From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
It’s been a routine hurricane season down here so far this year. Things have picked up lately, and we’ve had a few close calls over the past week.
But storms aren’t just brewing in the Atlantic...
It’s also beginning to look dicey in the commodities market, with lots of “close calls” these days.
Strong headwinds such as the rising dollar have hit some of the most important procyclical assets this week. Apparently, there’s some geopolitical stuff going on, too. Then again, when isn’t there?
Let’s discuss what we’re seeing and try to determine just how likely these winds could evolve into a major storm for commodities.
Energy, base metals, precious metals, and ags have either pulled back from recent highs or have broken critical levels of support.
Given that many areas have experienced near parabolic advances during the past year, a corrective phase would be a healthy and welcome development. It makes total sense for commodities to digest their monster gains at current levels. And remember, sideways is always an option.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
Rotation is the lifeblood of any bull market.
If a sustained uptrend is going to persist, then we need to have broadening participation... or at least some healthy rotation.
And that’s exactly what we're seeing within commodities right now.
As the energy group chops sideways and base metals hang tough, we’re starting to see signs of strength from one of the worst-performing areas over the past year.
Softs.
Like livestock last week, it appears this group of commodities are ready to play catch-up as they turn the corner and head higher.
Considering the fact that other groups are simply consolidating or correcting through time instead of price, we'd argue that this looks more like an expansion in participation rather than rotation. But it's really just semantics. It's all bullish at the end of the day. Let's dive in.
Welcome to our latest RPP Report, where we publish return tables for a variety of different asset classes and categories along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
We consider this our weekly state of the union address as we break down and reiterate both our tactical and structural outlook on various asset classes and discuss the most important themes and developments currently playing out in markets all around the world.
Non-members can get a quick recap of the call simply by reading this post each month.
By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends. This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.
With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
We can’t ignore the resiliency in base metals.
Despite the classic year-two chop, base metals have remained buoyant while many other risk assets have come under pressure. They’ve even gained ground during the recent bout of US dollar strength.
And now we’re beginning to see signs of serious leadership emerge as Crude Oil consolidates its recent gains. The broad-based strength beneath the surface for this procyclical group of commodities has been undeniable. These risk-on metals have been the steadiest performers within the entire asset class for the better part of this year.
We're going to flip the script a bit this week with our RPP Report. We typically don't publish a report during week's where we have a monthly conference call as JC covers our positioning and summarizes our key themes and views there.
But we didn't do one last week either because we had just published our Q3 Playbook which laid out our current position in a painfully detailed manner (it was 250 pages!).
In today's post, we're simply going to recap our "Key Themes For The Current Quarter" and update clients on some major developments that have taken place in the past few weeks.
We've got some important things to cover so let's get right to it!
We're back to discuss some commodity ideas that are looking good at current levels. For the longest time, we've been looking out for a commodity supercycle. Over the past few months, we saw base metals halting their move and digesting their gains. But there are certain pockets that are demanding our attention so we thought what better than to share them with you!
Nickel is trading at lifetime highs, ladies and gentlemen! That's big news coming at a time when we're seeing a mess in most asset classes and markets. With the close in the week gone by, the base metal moved past its resistance and closed above it.
As we can see below, the price was finding it difficult to get past the level of 1,425. Now with that out of the way, we're looking at a target of 1,630 in Nickel. 1,425 will continue to act as the risk management level. If we know anything about the recent move in base metals, then we know not to put all our eggs in one basket.
Several premature breakouts later we've reached this point. So it is all the more important to be clear about your risk management level!
