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Commodities (MS Commodity Index/CRX) has underperformed the S&P 500 by 40% since May of 2011, reflected in the first chart below. I often hear from viewers that the growth picture seems confusing, with stocks hitting all-time highs, yet commodities continue to be soft and tell a story of slow global growth/consumption.
The CRX chart below illstrates that line (1) has been very heavy resistance for the past 26 months. What the CRX does with the heavy resistance over the next few weeks will tell us a ton about the global inflation/growth story.
When it comes to portfolio construction, a breakout by the CRX index would suggest that weak performing commodities could push higher and be a plus for the metals complex (gold, silver & copper) and could put pressure on the bond market, pushing bond prices lower and yields higher.
We have to face the fact that, at this time, resistance is resistance. Should the heavy resistance break, portfolio construction/heavier weighting towards this poor performing area should be considered.
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