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Market review 23.01.15
Catching up with commodities
There’s so much to write about this market that the challenge is to keep this post concise. I’ll be making ample use of hyperlinks.
It was another great week for equities:
Credit: The HYG/IEI ratio shown below made a breakout. There’s more demand for junk bonds than Treasuries, which is not something you see in a bear market.
Currencies: The US Dollar Index broke a support level dating back to 2016.
Current market leadership is shown below. There are now several sectors that are leading (compared to last year when it was mostly just energy).
In the past 3 blog posts, I’ve already discussed all the reasons why the equity market looks great (especially industrials & foreign stocks). I even posted a twitter thread this week with all the charts that have me bullish (link).
What I haven’t discussed for a while on this blog is commodities – so I’ll focus on that today.
While there’s dozens of commodities that trade on the futures market, there’s only two types for the purposes of our discussion: the ones going up, and the ones going down:
The dichotomy between oil and copper is an interesting one. When the equity market made its low in Oct, oil and the US dollar were up YTD while copper (like most things) was down. In the 3 months since then, it’s been the opposite.
RINF Weekly. The ETF for inflation expectations made a failed breakout after peaking in Oct (shortly after stocks bottomed). Falling food & energy prices have certainly helped with that.
Let’s look at the leaders (materials) before discussing energy.
On the sector leadership chart from earlier, what sticks out to me is COPX and SLX. And if we analyze the individual stocks within these ETF’s, here’s how leadership stands:
We can see that copper stocks are the strongest, followed by steel. Meanwhile, rare earths & lithium have been lagging.
Steel & Aluminum
Spot aluminum made a breakout this week:
One of the charts I’ve shared a lot on this blog over the past year is SLX monthly. It came out of a big base in 2020, and now is breaking out of a 2-year range:
On the weekly timeframe, several names within the steel sector made breakouts this week (link).
After retesting long-term support last year, copper has been strong:
COPX (Copper mining ETF) is setting up relative to SPY as shown below. It’s also breaking out relative to GDX (link).
Charts for individual copper stocks look great. Look at the powerful uptrend in SCCO, which is trying to push through a 2-year base:
In recent months, I’ve been pointing out how bullish emerging markets look. It turns out, copper’s performance has been highly tied with EEM for the past 25 years! (link).
While OIH and XLE are still leaders, there’s some concerns.
We already saw how DBE (an oil & gas commodity fund) is in a downtrend. UNG (a natural gas fund) has gotten absolutely crushed: down almost 70% from its late-August highs and currently sitting near 52-week lows.
We also had energy equity ETF’s hit major resistance in 2022, including: XLE, XOP, and XEG. The latter is shown below:
A lot of coal names (ARLP, BTU, CEIX, NRP) look weak after making >10x moves off the Covid lows.
Last year, while almost everything fell, energy stocks did phenomenal. If SPY rallies here, perhaps XLE underperforms:
Similar stuff can be said for food commodities and potash stocks.
The broad equity market is bullish, with industrials, materials and non-US stocks looking particularly excellent. Easing inflation pressures (from oil & agriculture) and a falling US dollar have been helping.
Airlines, tech, and crypto joined the party this week with big gains. There are now many different sectors to be long rather than the very narrow leadership we had most of last year.
I’ll leave you with these tweets to reflect on:
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.