Discover more from AlphaCharts Blog
Revisiting the inflation trade
(This blog was published in the morning but I forgot to email it to everyone).
A bit over a month ago, I wrote about some warning signs in the inflation trade (Nov 9th post). Since then, DBC fell about 9% before bouncing off support last week.
As traders, we have to stay objective and change when the data tells us to. And there are a lot of data that suggests cyclicals could have bottomed and are setting up for another leg higher.
First, commodity ETFs suchs as XOP, LIT, REMX, and LAND are still leaders:
While SLX, COPX, and URA have fallen on the leaders chart above, SLX retested a 10-year base in Nov! I really like this monthly chart below.
Note: COPX, URA and the CRB Index did not retest their multi-year base breakouts (and may not need to).
Here’s ENB (oil pipeline stock) retesting a 7-year base:
Similar to DBC, UUUU (uranium stock) and IPI (potash stock) are retesting their multi-month breakout:
Several cyclical stocks have been consolidating for weeks within strong uptrends. For example, see the weekly charts for OAS (oil stock) and DAC (marine shipping stock).
Speak of shipping, the Dow Railroads Index had a nice rally last week after retesting its May highs.
Lumber also reclaimed a very important level. Interesting that XHB (home construction ETF) has also been one of the strongest sectors recently.
UUP Monthly is at 13-year resistance. (Take this for what it’s worth, as this ETF doesn’t track the US Dollar Index exactly).
Commercial hedgers (often considered the ‘smart $’) currently have their largest USDX short position in 4 years (they had their largest USDX long position at the start of the year and have been correct).
In addition, the smart $ has a record high long position in AUD - a currency highly tied with oil & copper.
The charts for commodities & currencies all suggest that the inflation trade could continue its leadership.
I exited my gold trade a couple weeks back (Dec 1 post), but continue to hold LAND and big tech which are doing well. Based on all the charts in this post, I am taking new positions in a few ETFs in the inflation trade.
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.