If the markets seem a more than little indecisive at the moment, one of the reasons is that ongoing sector rotation has muddied the waters with respect to what is hot and what is not. A lot of the sector rotation churning, on the other hand, is merely asset class trickle-down, as investors try to decide at a much higher level whether they want to make a substantial commitment to equities and the possibility of a resumption in the recent bull market – or whether the hard assets of commodities are a more attractive option in light of natural resource shortages and concerns about inflation.
The commodities vs. equities battle has been tilting in the direction of commodities in recent months, but since the March lows the consensus has unraveled. In the chart below (click to enlarge), the ratio is of the Rogers International Commodity Total Return Index (RJI) to the SPX. [RJI is an ETF linked to the Rogers International Commodities Index that has a broad weighting, with less emphasis on energy than most commodity indices.] The ratio chart shows indecision over the past six weeks, with the symmetrical triangle pattern awaiting resolution. I am not sure which side will win the commodities vs. equities skirmish, but when we can declare a victor in this battle, we should know a great deal about the future of the markets over the next few months.
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