From the desk of Steve Strazza @sstrazza and Ian Culley @ianculley
As we reviewed each passing chart our bullish thesis on commodities was reinforced as the same overarching theme became clearer and clearer… Everything seems to be trending higher!
With a slew of massive bases, bullish breakouts, and major trend reversals, this once left-for-dead asset class is now demanding investors’ attention.
And participation continues to expand as we’re seeing strength across all subgroups. From base metals to grains and softs, it’s all working.
Now let’s dive into a few charts that illustrate this theme.
Despite its multi-year base breakout and rally to new record highs last year, Gold has been arguably the worst performer within Commodity Markets over the intermediate-term.
Although from a structural perspective, the primary trend is still intact and still pointing up. What’s more, is that other Precious Metals such as Silver and Platinum are actually showing signs of life despite the lackluster price action from Gold itself.
So, the question we’re asking ourselves internally is simple… Who is right here?
Do we want to be listening to the message Silver is sending us? Or is Gold going to end up being the tell for the whole group?
Silver looks more like a smiley face as price has consolidated with an upward bias and is currently knocking on the door of last year’s highs. On the other hand, Gold looks more like a frown with price just recently breaking to its lowest level since last June.
The bottom line is one of these two charts is very likely to be wrong as the prices of these two Precious Metals have diverged significantly since last year. We expect Silver to either catch down to Gold, or Gold to catch up to Silver.
In our opinion, the weight of the evidence suggests the latter scenario is most likely to play out.
We think the price action from Platinum is one of the key data points supporting higher prices for Precious Metals right now. After all, the name Platinum comes from the word “Platina” which means “little silver” in Spanish.
Look at this textbook trend reversal as price carved out a constructive multi-year base and just erupted higher, violating its decade-long downtrend line.
We’ve been long Platinum since the metal reclaimed its 2020 highs just above 1,000 earlier this year. With price consolidating at our first objective, we want to keep the drive alive and stay long if we’re above 1,300 with a target of 1,730 over the next 1-3 months.
Here’s a more tactical look with the above levels outlined.
Read JC’s post from today for more on these shiny metals. Let’s shift our focus from Precious over to Industrial Metals now.
Dr. Copper isn’t the only one breaking out of a multi-year consolidation to new highs. Many of the metals in the industrial space are either in the base building process or have already broken out.
Here is a weekly chart of Tin as an example of what we’re talking about.
Tin has more than doubled off its lows from last March. Ever since taking out its key multi-year highs in the 21,500 range, price has gone vertical and is ripping back toward its all-time highs from 2011.
We’re not just seeing this type of bullish action from Tin… similar patterns are playing out across the board for Base Metals.
This is very constructive for the space as a whole and speaks to the continued strength from economically-sensitive commodities and risk-assets in general. The fact that Aluminum, Zinc, Lead, and Nickel are also offering bullish setups is even more evidence supporting the “reflation trade” and cyclical theme that we’ve been harping on for so long now.
The next chart demonstrates an important point: the strength in Commodities is not isolated to a handful of assets, but instead is detectable throughout the entire asset class.
Energy, Industrial Metals, Grains, Softs, and even Livestock are trending higher and illustrating the broad-based strength we’re seeing from Commodities right now. Take a look at this base in Feeder Cattle Futures.
Some will see this as an inverse head & shoulders pattern with a neckline in the 148-150 zone. That works too. At the end of the day we really just like buying smiley faces, and Feeder Cattle are grinning from ear to ear right now.
We only want to be long Feeder Cattle on strength above 148 with a target around the 2019 highs of 161 and a secondary target at 197.
Like Feeder Cattle, Lean Hogs and Live Cattle are also carving out significant bases with prices hovering just below breakout levels.
Whether we choose to trade Commodities directly through futures contracts or not, there is important information to glean from these hard assets.
The main takeaway is that participation within the Commodities Complex continues to broaden, providing further evidence to support the global growth and risk-on themes we see occurring in other areas of the market.If you enjoyed this post and want access to our premium research and chartbooks, start your 30-day risk-free trial or sign up for our “Free Chart of the Week” to receive more free research like this.
Thanks for reading and please let us know if you have any questions!