Good Sunday morning, everyone. ☕
Most sectors continued to selloff this week, telling us to remain cautious. Here’s where the ETF leadership board stands:
Speculative growth and gold miners were especially hit hard while oil producers climbed. No surprise there: trends persist.
But 2 things really stick out to me here:
While GDX made new 52-week lows, PALL is quietly is marching towards the leaders region.
While XLE is near 52-week highs, URNM/COPX/SLX are inching towards the laggards region.
This leads me to the topic of today’s post: While trends are likely to persist in the short-run, we could see a shift from inflation (value, industrial commodities) to disinflation (tech, precious metals) at some point.
Let’s explore some of the evidence for this.
Bond yields have a big influence on many aspects of the market, whether we like it or not.
I want to first point out the tweet below. It contains 3 charts showing that precious metals are more like tech and bonds, rather than value & industrial commodities (such as oil, copper).
This is just to highlight that a rally in gold might potentially occur alongside strength in both bonds and growth:value - similar to 2019. This may help to think about the sections that follow below.
Despite share prices being sideways/down in the past 3-18 months, lots of large-cap tech names are still in beautiful long-term uptrends. Many also have annual earnings growth rates north of 30%. How nice is this GOOGL monthly chart?
Major support in the MSCI Growth:Value and SPX:TSX ratios are both just 6-7% below (on a monthly-close basis).
Sentiment: Due to the recent selloff in growth stocks, AAII Net Bulls hit an extreme level of bearishness that we haven’t seen since the March 2020 and 2015-2016 lows.
Meanwhile, there have been ~$10B of net out-flows from the ARK funds since it peaked in Feb last year. For reference: there were $26B of in-flows in the 3 months leading up to the peak.
Many are, of course, making the dot-com analogy on fintwit.
Gold, Quarterly. Despite the chopfest since summer of 2020, gold is still coiled above long-term support.
XAU, Monthly. We could see a retest of this 9-year base.
Monthly charts for various miners, including FNV, WPM, KL, WDO, GFI, and of course, NEM are showing nice 2-year consolidations within uptrends.
Palladium is already leading the precious metals and is on pace to have its biggest monthly % gain in at least 10 years! Meanwhile, commercial hedgers continue to be near-record long.
SPPP, Weekly. This ETF is an equal mix of palladium and platinum. I’d like to see it base further and then breakout to confirm a sustaining move in precious metals.
Farmland: LAND fell 13% so far this month, but remains in a long-term uptrend. Recall, it made a 7-year breakout relative to S&P 500 back in Nov. This is an area that can resume it’s uptrend with gold & tech.
While oil charts look fantastic, many other parts of the inflation trade (copper, steel, uranium) are looking weak. Last week, we talked about uranium breaking down and the Baltic dry index in free-fall. Weakness has persisted:
The Canadian Dollar (which is highly tied to oil & copper), has also been diverging negatively from oil.
This kind of thinning leadership was present within the tech space all of last summer & fall, before the viscous decline began in November.
Three thoughts that tie together recent blog posts:
We want to continue being cautious most parts of this market, especially the laggards: tech, gold.
We want to give the benefit of the doubt to oil & agriculture going higher, but be aware of some warning signs developing.
Evidence is building for a rotation back into tech & gold (‘disinflation trade’) at some point.
While I discussed potential scenarios and even referenced correlations, sentiment & valuations in this post, I want to remind everyone that getting confirmation from price action is first & foremost.
As always, you can find my work in real-time here: @alphacharts. 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.