The Opportunities Go To Those Who Can See Past The Negative Headlines

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Copper set to deliver its highest monthly return since February

Keeping an Eye on the PMI

Again, one of our favorite leading indicators is the manufacturing purchasing manager’s index or PMI. The gauge compiles data from thousands of factories and manufacturers across the globe, measuring data points such as output, new orders and employment. At the beginning of every month, we get a number that reflects the health of the industry.

The higher the number is above 50.0, the faster factories are expanding their business. The lower the number is under 50.0, the faster they’re shrinking. 

September’s PMI was 49.7. That’s in contractionary mode, but because it’s up slightly from August’s 49.5, factories are pulling back at a slower rate.

We won’t know what the PMI is for October until later this week, but if it shows that we’re back to a neutral 50.0 (or better), it could mean good things going forward for energy and commodities.

According to our own research going back 10 years, when the global manufacturing PMI rose above its three-month moving average, commodities and commodity stocks appreciated six months later. Copper, for instance, gained an average of around 10 percent, with a 71 percent probability of occurrence. West Texas Intermediate (WTI) oil returned about 5 percent. And so on.  

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Commodities and Commodity Stocks Historically Rose 6 Months After PMI Cross Above

Conversely, when the PMI fell below its three-month moving average, materials historically declined—or, in the case of energy, was essentially flat—six months later.

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Commodities and Commodity Stocks Historically Fell 6 Months After PMI Cross Below

Again, these results are based on 10 years’ worth of data. We’re hoping for a stronger PMI for the month of October, which would help give commodity prices and mining stocks an extra shot of momentum going forward.

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Disclaimer: 

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory ...

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