Cracks in the inflation trade

For most of this year, my ETF leadership board has been showing the strength in the ‘inflation trade.’ This of course means commodities (energy, materials) and banks (which benefit from rising bond yields).

However, I’ve been seeing some data points that have me cautious on this trade.

One of the earliest signs of weakness was lumber, which collapsed over the summer:

Then we saw SLX (steel producers) break down in early Fall:

Now more recently, we’re seeing breakdowns in the Baltic Dry Index, BDRY, and DBB (an ETF consisting of copper, aluminum and zinc futures).

Last week, potash producer IPI hit a major resistance level:

And this week, several uranium stocks are all hitting major resistance lines:

Tying it all together

Here’s the one intermarket chart I watch:

This chart ties together my bullish views on:

• Bonds: If the inflation trade falters, then likely bond yields will go down as well.

• Big tech (Oct 27 blog post)

• Gold miners (Oct 7 blog post)

Thanks for reading.

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Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.