March Strategy Session: 3 Key Takeaways

1. All Eyes on the January Lows

In last week's call, we pointed out that the major averages are trying to find their footing at logical levels of support.

The chart below shows the Russell 2000 ETF $IWM finding support at the AVWAP from its 2020 low for the second time this year. But it's not just the AVWAP that makes this level important. It's also where buyers stepped in back in January.

While the Russell 2000 is the only index to make a higher low, we're seeing similar price action from the large-cap averages as they're also trying to rebound off their pivot lows.

For the S&P 500 and Nasdaq 100, the January lows coincide with the 2021 first-half highs, making them all that more important.

At the end of the day, bulls just need to see these potential support zones hold firm. The January lows mark the line in the sand for the major averages. If the indexes lose these levels, we need to be prepared for further downside.

As of this writing, the large-cap averages are all violating these lows, which leaves only the Russell 2000 above our risk level.

2. Commodities Make History

After such a strong start to the year, you might think commodities are due for a breather. We think that would make sense here too, but we're just not seeing it... at least, not yet.

Instead of cooling off, they're heating up.

The CRB Index has closed higher for 11 consecutive weeks and is currently trading at its highest level since the fall of 2014. As if this run hasn't been good enough, commodities just registered their best week in over 50 years!

This zoomed-out chart of the index reminds us how far commodities have come since the pandemic lows, in addition to the scope and duration of prior bull runs.

And what do prior bull markets tell us about the current one?

While every cycle is different, if the current bull market in commodities is going to be anything like the last one, we have a lot more room to run.

And with participation broadening in the most constructive way and momentum readings showing a bullish thrust, we have no reason to think prices won't continue to rise.

In fact, when we look at the charts of copper and gold, which appear to be breaking out of decade-long bases, it feels a lot more like this is the start of a new move, rather than the end of an old one. 

Long story short, the weight of the evidence continues to suggest we're in the early-to-middle innings of this rally... and we think it’s likely to last for years to come.

3. Get Ready for a Big MOOve

With such a powerful bull market in commodities running its course, what's the best way to position ourselves in equity markets?

Luckily, there are areas of the stock market that are directly related to the goings-on of commodity markets. There are companies that extract, produce, and sell the same natural resources traded on commodities exchanges.

And those are the ones we're focused on buying right now.

We've discussed and written about industrial metals and energy plenty in recent months. These groups have been very obvious and well-advertised areas of leadership since last year.

But an industry that doesn't get discussed much is agricultural inputs. Ultimately, we're referring to chemical and fertilizer stocks.

With agricultural commodities doing as well as they are these days, it makes sense that the companies that produce -- or help produce their crops, are also doing well.

This brings us to the Agribusiness ETF, $MOO:

We already have trade ideas out on a number of its top holdings such as $DE, $CTVA, $NTR, $TSN, and $ADM. And with grain markets ripping higher we think it’s just a matter of time before MOO follows suit.

As long as it’s above 94.74, we like it long with an upside objective around 141.

Those are some of the main takeaways from this month’s strategy session.

Thanks for reading, and please let us know if you have any questions!

Allstarcharts Team