November 29, 2022

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The charts indicate that the recent commodity boom will decline in the long run

The charts indicate that the recent commodity boom will decline in the long run

CNBC’s Jim Cramer said on Wednesday that while the commodity market may see a short-term uptrend, it will eventually go down in the long-term.

“The charts, as interpreted by Carly Garner, are that the recent commodity boom is not long for the world. And she says we can still see some upside in the short term…but over the long term, she thinks this bull is about to be slaughtered,” The “money mad‘ said the host.

“When commodities are turned against you, they tend to get really ugly, real fast,” he added.

Before getting into Garner’s analysis, Cramer gave investors some insights into the commodity market that are important to know:

  • History shows that commodity gains are temporary. This is because commodities do not have dividends or buybacks like the company’s share, he said. “This makes it very unattractive to long-term investors – instead, it is a magnet for short-term traders.”
  • For the same reason mentioned above, commodity markets tend to be highly volatile.
  • Every commodity rally is basically a commodity crash waiting to happen. “This is because commodity producers such as farmers and miners tend to ramp up production when commodity prices are high, according to Cramer. Prices fall back down again as more supply enters the market — especially if the Federal Reserve slows the economy to control inflation,” he said. .

Entering individual commodities, Kramer began his discussion with oil. He examined the monthly chart of West Texas Intermediate crude futures going back three decades.

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Cramer said that oil has not performed well for years, and will likely remain declining were it not for the Covid pandemic and Russia’s invasion of Ukraine, according to Garner.

Garner expects oil prices to be closer to long-term equilibrium – between the two black horizontal lines on the chart – once the current supply shock wears off.

“Of course, that’s long-term,” Cramer said. “She’s not saying that’s going to happen right away…There’s probably another upside for oil. She just wants you to understand that commodities can go down quickly as they go up.”

For further analysis, watch Kramer’s full explanation video below.