From the Desk of Ian Culley @IanCulley
Energy contracts are breaking out.
Crude oil and gasoline futures are completing major reversal patterns.
Heating oil is ripping higher.
Natty gas has traders on the edge of their seats (what’s new?) as it heads into a seasonally favorable stretch.
But what about the rest of the commodity space?
Check out the overlay chart of our equal-weight energy index and our equal-weight broad commodity index:
Both averages have followed the same path since the 2020 lows despite a mere 15% weighting toward energy in our broad commodity index.
But energy is pulling away. Oil and gas names are taking on a leadership role among US equities as their underlying commodities confirm by digging in and resolving higher.
I like buying energy – stocks and commodities. And I outline two new trade ideas from the energy space at the end of today’s post.
I love a good trade setup as much as anyone. But I’m more concerned with whether the rest of the commodity space will follow energy’s lead.
Will Rhind from GraniteShares shared his perspective on today’s episode of What the FICC?.
Unsurprisingly, the conversation led to Dr. Copper.
Will pointed out that copper futures are a sweeping indication of global economic health and demand for base and industrial metals.
We talked about iron ore, steel, and the implications of potential economic stimulus from the Chinese government.
But if we follow only one chart to monitor the commodity rally in the back of the year, it’s copper.
Ol’ Dr. Copper continues to chop below four dollars within a lackluster range. In fact, it’s trending lower over the trailing eight months.
Yet global equities have a different perspective.
Notice the Global Dow ETF $GDOW, composed of 100 blue chip international stocks, trending higher over the same period:
Who has it right, copper or the Global Dow?
I don’t know. No one does.
I do find it interesting that energy commodities are catching higher to energy stocks after lagging for over a year.
That doesn’t mean copper futures will flip toward global equities. But I doubt global equities and copper will continue to diverge over longer time frames.
Most importantly, we’ll know if the broader commodity space will join crude and its compatriots when copper trades above four dollars.
That’s the level.
Stay tuned!
COT Heatmap Highlights
- Commercial hedgers post another record-long position in palladium.
- Commercials increased their short exposure to heating oil, selling an additional 8,000 contracts.
- And commercials might have been caught offside as they hold near a three-year extreme net-short position for cocoa as price remains elevated.
Click here to download the All Star Charts COT Heatmap.
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