Charts Imply the Threat of Deflation is Still Present

May 28th, 2013

by Dominic Cimino

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Although it feels like the threat of deflation has generally been discarded by the investment community, charts seem to imply the threat remains. Even as investors, analysts, and some at the Fed appear more preoccupied with impending inflation, a select group of charts infer that central banks do not have deflation thoroughly at bay. Let's take a look.

The first chart we'll consider is the Goldman Sachs Commodity Index. Notice how the index's all-time high was placed back in 2008! A much lower interim high was subsequently placed in 2011, and a well-defined descending bearish trend channel is in place on the weekly bar chart.

The next chart is a weekly bar chart for wheat futures. Although wheat future prices are in an established cyclical uptrend defined within the bullish trend channel, prices are precariously close to channel support and are nearly 50% off the all-time high set in 2008.

Crude oil futures continue to trend below the trend line resistance highlighted in red; while subsequent lower interim highs have been placed in 2011, 2012, and thus far in 2013. The market is currently 36% below the all-time high placed in 2008.

Copper futures have moved below the trend line support (e.g. in red), and have placed lower interim highs since placing their all-time high in 2011.

Spot gold prices have moved lower out of the consolidation area of 2011-2013, and are well below the all-time high which was placed in 2011.

Finally, the U.S. Dollar Index, which when weak can infer inflation, placed its low in 2008, and has recently firmed up once again after moving through the bearish trend line (e.g. in blue) one year ago.

In conclusion, I'm not guaranteeing deflation or discounting future inflation. Certainly anything is possible during this unprecedented time. I merely want to showcase some charts that are trending lower at the moment, and possibly indicating that a deflationary threat may still exist. Central bank efforts appear to have lifted some nations' stock market values, but key tangible commodities are struggling to move higher; and I believe this should continue to be monitored.

Dominic Cimino

Chief Investment Strategist

Financial Advisor

Preferred Planning Concepts, LLC

2800 South River Road #240

Des Plaines, IL 60018

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Preferred planning concepts, LLC & Cambridge are not affiliated.

© 2013, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.

Important Disclosures

Please be aware that this is not a recommendation to purchase or sell any security. This is not a recommendation for any individual or institution to alter their portfolio holdings. Every individual or institution has its own risk tolerance and investment objectives and perspectives.

Any above opinions of the author should be viewed as such. These opinions in no way represent any type of guarantee. Realize that if you choose to invest in securities, investing in securities carries with it uncertainty and the risk of loss of principal. Lost investment opportunity is also a possibility. Investing in securities carries no guarantees.

Past performance is no guarantee of future results. The price movements within capital markets cannot be guaranteed and always remain uncertain. The above opinions are meant to stimulate thought and should be viewed as such. You are encouraged to discuss these views with your representatives if you have any questions or concerns.

Any indices mentioned are unmanaged and cannot be invested in directly.

It must here be mentioned that technical analysis offers no guarantees of future price movements. Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain.

Neither Cambridge Investment Research nor Preferred Planning Concepts is responsible for the accuracy of content provided by third parties. All material presented herein is believed to be reliable but we cannot attest to its accuracy.

All charts presented were made available by eSignal, a charting service available to individuals or professionals. Anyone interested in exploring the potentials of eSignal should give us a call.

Website by the Boston Web Company