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The mainstream is now noticing high commodity prices, but shares of CME Group (NYSE: CME), where commodities trade, suggest that prices may have topped.
Chart Courtesy of StockCharts.com
Sure it's a long shot, as it seems that oil prices will never fall, and that every time you go to the supermarket, your bill is higher, but the amount of stuff you take home is smaller. But CME shares, topped out in December, and the overall trend in commodities has seen a fairly good size correction in the last couple of weeks.
So what we may be seeing is that the market has started to price in some kind of commodity price decline as the global economy begins to slow.
It's not necessarily an accross the board slowing, as some things, especially energy prices, may not fall too noticeably in the near future.
But here's the logic. CME is the biggest commodity house in the world. That means that anybody that's going to trade anything from barley to gold is likely to have to pass through CME.
The more the demand for anything that has to do with commodity futures, the more likely CME would get a piece of the price as some kind of fee.
As long as demand rises, so do the chances of CME shares rising remain fairly high, as traders continue to factor in the potential for earnings at CME.
Yet, CME shares started dropping a full two months ahead of oil reaching $110, and the grain markets going crazy. Both have cooled off since.
To us, that looks as if the smart money picked up and left CME, looking for greener pastures. And that suggests that commodity prices, at least for now, might have seen their highs. The caveat is that this may just be a correction in an otherwise huge bull market that could still pick up and go on to higher highs.
The only real question is whether any bounce that develops turns into something more. If CME can get back above 600,convincingly, it would likely be a sign that the bull market in commodities has returned.
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