Top Advisors Corner

Tushar Chande: Trend Analysis of Commodity ETFs/ETNs and Corresponding Futures Market

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The Cocoa ETN (NIB) is the strongest commodity ETN, as cocoa responds to a stronger British Pound Sterling.  A review the trend strength of other commodity ETFs/ETNs and explain their performance by assessing trend strength of the related futures markets.

Trend Strength of Commodity ETFs/ETNs

We summarize the Chande Trend Meter values for the more popular commodity ETFs and ETNs in Figure 1.  The Cocoa NIB ETN shows the best strength, as Cocoa has strengthened in response to a stronger British Pound Sterling (see Figure 2).   The Precious Metals Physical Shares of Platinum and Palladium are weakest, because these markets are trending lower (see Figures 3 and 4).

Figure 1: Medium-term trend analysis of commodity ETFs/ETNs.  Please see ETFmeter.com for a description of the terms used in the column headers.


Figure 2: The Cocoa NIB ETN has strengthened, largely due to a stronger British Pound Sterling. The lower half of the chart shows the 100-day correlation of NIB to the $XBP (The British Pound index on the Philadelphia exchange). Note how the correlation is +0.89, i.e., NIB has follows BP higher.

Futures Markets Check

We show the related futures markets ranked by the Chande Futures Score, where a higher value implies a stronger trend. Observe how Palladium and Platinum have a high score (i.e. they are trending well) even though their prices are falling (for example, see Figure 4).  Corn and Soybeans have made a large double bottom and risen rapidly to the top of their 12-month price range. However, this is seen as a reversal of the long-term trend, and these markets have a low score in Figure 3.

Figure 3: The proprietary Chande Futures Score is an open ended scale for ranking the trends in the futures contract, regardless of whether prices are rising or falling.  Precious metals, coffee and cocoa are near the top of the rankings, consistent with ETF/ ETN performance data in Figure 1.

Figure 4: Palladium prices are falling, supporting the data in Figures 1 and 3.

Summary

Commodity ETFs/ETNs are taking their cue from the corresponding futures markets.

Tushar Chande

For a discussion of the terms used here, please check ETFmeter.com.
You can follow his systematic approach to trading ETFs and portfolio construction at trends.etfmeter.com.

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