Directional changes in the secular oscillator are quite rare. Even though the latest uptick may appear miniscule, it strongly suggests that a new up leg in the secular bull market is now underway. In this respect three of the four olive green arrows in Chart 1 show that previous mid-course trajectories were all followed by above average rallies.
Our conclusion is that this propitious conjunction of positive cyclical and secular forces, will result in a lift off for commodity prices.
Equity investors will be interested to learn that the direction of our secular commodity oscillator has a broad influence on secular trends of stocks. Actual downside reversals in this oscillator have all represented confirmation that a new secular bull market for equities was underway.
Chart 3 Secular Equity Trends versus Secular Commodity Momentum
To make this concept come alive the oscillator has been plotted inversely in Chart 3 so that its movements correspond with those of deflated equity prices.
The green shaded areas show when the oscillator is in a rising mode i.e. when secular commodity price momentum is declining. Most of the time, this kind of environment is bullish for the very long-term trend of equities. The 1929-32 deflationary pocket is an obvious exception that proves equities abhor unstable commodity prices in either direction. The solid arrows point up when this inversely plotted oscillator crosses below its MA and the dashed ones when it experiences a mid-course change of direction. Both events seem to trigger a poor environment for equities. Remember the relationship is not a precise timing device. However, since the oscillator has started to decline again this clearly elevates the risk of holding equities and the likelihood of a resumption of the secular bear.