Further upside for commodities

The rally in global commodities is just getting started. This year, we've noticed strong breakouts in industrial metals and agriculture, which could set the stage for long-term outperformance. On monthly charts, soybeans, corn and wheat futures defended multi-year support levels, and continue to accelerate beyond previous highs. Our work suggests buyers will remain active on dips, with next major resistance around 2013 highs. 

The Thomson Reuters Core Commodity CRB Index registered a deeply oversold reading this year (below 30 on the monthly RSI, which is rare). As investors rotated into commodities, the oversold bounce confirmed a strong level of support going back nearly 30 years. Investors will continue to scale into commodity positions, seeking higher levels of real returns especially with the tailwind of a lower dollar. This set-up will also support commodity sensitive asset classes such as emerging market equities, which have been out of favor relative to US equities over the past few years.

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