Commodities Take Their Foot Off The Stock Market’s Neck

When bad news is viewed as good news AND good news is interpreted as good news, this is typically associated with a more durable advance and is characteristic of a bull market

— Doug Kass

If you’re wondering how the market could rally in the face of a Dell earnings pre-announcement, a Toll Brothers sales slowdown, a General Motors earnings restatement, continued accounting issues at Fannie Mae, and a new round of Al-Queda terrorist attacks then please re-read Doug Kass’ quote above. 

Despite the endless string of bad news, two things matter most to this market right now – the Fed and commodity prices.  Both are inextricably linked since the Fed has made a point to fight commodity related inflation. 

And commodity prices, namely oil, have stopped going up.  In fact, the CRB commodity index hit a DeMark Sequential (TM) Monthly 13 sell signal as well as a DeMark Sequential (TM) Weekly 9 sell signal (not shown).

The CRB is still in a strong up trend on the long term charts so it’s too early to declare the end of the commodity bull market.  But after a three year run, it’s highly likely that commodities have to consolidate their gains.  That consolidation would give the stock market enough breathing room to move higher. 

Even this relatively small decline in the CRB has allowed the NDX to make a four year high on good volume yesterday.  This is an important development because when the NDX is leading, the market is generally healthy.

So despite the seemingly endless bad news, keep your eyes on what matters the most to the market right now – commodities.