What commodities show investors about the state of the market

In this article, Forrest Crist-Ruiz, assistant director of trading research and education at MarketGauge.com, looks at the recent movements among commodities and other indices.

This week, three of the major indices including the Nasdaq 100 (represented by the Invesco QQ ETF [QQQ]), the Dow Jones (represented by the SPDR Dow Jones Industrial Average ETF [DIA]), and the S&P 500 (represented by the SPDR S&P 500 ETF [SPY]) have been lingering near highs without the ability to break out.

However, food commodities such as corn (represented by the Teucrium Corn Fund [CORN]), sugar (represented by the Teucrium Sugar Fund [CANE]), Soybeans (represented by the Teucrium Soybean Fund [SOYB]), and more have seen a consistent rise for the past month.

Additionally, precious metals and oil made moves higher. Both gold (represented by the SPDR Gold Trust [GLD]) and silver (represented by the iShares Silver Trust [SLV]) have recently cleared their 50-day moving averages (DMA) with the United States Oil Fund (USO) holding support from its 50-DMA on Monday.

This could be showing that investors’ risk appetite is waning as they look for other places to rotate money into.

Two reasons investors might be looking to rotate money are increasing inflation and potentially rising taxes. As we saw last week, the market sold off when news of the US president Joe Biden’s tax increase went live.

We also know that the US Federal Reserve is okay with letting inflation run hot while it continues to monitor the US economic recovery.

While these reasons could be hindering the markets’ ability to build up steam, they could also take a lot more time to play out.

On a better note, the iShares Transportation Average ETF [IYT] made new all-time highs Tuesday.

In the past, we have watched this sector as a strength-indicator for the demand side of the economy.

With that said, ultimately, price action is king when it comes to the overall market direction.

From that standpoint, if the indices continue to hold their breath near the highs, we can watch for them to stay over recent support areas (as seen in the chart below) along with the transportation sector to continue upwards.

This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.