From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Commodities are having their best week since 1970. And if you don't know what happened after that, let's just say it was a good decade for them as a group.
The CRB Index is up more than 13%. Crude oil is trading above 100. Wheat futures opened limit up last night, “dotting the chart.” Base metals such as aluminum and tin continue to print all-time highs.
And even precious metals have joined the party!
Could it get any more bullish?
As it turns out, it can…
After almost a year of sideways action, Dr. Copper looks ready for a fresh leg higher, as it just closed the week at new all-time highs!
Here's a close-up look at the continuation pattern copper has been consolidating in since May of last year:
Digesting its gains following such an explosive move off the 2020 lows is constructive and has set the stage for a new rally.
While the past few weeks’ action in some commodities may suggest otherwise, charts don’t move in a straight line. Periods of consolidation are not only healthy developments, they are a necessary characteristic of structural uptrends.
And that’s exactly what’s happening with copper right now.
This is a textbook upside resolution of a continuation pattern within the context of a primary uptrend.
The current setup is also sweetened by the fact that this consolidation phase and subsequent breakout are occurring right at the all-time highs from 2011.
You can see just how important this current level is when we zoom out on the chart:
We love these types of massive base breakouts.
As long as Copper is above those May highs ~4.89 we’re anticipating further upside and want to be long with an initial target around 5.45.
On the other hand, copper is a no-touch if these new highs fail and prices slide back into their old range.
It’s not just industrial metals that are working these days. Even the worst-performing commodities over the trailing 12-months have started breaking out.
Yes, we’re talking about precious metals.
Here’s a chart of gold futures taking out a key retracement level around 1,930:
Just like copper, this area coincides with its 2011 highs.
Here’s a look at the two together in order to highlight the importance of the current levels:
We want to be long gold futures above those 2011 highs around 1,930 with an initial target at the former all-time highs near 2,089 and a longer-term objective around 2,350.
In the event gold slips back within its prior range we want nothing to do with it.
When we zoom out on these charts it feels a lot more like this is the start of a new bull market, as opposed to the end of an old one.
These major base breakouts look a lot like the ones that took place in the early to mid-2000s which were followed up by huge rallies from both commodities.
Also, notice how gold’s breakout led copper by 13 months in 2002 before these historic runs took place. Fast-forward 16 years and gold led copper again in 2019, but this time by 15 months.
After some consolidation, they both appear to be breaking back out once again.
If the last supercycle is any indication of what lies ahead for commodities, especially gold and copper – we’re just getting started.
Commodity bull runs can last decades, and these upside resolutions from massive bases are just now being completed. We think some explosive rallies are next for these metals.
After all, as Louise Yamada likes to say, "The bigger the base the higher in space."
While we’ve been bullish on commodities for more than a year now, our conviction will only grow stronger if these breakouts from copper and gold are the real deal.
Stay tuned!
And be sure to check out our weekly trade idea from our natural resources and commodity-related scans below.
COT Heatmap Highlights
- Brent Crude: Commercials hold their largest net short position in three years.
- Soybean Meal: Commercial hedgers are less than 2% away from their three-year-record short position.
- Coffee: Commercials continue to unwind their historic net short position by reducing their exposure by 7,770 contracts.
- Bitcoin: Commercial hedgers hold a record short position.
Click here to download the All Star Charts COT Heatmap.
Trade of the Week
This week we’re highlighting a $22B Chilean chemical company from our Natural Resource Stocks list, Sociedad Quimica y Minera de Chile S.A. $SQM:
After 10 years of absolutely no progress, buyers have finally absorbed all of the overhead supply around 67. We want to be long SQM as long as it’s above that level with an upside objective around 100 over the next 3-6 months.
SQM is a no-touch if it slides back within its prior range.
Thanks for reading!
As always, please let us know what you think. And be sure to download this week’s Commodity Report below!
