[Chart Of The Week] Economically Sensitive Assets Break out In Unison

JC Parets
November 14, 2016

Last week I shared with you guys a "Mystery Chart" without any labels on it. The point of this exercise is to eliminate any biases and focus only on facts. The only truth in the market that we can count on is price. Sell side analysts are going extinct because they offer little value, the media is often either wrong or lying to you, the same can be said about C-level executives, and the list goes on and on. None of these people are reliable. This is why the only thing we can count on is price. It's just math. So we prefer to focus on that and ignore the rest of the noise.

Today we're looking at a rare development in economically sensitive assets that I think have much broader implications for stocks and commodities moving forward:

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[hide_from visible_to="member"]This is a chart of an index that I have labeled as "Sensitive" due to its economically sensitive components. This is an equally-weighted 50/50 Copper prices and the Dow Jones Transportation Average. Last week both of them broke out to new 52-week highs simultaneously for the first time since 2010. Here is what they look like together:

SENSITIVE

One reason I think this is important is that it's rare. Going back to 1988, this had only occurred 7 times. While the short-term significance is nothing worth discussing here, the longer-term implications are the real deal. The average return over the next 6 months was 7.5% for the S&P500 and the median return was 8.6%. Taking things a little bit further out, the average return over the next year was 13.1% and the median return was 10.7%.

These breakouts should not come as a surprise. Base metals (see Nov 3, 2016) have been exploding higher in recent months and the Dow Jones Transports (see Nov 3, 2016) have been outperforming since July as its components have each been resolving their consolidations higher one by one.

Here is what the S&P500 looks like when overlaid with the "Sensitive Index" of Copper and Transports. To me, this breakout in Copper and Transports suggest that the S&P500 should be following along.

SENSITIVE and spx

For a list of stocks and ETFs that I think will benefit from this trend, start your 30-day RISK FREE trial today and check out the Trade Ideas Page for yourself.

 

 

 Tags: $HG_F $JJC $TRAN $DJT $IYT $SPX $SPY $ES_F

Source: Sentiment trader 11-8-16

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