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Market review 22.06.05
Energy, Materials, and Ed Thorp
Not much has changed in terms of market leadership: Oil continues to lead by a longshot, steel & copper are emerging, while tech and crypto remain the weakest parts of the market.
Let’s focus on what’s working.
RBOB Gasoline Futures, Monthly. 14yr breakout in May and now at new ATH’s. And despite the sharp rally since the 2020 lows, commercial hedgers continue to be on the more bullish end of their historic positioning (similar situation for the Crude oil).
In staggered fashion, we’ve been seeing many of the big Canadian oil stocks come out of multi-decade bases. First it was CNQ in October last year, then IMO this January. Now we’re seeing SU coming out:
In fact, the Canadian energy ETF itself is coming out of a large base. Here’s XEG monthly:
On the shorter weekly timeframe, there’s more breakouts. Here’s WTI Crude and the GSP ETN (a commodity basket with two-thirds in energy).
I’ve been seeing lots of people on Twitter skeptical of the oil rally. However, with new breakouts and bullish positioning, this uptrend in energy could go on for a lot longer than people think. Recall the interview with Jerry Parker from 2 months ago: Trend following is hard because people sell their winners too early.
It’s not just energy to be excited out. In the past several blog posts, I’ve been discussing the bullish charts for materials. Here’s the SLX monthly again.
COPX:GDX Weekly. New breakout! Both COPX and GDX benefit from inflation, however, gold suffers from rising interest rates. This ratio therefore tracks interest rates closely.
Commercial hedgers not only like oil & gasoline, but also copper and CAD (ie. they are on the more bullish end of their historic positioning).
If you’re curious about the supply/demand of copper, checkout this recent Odd Lots podcast titled “Why copper may be one of the tightest markets the world has ever seen.”
Looking at a monthly chart of the broader Canadian equity ETF, we’re reminded of the 13yr base breakout in Nov ’20. May saw a nice bullish wick.
Canada’s composition is vastly different than the US. It has a 79% weighting in banks, energy, materials, and industrials (vs. 27% for the S&P 500).
Tim Ferris had the legend Ed Thorp on his show recently (link). This episode covers a lot so be sure to check it out:
Beating the Casino – Ed was one of the first to have a quantitative edge at playing Blackjack
Trading Markets - Ed discovered how to exploit options mispricing years before the Black Sholes model was published. His hedge funds were profitable every year for 29 years. Ed also talked about his experience with Buffett, Ken Griffith (Citadel), and Madoff!
Workout routines - Ed is 89 but as Tim says, he looks 60. Ed discusses the importance of compound lifting (squats, bench press, military press). Amen. 💪🏼
For those that have been reading this blog for the past year - I must sound like a broken record. I often post the same long-term charts over and over. But that’s a good thing – it means there’s sustainable trends out there to ride. And that’s where the big money is made.
That’s all for this week! If you found this post useful, please give it a like and share. Thanks for reading.
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.