This Commodity Bounced Back from Record Lows: Raise Your Gloved Hand if You Know Why!

by Nico Isaac
Updated: July 16, 2021

The 1969 hit tune "Let the Sunshine In" sang of the dawning of the age of Aquarius.

In 2021, mainstream financial experts have a similar song of their own. Its lyrics were published on the pages of the January 5 Reuters:

Since then, investment firms have stayed in bullish harmony over the future of raw materials as everything from lumber to lean hogs continued to take off like a bee-stung bull on a bed of coals before hitting a collective wall this summer. Wrote one June 29 Forbes:

"Traders and hedge funds reap billions in commodity boom as prices rise for everyone else. Commodities are back, and from pension funds to physical commodity traders, everyone is making money."

Leading the pack was rubber. Between March 2020 and January 2021, the benchmark Tokyo Commodity Exchange's rubber futures reversed from a decade low to a 4-year high before losing its bounce. Since peaking in January, prices have steadily fallen to the multi-month lows we see today.

The cause for rubber's rebound seemed obvious: the unprecedented demand for latex personal protective gear necessitated by the Covid pandemic. One November 11 Wall Street Journal said, "few commodities have felt the effects of the coronavirus pandemic as keenly as rubber."

And, while some of the air has leaked out of rubber's uptrend in first half of 2021, mainstream analysts say its future remains bullish. Wrote one May 2, 2021 Economic Times:

"Increased demand for rubber gloves and packaging tapes during the pandemic has resulted in tightening of natural rubber supply... while US automakers are rushing to secure shipments before the market gets squeezed further."

So, yes -- today there seems to be a clear and undeniable line between soaring rubber prices and the commodity's rise in demand/fall in supply caused by the pandemic. But what about before the pandemic got underway?

Back in March 2020, at the beginning of the pandemic, a very different line was being drawn; namely, one that connected the coronavirus crisis to FALLING rubber prices.

Then, TCE rubber prices sank to their lowest level on record amid a perfect bearish storm of a hard-hit auto sector -- cars are made with tires and tires are made with... you guessed it.

Add falling oil prices -- which is the principal raw material in synthetic rubber.

All told, rubber's future looked flat, as this March 12 news source explained:

"The rubber industry can't seem to catch a break. Barely weeks after the novel coronavirus outbreak wreaked havoc on prices, the downward spiral in crude oil prices could compound the sector's misery."

In turn, the nature of the pandemic didn't change. It just got catastrophically worse. And yet, rubber's trend went from worse to bullishly better!

What's more, the tidal shift was foreseeable -- but not by using any of the mainstream's reasoning.

Here's where the rubber of Elliott wave analysis meets the road of opportunity. In the March 20, 2020 Daily Commodity Junctures, we showed this TCE Rubber futures chart which set the stage for a powerful third wave rally that would see prices double in value by 2021 before any meaningful reversal ensued.

And that's exactly what happened, as rubber prices doubled in value into early 2021 before turning down.

When it comes to the commodity markets, there will always be a perfect news-driven "reason" for price turns -- AFTER the fact.

As for righting your trading ship BEFORE these turns take place -- our Commodity Junctures Service is the ultimate navigator.