Market review 23.10.29

Industrial Metals, LatAm, and Marine Carriers

Hello everyone,

Much of the discussion I saw this week focused on the continued decline of broad US equities. Some of this year’s leading sectors took a hit after earnings reports came out from the mega-caps:

• XLC fell 5.2% this week. GOOG & META reported (37% of the ETF).

• XLE fell 6.2% this week. XOM & CVX reported (40% of the ETF).

Very few areas were up this week. Bitcoin took the spotlight with a 14% jump higher.

But lost in all the above was the gain seen in industrial materials (SLX, CPER), Latin America (EWW, ECH, ILF, EWZS), and marine shippers. These three areas are highly related, and there’s a bullish thesis emerging that I’ll present in today’s post.

Industrial Metals

The green zone of the ETF Leadership Board is now dominated by commodities: Agriculture, gold, oil, and uranium:

Note how the underlying commodities lead their related stocks in the chart above. Example: DBA > MOO, GLD > GDX, USL > XLE, and U.U > URA.

On the opposite end, we see that battery metals (REMX, LIT) have been severe laggards.

Now, something that is not yet evident in the above chart is the potential for steel and copper (SLX, COPX) to gain leadership. I say this because this week, some of the ETFs that saw the biggest increases in their SCTR values were these industrial metals (and related marine shippers):

Let’s zoom in on steel.

Among the three largest holdings in the SLX ETF are RIO, VALE, and CLF. Technically, these are the largest producers of iron ore, but 98% of this raw material is used for making steel. Below is the combined monthly chart for these three producers: A bullish consolidation within an uptrend.

DBB (Base Metal Commodity ETF) also saw a significant increase in its SCTR score. The weekly chart could be forming a bullish base:

The above ties nicely with the fact that hedgers are positioned at the bullish end of their historical range in copper futures:

I’ll briefly mention palladium: This commodity now sits on 20-year support, with hedgers having their largest position ever. I’ll note, however, that this is a difficult one to trade.

Marine Shippers

This is a tiny sector in terms of total market cap, but it's vital to the global economy as 90% of the world’s trade is carried by sea.