Last year may have been bad for commodities but one legendary technician believes 2015 will see more pain.
Gold, oil and agricultural commodities like corn and soybeans all closed in negative territory in 2014. Louise Yamada of Yamada Technical Advisors says the charts show the commodities complex is in for more bad news this year.
Looking at a 45-year chart of the continuous commodities index (CCI), Yamada sees some very long-term symmetry that could bode ill for the sector. She notes that from the early 1970s until the early 1980s, the CCI rallied roughly 248 percent. It then fell 46 percent and did not reclaim its early-‘80s highs until 2006.
But here’s where it gets interesting: From the lows in 2001 to the highs in 2011, Yamada notes the CCI rallied 278 percent (though it did have a large pullback in 2008 before rebounding to highs). Since its 2011 peak at 690, though, the CCI has been declining and now trades under 448.
Yamada sees the CCI once more repeating its behavior from the 1980s by falling about 45 percent from its peak—in this case to somewhere between 375 and 400, if not to 300—and then staying down there for years.
“The bigger the drop, the longer the need for repair,” she said. “The repair phase went on for 20 years until we started to enter the next structural bear market for equities in 2000—2002 and then the commodities took off again into a structural bull market. It tends to go in inverse relationship to the bull markets in equities.”
For that reason, Yamada says a relatively flat pattern in the coming years in commodities could have at least one upshot for investors—higher stock prices.
“There will be rallies, there will be retreats, but we think overall that the commodity bull market is over and that should be very positive for equities,” she said.