Commodity-based Emerging Markets Continue to Strut over S&P 500

By: Donald_W_Dony

With the declining U.S. dollar and the steady growth of natural resource prices, many commodity-based world markets are feeling considerable buoyancy during this current bear market.

As the secular commodities bull market continues, its affects can be felt even during the global bear market. Many natural resource world economies are not feeling the same downdraft that has gripped the more blue chip and financial-based indexes.

The S&P 500 (Chart 1) has declined by 17% since the market peak in October 2007 and the financially-heavy FTSE has fallen by almost 20%. These two blue chip indexes were often the stars of performance during the 1980s and 1990s. However, as the commodity bull market marches forward, it is clear where the leaders in performance are now.

Brazil Bovespa Index (Chart 2) has lead the world in growth and advanced to new highs since October. Canada's energy and gold rich TSX (Chart 3) has drifted only 9% lower even though its main trading partner (U.S.A) is in a recession.

Mexico's IPC index (Chart 4) is another natural resource-based performance leader. This index has rebounded near its old 2007 highs and technical models suggest it will break above the resistance level of 32,600 by May.

Though not all natural recourse-based markets are outperforming the paper-based S&P 500, Australia's All Ordinary Index is one commodity-driven market that has not kept up to many similar markets. Australia's ASX has fallen by over 20%.

Bottom line: The secular commodities bull market greatly contributed to top performing global indexes during the 2003-2007 bull market and is also producing the best performing world indexes during the current bear market.

Investment approach: Portfolios should remain overweighted in natural resources and underweighted in paper-based industries. Exchange traded funds are excellent investment vehicles to participate commodity-driven global markets.

More research on commodities, the economy and equities can be found in the latest newsletter. Go to www.technicalspeculator.com and click on member login.

Your comments are always welcomed.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2008 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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