Commodities Fall Out of Lock Step

Something significant has occurred in the commodity futures market sector this week: There has been a decoupling, of sorts. By that I mean the key "outside markets" -- crude oil, the U.S. dollar and the U.S. stock indices -- that have had such a powerful influence over other markets' price action have this week become less influential.

In recent months, many commodity markets' own supply-and-demand fundamentals took a back seat to what the key outside markets were doing on a particular trading day. This was evident on a regular basis, as most markets were in sync -- if the U.S. dollar was weaker, then crude oil futures prices were higher and so were most of the other commodity futures markets. And if the U.S. stock indices were higher, then crude oil prices were usually higher. Conversely, when the stock market was lower, U.S. T-bonds and T-notes prices were generally higher.

However, in looking at my price screen this week I noticed that commodity markets appeared to be trading more on their own supply and demand fundamentals. For example, the grain futures markets were mostly down this week as grain traders focused on weather patterns in the U.S. midsection that were bearish. Sugar futures prices rallied strongly and hit multiyear highs on a tightening world supply-and-demand balance sheet -- even on days when the U.S. dollar was stronger.

On any given trading day this past week, some commodity market prices were higher and some were lower. Indeed, we stopped seeing the "herd mentality" that had been the rule in recent months.

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Jim Wyckoff is a senior market analyst for TradingEducation.com a free educational Web site. In addition, Wyckoff writes a blog offering current market commentaries every morning on TraderBlogs.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Wyckoff appreciates your feedback; click here to send him an email.