This week, I'll discuss Canada, steel, precious metals, farmland, and transports. Let’s dive in.
This continues to be a very bifurcated market: you can find charts at the ETF-level showing both downtrends and uptrends. Moreover, some of these trends are new while others are now at a more advanced stage.
NYA Weekly. Here’s an example of a broad US stock index entering a new downtrend. This continues to signal caution for most stocks.
Meanwhile, Canada is looking constructive for a potential upside breakout. Here’s EWC Weekly.
In fact, Canada has been showing the highest relative strength among all developed countries.
What’s behind this strength? Canada is heavily concentrated in resource sectors, which have been in powerful uptrends.
The chart below shows leadership among the 60 largest Canadian stocks. Copper, potash, and oil stocks are the strongest. Telecom and staples are now at 52-week highs as well. In addition, gold miners are moving towards becoming leaders.
Let’s look at these resource sectors individually.
Over 3 months ago, SLX was retesting a giant 10yr base. Since then, it’s up 30% (while SPX is down 7%). This is the power of monthly charts, horizontal lines, mega-trends, and patience.
X Weekly. We got a confirmed false breakdown six weeks ago, before a monster 50 % rally.
False breakdowns are my favorite setup: they provide low entry prices with defined risk and the potential for a large & quick move.
COPX:GDX Weekly. 3 weeks ago, we looked at this breakdown. The fall accelerated this week, off another 6%.
Despite the strength in many copper and steel names, I haven’t been discussing them too much as I’ve been more focused on gold miners. Gold does well when broad stocks are weak, and the ratio chart above confirms it.
While I remain bullish gold, some pause here is expected and would be healthy.
Gold Weekly. Ran into resistance this week.
Monthly charts for GFI and FNV also show these names running into their previous ATHs. Meanwhile, palladium stalled at the '20 highs as was expected. The PALL ETF is off 13% from its Tues high. Again, I view this as healthy action.
What are some risk management levels on gold that if breached, will turn me bearish on gold?
XGD Weekly. This is the gold miners ETF in Canada. Watch for this support level to hold in the coming week(s). Also see the weekly chart for WDO.
Agriculture: farmland and fertilizer
LAND Weekly. This REIT made new ATHs. 2 weeks ago, I added back LAND when it hit support. I added another piece upon this breakout to make it a full position now.
With arable land in diminishing supply and grain prices soaring 40-70% over the past year, we can see why some billionaires have been buying up farmland in very large quantities (link).
IPI Weekly. Like X earlier, this fertilizer stock had a confirmed failed break down in early Feb. It’s almost doubled since then. I completely missed this trade.
Transports: railroads, pipelines, and shippers
Another beneficiary of the commodities market is the companies transporting them in various ways.
Dow Rails vs. QQQ, Monthly. In the 2000s, railroads significantly outperformed broad indices. And last year, we saw a giant false breakdown in railroads vs. the Nasdaq. This is a sector that has a lot of potential.
CP Monthly. Among the railroads, I like this CP chart a lot.
ENB Monthly. Like SLX, this Canadian pipeline retested a giant base in Dec and is up 25% since. The Nov highs are now new support.
ZIM Weekly. Breakout. Marine shipping stocks were among last years biggest winners, and they’re continuing that leadership.
RINF Weekly. Inflation expectations made a big breakout – and ahead of the strong CPI number released on Thursday. This is consistent with all the charts we looked at in this post.
TNX Weekly. 10yr yields are lifting from an important level.
The broad market remains in risk-off mode. However, several sub-groups are in uptrends: materials, energy, transports, farmland, and precious metals. I’ve been favoring the latter two but adding transport names to my mix.
I’ve been discussing cybersecurity as a leader within tech. However, the general weakness in tech is holding this sub-group back. I have partial positions bought on support, and will cut them if supports fail.
Bonds have been another part of my portfolio that’s been a drag. This goes to show that bonds aren’t necessarily a safety trade. Trades should be made based on technicals not their supposed correlations.
Finally, note that there’s a Fed meeting on Wednesday. We can see more of the high intra-week volatility that we’ve had this year.
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.