While I stand by my line of reasoning, I did manage to leave out one overarching theme. And it’s an important one!
It’s a market theme that’s played out for almost three years, extending beyond energy to encompass commodities as an asset class.
I’m talking about the commodity-bond ratio…
Commodities relative to bonds was the most impactful high-level chart headed into 2021.
A major trend reversal favoring raw materials over US treasuries signaled a new, wild world on the horizon – a world characterized by inflation and rising interest rates.
This shift in relative strength caught many investors off guard as commodities also outpaced stocks for the first time in over a decade.
Shockingly, commodities were back in the conversation as analysts struggled to deem the energy space a viable investment. (As if the price charts didn’t provide ample evidence.)
Meanwhile, energy stocks put on an absolute and relative strength clinic for the ages as a rising commodity-bond ratio empowers energy bulls.
After chopping sideways for more than a year, commodities are on the cusp of kicking off a fresh leg higher relative to bonds:
Will rates continue to rise?
Will inflation persist?
Should I focus on allocating capital to energy and other commodity-related assets?
Fresh highs in the commodity-bond ratio respond with a resounding yes!
The market’s not quite there yet. Nevertheless, I will continue to do my best to share equity plays tied to the commodity markets.
Finding stock setups for energy, precious metals, or mining stocks is easy. In fact, I prefer to trade uranium names such as $CCJ over uranium futures due to liquidity.
But it will be challenging to find equity vehicles that track contracts such as oats, lean hogs, or cattle – to name a few.
A quick glance at a live or feeder cattle chart is enough to elicit FOMO from the most disciplined speculator.
I’m not one to shy away from hard truths or a challenge. You will miss many commodity moves by only trading equities.
I don’t make the rules. I simply try to break them. That means finding the best stock and futures market trade setups.
Consider opening a futures account if you’re serious about catching the next move in commodities.
But don’t worry if the futures market isn’t for you. Great equity plays are always right around the corner.
Stay tuned!
COT Heatmap Highlights
Commercial hedgers reached another record-long position in palladium.
Commercials increased their short exposure to heating oil, hitting a three-year extreme.
And commercials posted their largest net-long position in Minn. Wheat in three years.
