This study suggests commodities can go higher
Key points:
- The Bloomberg Commodity Index has not closed at a 1-year low in 418 days
- Other stretches like this took an additional 507 days before it fell to a new low
- Similar streaks preceded strong medium-term returns as well
Long stretches above a 1-year low is a classic sign of an uptrend
The Bloomberg Commodity Spot Index plunged to a 3-year low in March 2020, and hasn't looked back since. It has now doubled from that low, with its bull market run lasting more than 400 days and counting.
Per Bloomberg:
"Formerly known as Dow Jones-UBS Commodity Spot Index, the index measures the price movements of commodities included in the Bloomberg CI and select subindexes. It does not account for the effects of rolling futures contracts or the costs associated with holding physical commodities and is quoted in USD."
The last time this commodity index went more than 400 days without setting a 1-year low was September 2017, leading to an additional 8 months of higher commodity prices.
Similar stretches preceded gains 81% of the time
A similar signal has triggered 16 other times over the past 85 years. After the others, future returns and win rates were strong across medium-term time frames. And, the three drawdowns in the 2-month window were all less than 4.2%.
What the research tells us...
When the Bloomberg Commodity Spot index avoids a 1-year low for 418 days, history suggests commodities can continue to rally on a medium-term basis. And, with the number of days since the last low recently surpassing 400, history suggests the commodity bull market can continue.