Market review 22.07.10
Hello everyone,
For the first half of this year, commodities rallied while stocks fell. Then two weeks ago we looked at how we can get countertrend moves in the short-term.
We’ve been seeing just that.
The market has gone from commodities being clear leaders and everything else being laggards, to now this picture where stuff like biotech and solar are trying to overtake oil & agriculture:
Let’s see where things stand now.
Commodities
DBC Weekly. We looked at this chart after the breakout failed. Since then, there’s been continued downside.
PSCE Weekly. Small-cap energy has been the weakest segment of the oil market, however, it held support this week.
Lots of other tickers reached big support as well. See monthly charts for TOU, TRP, SBLK, and REMX that I posted on my twitter feed this past week.
If the commodity complex fails to hold recent lows, we may hit more long-term support levels such as these shown on IMO and PICK.
PALL Monthly. One emerging area of strength within commodities is our old friend palladium. It tagged the lower bollinger band late last year, and looks to be making a nice base within an uptrend. Again, commercial hedgers have a record net long position. Watch this one closely.
This could just be spurious, but palladium has tracked the Nasdaq-100 remarkeably well in the past 26 years:
And that leads us nicely into…
Broad Equities
While June did some damage to monthly charts, a couple charts show promise.
Recently, IWM hit 4yr support while XDV (Canadian dividend ETF) hit 8yr support.
VIX Weekly. I listen to a lot of podcasts, and I keep hearing many people looking for the VIX to break out into the 40’s creating that capitulation opportunity to buy stocks.
But hedgers’ net position in VIX futures is near the lowest end of the past several years. I remember in late '19 when hedgers had a record long position - that was the time to expect a spike, not now.
Equity Sectors
Lately, growth sectors have been outperforming value. And it’s happening right after the SPX:TSX ratio hit those former 2000 highs as new support.
I’ve been discussing biotech in the past few posts. XBI had an amazing week, up over 10%.
As we saw, the monthly chart for IBB is fanstastic. And BIIB - the 8th largest holding in this ETF - could see a giant 9-year failed breakdown if biotech shows continued strength:
We also looked at how BTC and BTC:XOP hit multi-year support recently. Crypto (which has been highly correlated with stocks) has been holding well since. For some comic relief, here’s Jim Cramer’s recent comments about this sector…
Finally, also keep an eye on waste removal stocks such as WN, WCN, RSG, CWST. Their monthly charts look to be setting up nicely as I shared on twitter: link.
Closing Notes
The recent pullback in commodities is putting some serious doubt in everyone’s minds about the inflation trade. But consider:
Ratio charts like SPY:XLE show the broad market is still in a steep bear market relative to oil.
Many commodity names hit support, and if these fail, there’s even bigger long-term support not far below.
We now have new multi-year highs for commercial hedger net positions in: oil, copper, lumber, and all four precious metals.
The long-term picture for commodities is still very bullish. A good way to re-build positions: initiate a small starter position on support, then add a bigger position when we get breakouts (or failed breakdowns).
That’s all for this week! If you found this post useful, please give it a like and share. Thanks for reading.
Twitter: @alphacharts.
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.