Sentiment Says Turn, Turn, Turn
On January 26th of this year I wrote that sentiment indicators derived from the DSI put out by Jake Bernstein indicated that an even dozen commodities/markets were about to turn. All twelve did. There was not a bit of magic or voodoo involved. I just used information that anyone could have read and come to the same conclusion. That’s why I wrote Nobody Knows Anything. There are no experts or gurus. If you learn to think for yourself and you have access to the right data, you can move the odds in your favor.
This time I am going to throw in some voodoo. As Tom McClellan has pointed out a number of times in the past, full moons tend to mark either turning points or where a commodity accelerates faster in the direction it has been moving. Let’s see if we have turns or acceleration higher and lower for these commodities. Saturday the 22nd of December showed a full moon and if it really does move markets we should see it now.
As measured by the DSI, T-Bond futures hit a high of 94 on the 19th of December. It’s been higher at other turns but with ten other commodities showing extremes of emotion that easily could have said a turn lower is at hand for T-Bonds. On the 21st of December both the S&P Index and the Nasdaq Index futures showed a value of 5. Again there have been turns in the past that went lower but both indexes are showing signs of fatigue and I suspect may be turning higher and want to join the party. The VIX hit 96 on Friday. You have to go back almost three years to find a higher reading so I believe the VIX is going to run lower from here.
The theory behind the DSI says nothing about the commodity involved, it’s not as if gold hits an extreme so silver has to. Commodities trade higher and lower and are rarely synchronized but the Canadian dollar futures hit a low of 9 and that may well mark a low. In the energy space Crude Light hit a low of 6 on the 18th of December while Heating Oil and Gasoline futures showed values of 7. Crude has been as low as 4 in the middle of November but for sure that wasn’t the low. Maybe the energy commodities are tired of crashing and are about to turn higher. Copper hit a low of 7 on the 18th as well and we will have to see if that marks a low or if it will accelerate lower.
In the soft commodities, cotton hit a value of 7 and if everything else with a low value wants to make a turn, I think cotton will as well. And since the CRB Index itself is a measure of commodities it showing a value of 8 on the 18th reflects a turn for a lot of commodities to move higher.
The DSI is not a magic bullet but it is one of the cheapest and most valuable tools an investor can use. I made my first trade in financial markets in early 1970 and in between then and now I have never seen anyone forecast a dozen commodities turning with accuracy. I managed it in January of this year with nothing but a chart of the DSI; let’s see how many of eleven I can get right this time.