Market review 23.01.22
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Market review 23.01.22
Carl Icahn, marine shipping, and resources.
Hello everyone,
This week, I found some new individual stocks with beautiful charts, only to later realize that a few of them also had enormous dividend yields. This got me to do the reverse: scan for high-dividend stocks (with a market cap >$500M) and then select the ones with the best charts.
Here’s what I found:
The last one on this list is legendary investor Carl Icahn’s holding company. Energy represents a minimum of 29% of its net assets. Since 2000, IEP has returned 14% annually net of dividends (compared to 6% and 9% for the S&P 500 and Berkshire Hathaway, respectively).
IEP’s quarterly chart looks fantastic, with a 9-year breakout last quarter!
Now, let me be clear: a very high dividend yield tends to reflect risk with the company.
We can see that my list above is dominated by commodity producers and shippers. A long bear market in commodities, followed by a 3-year Covid lockdown in China (which only recently ended) has no doubt threatened the existence of these capital-intensive sectors, thereby causing many companies to offer high dividends. I remember in the depths of the 2020 Covid crash, some large-cap energy stocks (BP and Shell) were offering dividend yields north of 15%.
Of course, as traders, we can minimize company-specific risks by aligning ourselves with the trend, position sizing, and setting stop losses.
Let’s look at some of the other tickers in my list as well as their broader sector.
Materials
Charts for the 2 high-dividend steel stocks are shown below. GGB is coming out of a 2-year high base, while SID broke out of a 6-month low base. These are the 7th and 12th largest holdings in the SLX ETF I’ve been discussing.
In last week’s post, I covered why the materials sector is very bullish. This week, spot copper retested a big support level and held it. Let’s see if we can get upside follow-through from here.
Marine Shippers
Shippers are highly tied with materials (XME, SLX, COPX) which, in turn, are tied to emerging markets (link). All these market segments look great. It does seem like there’s a narrative here: China re-opening after 3 years → metals soar from all the pent-up demand → marine shipping activity accelerates.
In TradingView, I created an index using 7 of the biggest marine shipping stocks. The weekly chart for this index shows a clean base within an uptrend. A breakout here would of course be very bullish.
Charts for individual names look great. Many pulled back to important fib retracement levels in recent months:
PS: You got to love the slogan of Star Bulk Carriers (SBLK): "Give me a ship and I shall move the Earth" - a play on Archimedes’ original quote.
Energy
Charts for the 2 high-dividend LATAM energy stocks are shown below. PBR loves to base after a pullback, before rallying again. EC has already come out of a nice 6-month base.
Last week, I discussed some negatives with energy (namely how natural gas is in a severe downtrend, and many energy ETF’s hit major resistance last year).
However, I want to point out several positives.
BNO Monthly. This Brent Oil ETF retested a major long-term base in December. This reminds me a lot of the SLX and COPX monthly charts, which retested similar bases first in late ’21 and then again in H2 of last year.
Commercial hedgers (“the smart money”) have their highest net exposure to oil in many years.
And my favorite pieces of data:
Energy stocks continue to be market leaders, with XLE hovering within 4% of its 52-week highs.
Big-picture charts for individual stocks like CNQ and ENB are fantastic. See here and here.
Closing Notes
In this post, we looked at the bullish picture for commodity producers and shippers. Historically, a boom in materials coincided with strength in emerging markets. With China coming out of Covid lockdowns and the FXI ETF displaying relative strength, this makes sense.
As I covered a month ago, the US has lately been showing relative weakness. Big tech had become a very large allocation within the S&P 500 (and still is). The downtrend in big tech has thus been putting a lot of pressure on the US. Many of these tech names are now approaching significant resistance levels after a multi-month rally.
Even sector leadership within the US has been wobbly. IAK and ITA seem to be struggling to hold recent breakouts.
To increase the odds of trading success, we have to be fishing in the right pond. And right now, the US is not it. I continue to remain focused on non-US stocks (especially emerging markets), materials, and bulk shippers.
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.
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.