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Market Review 22.08.21
The FEMI trade and rates
For these weekend blog posts, I like to look at all my tweets during the week, pick what stands out, and then write a story for it.
What stands out right now is a single theme that’s been prevalent for a while:
Sectors with the nicest long-term charts are financials, energy, materials, and industrials (“FEMI”).
Long-term charts for tech are largely broken, including mega-caps (NFLX, META, NVDA, and PYPL). After a massive tumble since Nov, Bitcoin and profitless tech (ARKK) have been weak in the recent market rally. There’s been miniscule outflows from the ARK funds this year, given that there were almost $30B of inflows in the prior 2 years. Highly speculative tickers saw a pump & dump over the past month.
Rates look poised for a move higher, consistent with the above 2 points.
I focus on long-term charts whose message doesn’t change much from week to week. This makes my posts often sound repetitive. Nevertheless, here’s what I’m seeing…
We looked at JPM hitting major support a month ago after it reported earnings.
Here’s the Regional Banks ETF (KRE) rallying off support. The longer-term uptrend is intact.
Monthly charts for oil stocks are fantastic, especially Canadian names: IMO, CNQ, TOU, and ENB.
Same is true for coal stocks. Here’s ARLP monthly. Also see BTU, CEIX, and NRP.
Buffett began aggressively buying oil stocks in Q1 this year, and he continues to do so. The most recent 13F filing shows that CVX has now become his 4th largest holding. On Friday, he won approval to up his stake in OXY to 50%, which could become a larger holding than CVX and his biggest acquisition ever.
Buffett first bought AAPL in 2016. He also dumped his airlines in 2020. Both trades were highly criticized by the public, yet both proved to be great decisions. Of course, his IBM trade was a flop.
We’ve looked at this REMX monthly chart showing a major base breakout. COPX and SLX look similar.
Potash took a big hit in June, however, the long-term uptrend is still in intact. Here’s MOS.
I’ve been discussing how beautiful the long-term uptrends are for waste removal stocks like WM, RSG, WCN, and CWST.
The EVX ETF is heavily weighted towards waste removal, and its weekly chart is also great. This is one ETF that’s closest to its 52-week highs right now.
Railroads are also fantastic. Here’s CP Monthly.
Canada & Dividend Stocks
Canada is one of the countries best positioned to capitalize on the FEMI trade. These 4 sectors make up a whopping 78% of EWC, whose monthly chart looks a lot like the ones we already saw above:
Note: SHOP was Canada’s biggest weighting in recent years, peaking at an 11% weight this past Nov. That weight now sits at just 2%. Practically the entire 9% decline in EWC since mid Nov came from SHOP falling 80%.
XDV is a Canadian Dividend ETF with >50% allocation to banks. It retested a major support level earlier this summer.
It’s a similar picture for the Canadian Preferred share ETF (ZPR). In the US, ETFs like FDL and SYLD look fantastic.
Both the high dividend yield (>5%) and exposure to FEMI helps these ETFs hold up during this environment of rising rates, which I’ll discuss next.
TNX (US 10yr yield) is still in an uptrend. It recently had a failed break on the weekly.
COPX:GDX has historically been tied with TNX. It’s been basing within an uptrend. Keep an eye on this ratio for a breakout.
Finally, both the US 30yr Fixed Mortgage Rate and Japan’s 10yr yield are resting on support.
We looked at 16 charts today and I could’ve easily included more. All charts are giving a consistent message favoring the FEMI trade.
High interest rates and inflation could be with us for a long while. And as I discussed 2 weeks ago, the bull market in resource stocks doesn’t require ever-rising commodity prices. These stocks can do well simply if commodity prices remain elevated.
The majority of charts today were monthly charts. They let us see things clearly, but it’s hard to stick with them. Patience is a big edge because few have it.
Enjoy the rest of your weekend.
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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.