Paul Ciana, an analyst at Bank of America Merrill Lynch, saying that oil prices are likely to rebound sharply over the next six to 12 months, earning a hefty return.
The first chart compares commodity prices with bond prices. The strategist said last week that the chart showed a large head and shoulder shape. Earlier this year, the proportion fell below the neck line.
As shown in the figure below, the Blue Line is the US Commodity Confidence Index and the Purple Line is the 200-day average.
But that ratio has now returned to the defensive edge -- a move that provides compelling reasons for rising commodity prices, Ciana said. "This is exactly the technology at which investors should short bonds and buy commodities, especially if the relationship continues," he said. At least I think so."
Bond prices, especially 10-year treasuries, have been under pressure as bond yields have risen. As central banks around the world raise interest rates and end their quantitative easing programmes, they have been facing adverse factors.
The second chart of Ciana shows how WTI crude is moving. Although WTI crude prices have fallen over the past five trading days, they have rebounded nearly 7 per cent in the past six weeks. The price of WTI crude oil now fluctuates around $69 per barrel.
The figure below shows the daily trend of WTI oil prices. The purple line represents 100 daily lines and the gray line represents 200 daily lines.
Ciana said there is still a strong trend, indicating that the WTI oil price trend is actually higher. He stressed that the 100-day moving average acted as a support line in the upward channel of oil prices. Ciana believes WTI oil prices are accelerating to $77 a barrel, saying the current level is a low-risk buying point.