From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
The best opportunities are the ones with the most clearly defined risk characteristics and most favorable risk/rewards.
This summer, Minneapolis Spring Wheat was offering us a trade set-up with both these qualities. Price had just resolved higher from a near decade-long base and was trading at its highest level in 8 years. We were buying the breakout.
Fast forward to today and our initial profit target has been met and we’re locking in gains.
In today’s post, we’ll take a step back, review our trade, pinpoint current levels of interest, and discuss how we’re managing the position moving forward.
First, let’s look at the weekly chart of Minneapolis Wheat futures:
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
The outperformance from commodities this year has been hard to ignore.
Over the trailing 52 weeks, the CRB index is up over 56% and our equal-weight commodity index is up over 37%. The entire space has been participating -- energy, base metals, grains, and softs.
And even though precious metals have been trending lower since last summer, we can’t forget that gold kicked off the commodities rally by hitting new all-time highs last year.
If we’re only looking at stocks and bonds we’re cutting ourselves off from what is currently the top-performing asset class. It doesn’t matter whether we trade the markets on a more tactical timeframe or if we have a long-term investing approach. There is alpha in commodities right now and we want to have exposure.
But how do we take advantage of this space if we don’t have the ability to buy December futures contracts of Crude Oil or the March ‘22 futures contracts of Corn?
That's where our commodity ETF/ETN list comes into play.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Procyclical commodities have attracted all the attention this year as inflation and rising rates have driven prices considerably higher.
But, as we pointed out last week, many of these contracts -- Brent crude, natural gas, copper -- are running into areas of overhead supply or are already in the process of correcting.
With that as our backdrop, let’s switch gears and focus on an area of the commodity space we haven’t talked about in months.
That’s right... precious metals!
While we’re seeing many leading commodities pause at logical levels of resistance, gold and silver have finally stopped going down and are rebounding off support. Despite trending lower since last summer, they're still holding above the lower bounds of their trading ranges. We think this basket of shiny rocks is ripe for review.
Let’s take a look around the precious metals complex and see what’s new.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
It’s been impossible to ignore the strength in commodities this year.
The CRB Index is up more than 50% over the trailing 52 weeks. During this same period, the S&P 500 is up 32%, and bonds ($TLT) are down more than 8%.
Commodities are the clear leaders.
With breakouts from some of the most commonly observed contracts -- crude oil, copper, and natural gas -- more investors are coming around to the idea that commodities are a viable asset class.
Now that the buzz surrounding this once-forgotten corner of the market is growing, we’re seeing many commodities run into overhead supply zones. We think it would make sense for these contracts to consolidate here. Following such explosive moves off last year’s lows, some sideways action at resistance would be normal behavior.
Let’s look at a few charts that are at logical levels to digest gains.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
On Tuesday night we held our October Monthly Conference Call, which Premium Members can access and re-watch here.
In this post, we’ll do our best to summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each.
As we progress into Q3 of Fiscal Year 2021-2022, this playbook outlines our thoughts on every asset class and our plan to profit.
This playbook will cover our macro view, touching on Equities, Commodities, Currencies, and Rates, as well as outline our views on the major nifty indices and the sector/thematic indices.
We also cover individual stocks we want to be buying to take advantage of the themes discussed in the playbook.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
Copper was a critical piece missing from the intermarket puzzle heading into the fourth quarter.
Just last week, copper was testing year-to-date lows and looking vulnerable for a downside break. Meanwhile, energy futures and interest rates were rising, and cyclical and value stocks were getting back in gear.
The mixed signals were impossible to ignore. It’s not likely that the recent breakouts in crude oil and the US 10-year yield would hold in an environment where copper is breaking down.
Dr. Copper is a great leading economic indicator and critical to the global growth narrative. Let’s see what it’s saying.
Here are two ways we were looking at the copper chart:
One thing unique about the market is that the game is never over. There aren't four 15-min quarters or two 20-min halves like in sports.
In those endeavors there is a beginning and an end.
You know who won (or who tied in some cases). But the match is over, and there will be another one in a few days or a few months, depending on the sport.
In the market, it never ends. This can cause issues psychologically, so it's something we should all be aware of and keep in mind.
But if you ask me, currently the bulls are scoring a lot more points. This is the first time we've seen that since Q1 this year, when the bears started running up the score.
Look at the S&P500 break out to new all-time highs relative to US Treasury Bonds.
