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Commodity market analysis. Fundamental and technical analysis for 2020

June 18, 2020

June 18, 2020

Commodity market analysis - global outlookMikhail Hypov

Commodity market and S&P GSCI: Fundamental and technical analysis

To be honest, the commodity market isn’t on my list of favourite trading tools, but the current economic situation gives to this sector extra drive and makes it attractive for short-term high-yield trades. The oil market alone provides a perfect chance of earning from the panicky fall.

![LiteForex: Commodity market analysis. Fundamental and technical analysis for 2020][1]

In March, I made a [forecast][2] for “black gold”, predicting a further fall with a fast subsequent rebound.  ![LiteForex: Commodity market analysis. Fundamental and technical analysis for 2020][3]

Our expectations have been rewarded. The minimum point was determined with 1-week accuracy and I congratulate those who caught that movement. Thanks God, there are plenty of opportunities for everyone in the commodity market now. At [LiteForex][4] , you can register and start trading within a few minutes, for example.

The targets marked by wave (b) in the chart above look questionable at the moment. A more detailed analysis of oil and gold will be provided in my next article. Subscribe and keep in touch!

Today, I’d like to examine the commodity market index because understanding the global market state is key to estimating its separate elements.

Fundamental analysis of commodity market

You may have heard that the Fed’s soft monetary policy and zero rates will proceed till the end of 2022 at least. The Fed chair himself announced that at the latest meeting. Many economists share the idea that this policy will last much longer because a future rate rise may cost more to the economy than the advantages that the US is enjoying now when the rates have been zeroed.  First of all, it’s connected with the debt bubble. With zero rates, servicing the debt is almost free of charge. Its sizes are limited only by demand for US bonds, in essence.

So, a big volume of cheap money appeared in the market. This speeds prices up artificially and the commodity market is concerned too. However, the real economy is still in trouble.

![LiteForex: Commodity market analysis. Fundamental and technical analysis for 2020][5]

Look at the US industrial production index in the chart above. The current index is comparable with the 2008 crisis value. The difference is that the collapse happened as fast as within 3 months (March, April, May) and speaking of a reversal or a bottom is too early. So, the current commodity market situation is contradictory: the real demand has fallen but the prices have grown. Economists call this situation “stagflation”.

In the short term, this situation may delay an economic crush at the expense of the real sector. On the one hand, the real sector suffers from a slump in demand and profits. On the other hand, it has to buy resources and goods at a higher price. Eventually, this may grow into a much deeper crisis or make an economy stagnate, at least. Stagflation ruins a “sanitary” function of a crisis that consists in removing inefficient and unpopular goods and services from the market and replacing them with new productive companies.

![LiteForex: Commodity market analysis. Fundamental and technical analysis for 2020][6]

This situation has already happened before. The USA had it in the 60ies (check the chart above) when the economy started sinking into a recession. Back then, they managed to avoid a large crisis through increasing the government debt and subsidies, but the price they paid was an economic stagnation that lasted 15 years. The situation improved only with the development of dotcom companies, which changed radically many business processes and cut transaction expenses.

Japan’s economy is in a similar situation. The country got hooked on low interest rates and is still unable to return to the precrisis levels of the late 80ies.

![LiteForex: Commodity market analysis. Fundamental and technical analysis for 2020][7]

The Nikkie 225 index is floundering in a trading range and hardly reached the level of the mid-nineties. More details on Japan were given [here][8]. Let me remind you that the Japanese themselves called that situation “the Lost 10 Years”. Basically, the policy of pumping an economy with cheap money looks like freezing a terminal patient until a curing technology has been invented.  In our case, such a cure may be another scientific and technological revolution that will restructure the global economy, like Internet did some time ago. While waiting for it, get prepared for another 10 lost years.

Technical analysis of commodity market

The commodity index  S&P GSCI visualizes the commodity market state the best.

![LiteForex: Commodity market analysis. Fundamental and technical analysis for 2020][9]

The chart above shows almost the whole history of  S&P GSCI’s evolution. The index is in a bearish correction now, on the whole. The bullish trend ended in late 2008 and then the deepest ever fall occurred. A bullish wave formed in 2009, but there was no full recovery. Globally, the correction looks like three zigzags forming inside a large descending triangle.  The level of 216.9 is a strong support level marked as a green line. It coincides with the start of a strong bullish impulse formed at the beginning of the year 2003. As a result of April’s fall, this level was tested but remained unbroken. So we may suppose that it will be retested. This indirectly confirms the hypothesis of the third zigzag’s formation. Its beginning will be located near the upper edge of the triangle and wave © with a retest of the above mentioned level.![LiteForex: Commodity market analysis. Fundamental and technical analysis for 2020][10]

When zooming in, we may notice an active bullish correction on the 1-month time frame. Most likely, it will be zigzag-shaped too. The  [ TM annual candlestick’s projection][11] is located much higher than the current index position, which points to its strong oversoldness.  Most likely, an attempt to return to the candlestick’s lower limits at around 381 at least will have been made by the end of the year. The 1st level support for the pivot point indicator is located there too. In our case, it will provoke resistance when approaching it from below.

Conclusion

Pumped with cheap liquidity, the commodity market may grow slowly in a limited range, in general.  Most likely, neither 2020 nor 2021 results won’t allow reaching the precrisis levels amidst bad macroeconomic indicators. The triangle pattern makes me think the stagnation will last until 2024 at the very least.

![LiteForex: Commodity market analysis. Fundamental and technical analysis for 2020][12]

Speaking about the closest time period, a bullish correction reached the lower level of S3 support on the weekly chart and is now forming a retracement. It may develop into a correction of wave (b) of the green zigzag with a target at 286 in the chart above . We will have a long sideways trend at best. Anyway, anyone who is holding long positions in any commodities has to be careful now and protect themselves through preventative measures.  Check my next article for a detailed review of oil and gold compared with the general market index.

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Good luck and profits, everyone!

Yours,

Michael @Hypov

I’d like to remind you that all materials are provided for educational purposes only. They aren’t financial advice and don’t guarantee any profits. All trading decisions you make are your responsibility only.

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Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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Price chart of USCrude in real time mode

![Commodity market analysis - global outlook][15]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  2. www.liteforex.com/blog/analysts-opinions/whats-happening-to-oil-prices/
  3. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.06.18/OIL_hypov_2.jpg?w=30&s=c9329c4705c68bdfb1dd1f9c442d6fa8
  4. my.liteforex.com/trading/info?symbol=USCrude
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  8. www.liteforex.com/blog/analysts-opinions/usdjpy-fundamental-and-technical-analysis-short–medium–and-long-term-forecasts/
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  11. www.liteforex.com/blog/for-professionals/projection-of-the-future-bar-by-demark-td-range-projection/
  12. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.06.18/GSCI_hypov_7.jpg?w=30&s=3101f0752cbab5a6bdf8e1ba07e24c6f
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