From the Desk of Ian Culley @IanCulley
Commodities are on the rocks.
Our Equal-Weight 33 Commodity Index is printing fresh two-year lows. Crude oil is hanging around the lower bounds of a multi-month consolidation. And Dr. Copper is loitering below former support.
This isn’t bull market behavior.
But just as the stock market is a market of stocks, the commodity market is a market of, well, a diverse set of commodities.
So, while I don’t want to buy many high-profile procyclical contracts – and certainly not the commodity indexes – I do like the more obscure areas showing strength…
Areas such as uranium!
I outlined my case for uranium stocks at the start of the year. It was pretty simple: If gold and copper are printing fresh highs, peripheral areas likely enjoy a bid. That includes uranium.
Perhaps copper hasn’t had the best first half, but gold and other precious metals continue to impress despite increased selling pressure. Uranium bulls seem to like it, as the Uranium ETF $URA jumped 6% on June 1.
Check out the daily chart of URA:
URA is challenging its highest level in three months as it turns toward a shelf of former highs.
I traded against the November pivot highs at approximately 22 earlier this year. It didn’t pan out, but that’s what risk management is all about!
This time, I’ll wait for a decisive break above 24.50, marked by peaks of last June and September. I’m targeting the 2021 highs at approximately 31.50 with a secondary objective at 40.25 if and when URA takes out those former highs.
I’d rather trade Cameco Corp. $CCJ. It accounts for almost 25% of the URA ETF and stands as the industry leader.
It’s also on the verge of breaking out:
CCJ rose a “modest” 8.84% on June 1, outpacing URA as new decade highs appear within reach.
I always aim to buy the strongest and sell the weakest assets. And I certainly don’t want to miss a breakout to new 10-year highs.
CCJ represents the potential alpha and my vehicle of choice. But I don’t want to get long until it breaks above 32.50. If it does, I’ll buy on strength with a target at approximately 55.
To be clear, CCJ is off limits until a decisive upside resolution.
I can’t dismiss buying opportunities among commodities simply because the indexes or Dr. Copper look vulnerable.
In fact, I expect the rotation out of procyclical contracts and into precious metals will pick up during the second half of 2023.
CCJ is heading toward its 2007 highs in that environment. But it has to get back above the April 2022 highs first.
Stay tuned!
COT Heatmap Highlights
- Commercial hedgers are within 17,000 contracts of reaching a three-year-record long position in Brent crude.
- Commercials added roughly 7,200 contracts in copper, hitting a three-year extreme.
- And commercials hold their largest long position for Chicago wheat in three years.
Click here to download the All Star Charts COT Heatmap.
You need to have a subscription to access this content in full.
Log in or
subscribe
