodities, however, are still declining, except for silver which shows signs of stabilization, so this is the time to set up a longlist, not to take many positions. On the other hand, coffee is trading at such low levels, that it has to rally sharply somewhere in 2016.