Commodities Weekly: Base Metals Slice Through the Market Chop

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

We can’t ignore the resiliency in base metals. 

Despite the classic year-two chop, base metals have remained buoyant while many other risk assets have come under pressure. They’ve even gained ground during the recent bout of US dollar strength. 

And now we’re beginning to see signs of serious leadership emerge as Crude Oil consolidates its recent gains. The broad-based strength beneath the surface for this procyclical group of commodities has been undeniable. These risk-on metals have been the steadiest performers within the entire asset class for the better part of this year.

Steel has relentlessly pushed to new highs --we can’t wait to see those monthly candles! Tin followed through to the upside after last week’s breakout to new all-time highs.  Even Copper has enjoyed a strong week as it challenges its 2011 all-time highs.

If the global growth narrative is going to take back off, we'd expect to see this kind of strength from industrial metals.

Now let’s take a look at a couple of metals that are leading the charge recently: Aluminum and Nickel.

First up is the daily chart of Aluminum futures:

Aluminum has been consolidating in a tight consolidation with an upward bias for the past three months. It ultimately resolved to the upside this week, reclaiming its former 2018 highs. 

Remember what happened in 2018?

Yes, risk assets peaked across the globe!

To see Aluminum back above its 2018 highs is a big deal. The breakout supports the global growth narrative and what we’re seeing across procyclical commodities.

We can be long Aluminum futures above those former 2018 highs near 2,550 with a target of 3,240 over the next 2-4 months. But only if we’re above those former highs. It's a no-touch if we fail back below 2,550 as risk would no longer be in the bulls' favor, and we'd likely be in for some further chop.

Aluminum isn’t the only base metal having a big week.

Check out this chart of Nickel futures:

Nickel has already reclaimed its 2018 highs and now challenges its former highs from the spring of 2014. It’s up 4.85% in the past five days as it attempts to complete a multi-year base breakout.

As usual, we want to be buyers on an upside resolution. And we're just another up day or two away...

If and when we get a decisive close above 19,930, we want to be long on strength with a 3-6 month target of 29,103. 

But no different from Aluminum, we can only own Nickel if we’re above those old highs. 

While these are some very nice base breakouts, we want to be cautious and patient as the markets have been handing out whipsaws left and right. It’s still a mess out there. And we're in the middle of shakeout summer, so it's nothing we haven't seen before.

But much like the green metals we covered last week, base metals are showing strength and a strong directional bias in an otherwise trendless market.

That’s valuable information and supports our long-term view that the market, and risk assets in general, eventually resume their march higher.

And these base metals aren't just indicating that this could be the case sooner rather than later, but they're also offering us favorable risk/reward opportunities to express a bullish thesis on the space in the meantime. 

As always, let us know what you think. We love hearing from you.

Thanks for reading, and be sure to download this week’s Commodity Report below!