The Bloomberg Commodity Index has finally reached the extreme downside target of 79.26. Initially, we didn’t think that the index would fall to the extreme downside target as indicated in our October 29, 2013 posting. However, after declining below the long-term technical support level, we had to acknowledge what is now obvious.
Upside Targets
The conservative upside target is 249.96 and the extreme upside target is 499.91. Because these numbers seem well beyond what is reasonable, we have set upside targets at ⅓ of the difference between the current level of 88.32 and 249.96. The upside targets are as follows:
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142.20 (+61% increase)
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196.08 (+122% increase)
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249.96 (+183% increase)
Investment Considerations
While achieving the extreme downside target doesn’t mean that the decline in the index has ended, the majority of the decline from the 2008 peak is behind us. According to Bloomberg.com, energy and grains have the largest group weighting to the Bloomberg Commodity Index at 31% and 22%, respectively. The single largest commodities in the Bloomberg Commodity Index are gold and natural gas at 11% and 8%, respectively.
We believe that those interested in the investment opportunities in commodity stocks should review the top tier stocks that have 7% or more individual commodity weighting in the Bloomberg Commodity Index.