Charts suggest the recent commodities boom is on the wane over the long term

CNBC’s Jim Cramer said on Wednesday that while the commodities market could look up in the short-term, it will ultimately fall in the long-term.

“The charts interpreted by Carley Garner suggest that the recent commodity boom is not far behind. She says we may still see some upside in the short term… but longer term, she believes this bull will be slaughtered. “ said the “Mad Money” host.

“And when commodities turn against you, it gets very ugly very quickly,” he added.

Before delving into Garner’s analysis, Cramer gave investors some key insights into the commodity market:

  • History shows that commodity rallies are temporary. That’s because commodities don’t have dividends or buybacks like a company’s stock does, he said. “That makes them very unattractive to longer-term investors — instead, they’re a magnet for shorter-term traders.”
  • For the same reason as above, commodity markets tend to be extremely volatile.
  • Every commodity rally is “essentially a commodity collapse waiting to happen. “That’s because commodity producers, such as farmers and miners, tend to increase production when commodity prices rise, according to Cramer. Prices will fall again as more supply enters the market — particularly if the Federal Reserve slows the economy to control inflation, he added.

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

Cramer said the oil hasn’t fared well in years and, according to Garner, would probably still be on the bottom without the Covid pandemic and the Russian invasion of Ukraine.

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, he added.

“Of course it’s long-term. She doesn’t say it will happen immediately. … It’s possible that oil could explode upwards again. She just wants you to understand that commodities can fall as fast as they rise,” Cramer said.

For more analysis, watch the video of Cramer’s full statement below. Charts suggest the recent commodities boom is on the wane over the long term

Drew Weisholtz

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