Hello everyone,
In early Oct, we looked at all the major breakdowns on the monthly & quarterly charts for the broad equity market. Another one we can add to that list is Toyota, the second-largest automaker in the world:
In the coming months, it will be interesting to see if these broken supports can recover. Or the bear market resumes, and we also see breakdowns in EWJ and Home Builders:
Momentum does favor further downside, and XLC falling to the 2018-2020 lows could happen down the road:
What does leadership currently look like?
Oil and agriculture continue to lead; however, materials have started to poke out of the laggards area.
SLX, REMX, and OIH were up a notable 10-15% this week. I want to focus on commodities for the rest of this post.
Oil
This type of thinking is a sure way to miss out on big multi-year trends:
“Oil stocks already have had huge rallies in the past 2 years. They’re extended and everyone is too bullish. The move is over!”
It helps to look at the big picture. Yearly charts show that the move in oil could just be in the early stages:
Zoom-in on these charts on Twitter.
This week, small-cap energy stocks made a decisive 3-year breakout relative to crude oil:
Uranium
The Sprott Physical Uranium Trust (U.UN) made a breakout this week.
The award for best-looking uranium miner chart goes to GLO.
Industrial Materials
As touched on earlier, materials had a great week. And this strength we’re seeing didn’t appear at a random place, but rather occurred off major support levels for COPX, SLX, and REMX:
Off the Covid lows, materials intially led the commodities rally. They have been consolidating over the past 12-18 months while energy caught up. Materials could lead again after the rest they've had.
Precious Metals
GLD Weekly. Gold is sitting near 52-week lows after breaking down in September:
XAU Monthly. Like a lot of assets & equity sectors hurt by rising interest rates, this PM miners index is below an important resistance level:
Tying the above 2 sections together, I’m watching for an upside breakout in the COPX:GDX Ratio:
Closing Notes
The big trends are telling us to be long commodities and related stocks, while avoiding bonds and the broader equity market. Bond yields came out of a big base this year and along with inflation, can remain elevated for a while:
One gauge to watch is the price chart for Fluor – a US-based engineering & construction contractor that builds oil, mining, and power plants globally. It’s near 52-week highs:
The strength in Fluor indicates that commodity producers are bullish longer-term and are building more production capacity. This is interesting given all the chatter we hear about the Fed causing demand destruction and a coming recession.
I’ll leave you with a couple 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.