Market review 24.05.19

Intermarket Review, plus standout long-term trends

Hello everyone,

In recent blog posts, I’ve featured attractive market segments such as metals, shippers, emerging markets, tobacco, utilities, and e-commerce. I’ll do an Intermarket review today, which I haven’t done here in a while.

Intermarket analysis

This week, we had the monthly CPI and PPI inflation data release, plus a Fed meeting. I don’t pay any attention to lagging economic data and vague commentary. Instead, I listen to what the price action objectively tells us across different asset classes in real time.

Since 2022, stocks have had a high negative correlation with the destructive trio: oil, interest rates, and the US Dollar. And we remain in that environment.

After a brief pullback, the S&P 500 bottomed on April 19. Can you guess what that coincided with? Both the US 10yr Treasury Yield (TNX) and the CRB Commodity Index hit their upper monthly Bollinger Band (BB) in April before retreating:

Not all commodities are the same. The CRB Index is heavily weighted in Oil & Gas, with a minor weight in Gold. So far this decade, oil and gold have taken the spotlight at different times, and for good reason.

Oil and gold are positively linked with inflation. However, interest rates respond positively to oil prices (an economic stabilizing effect), while gold prices respond negatively to interest rates (opportunity cost). Hence, the ratio of oil to gold has tracked TNX historically:

The chart above also shows that the Oil:Gold ratio is breaking down (we already got a breakdown on the weekly timeframe). This likely points to TNX retreating further in the coming months.