From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Earlier in the month, we pointed out breadth deterioration in the US dollar.

While the dollar pressed to new highs against the yen, the pound, and the euro, it struggled to gain ground against commodity-centric and emerging market currencies.

The lack of broad strength had us questioning the validity of the recent rally in the US Dollar Index $DXY. 

That’s changed recently.

Today, the dollar index is catching to new highs against a backdrop of broadening strength, not weakness. Now that we’re seeing dollar internals flip and start to confirm these new highs from the index, this is not a trend we want to fight.

And, to be clear, we haven’t been. 

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

Equities continue to get hit. And yesterday, commodity-related stocks were not immune to the selling pressure.

Energy, metals, and natural resources, in general, all sold off into the close. The inflation, interest rate, and commodity trade had a really rough week.

It's never a good thing when the leaders get hit like this. At the same time, two days really doesn’t make a trend.

Before we get sucked into calling peak inflation, let’s zoom out and put all this near-term volatility into the right context.

When we do, it reconnects our eye with the underlying trend – which is unequivocally higher. It also becomes clear that many of these stocks are finding resistance at logical levels – areas where we would expect these stocks to digest gains. 

And that’s exactly what they’re doing!

Let's take a look!

First up is a triple pane chart of the Metals & Mining ETF $XME, Copper Miners ETF $COPX, and the Steel ETF $SLX: 

This chart gives a great read on how base and industrial metal stocks are doing.  

Monday night we held our April Monthly Conference Call, which Premium Members can access and rewatch 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.

Let’s get right into it!

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

A couple weeks ago we pointed out that the stock market was questioning the rise in rates.

Defensive areas we would expect to underperform in the current environment such as utilities and REITs are actually outperforming.

And the names we would expect to do well – specifically banks – can’t seem to catch a bid on either absolute or relative terms.

This is concerning from a broader intermarket perspective. But it’s not the complete story.

While our stock market ratios are not supportive of higher rates, when we look within the bond market, we’re seeing the opposite.

Not only is there a synchronized global rally in interest rates, but the intermarket evidence from our bond market ratios supports this action and indicates a healthy degree of risk appetite. 

Today we're going to highlight one of those bond market ratios – high-yield vs. investment-grade debt.

Let’s take a look.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The US Dollar Index $DXY resumes its relentless march higher.

But the full story surrounding the dollar’s dominance is a bit more complicated.

Lately, we’ve been pounding the table about the narrow scope of the DXY, as 83% of its weightings come from just three currencies – the yen, the pound, and the euro.

All three continue to lose ground versus the dollar, and this is exactly what's driving the rally at the index level.

On the other hand, the USD has not performed as well against other currencies – especially emerging markets and commodity-centric ones. 

While this remains the case, we’re starting to see USD strength expand beyond the major components of the DXY. We're also seeing some nice long-term patterns materialize that favor the US dollar.

A great example is the rounding bottom in the US dollar-Korean won cross – USD/KRW.

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

Commodities are off to another record year -- and it’s only April!

Crude oil and friends are leading the charge as the energy-heavy CRB Index is up 34% year to date. 

Oil ripped above 100 in February and has been in a corrective phase since. The energy complex remains red-hot though, with natural gas futures breaking to fresh 13-year highs this week.

While crude oil finds its footing, its derivatives -- heating oil and gasoline, are coiling just beneath all-time highs and gearing up for some massive base breakouts.

We’re also seeing some bullish data points for the broader oil and gas industry as crack spreads are expanding and signaling a healthy demand for black gold. This bodes particularly well for oil refiners.

All of this price behavior is what we like to call rotation.

It's an essential characteristic of any real bull market, and it’s exactly what we’re seeing from commodities these days.

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

Treasury Bonds have collapsed in recent months as interest rates have rallied to their highest levels in years.

And it’s not just treasuries, the trend is lower for corporate bonds as well.

While fixed income markets have experienced steady selling pressure since 2021, downside volatility has accelerated in recent months. Following the worst Q1 returns in decades, bonds have continued to plunge to kick off the 2nd quarter.

The best way for us to take advantage of this is to keep finding clean setups to short.

Today, we will outline a couple of shorts in high-yield debt and discuss what a sustained downtrend for these bonds could mean for the broader market.

First up is the High-Yield Corporate Bond ETF $HYG:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The turmoil in equity markets has stolen all the attention since last year. But stocks aren't the only asset class that's a mess. We're getting the same kind of mixed signals and sloppy price action from forex markets.

While stocks remain under pressure, currencies have been throwing head fakes and dishing out whipsaws all year long. The AUD/USD broke to fresh nine-month highs just last week only to reverse 200 pips by Friday’s close.

We're seeing this type of action from currencies all over the world. It’s hard to trust a breakout these days. As frustrating as these failed moves may be, there are some clean chart patterns and favorable setups shaping up right now.

One area where the trend is very clear is the Japanese yen. Just about anything priced in Yen has been rallying recently as the currency continues to collapse.

Today, we’re going to highlight the massive base in the USD/JPY.

Lets’ dive in.

Here’s the weekly chart of the USD/JPY cross:

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

Following some explosive moves earlier in the year, the past few weeks have been full of sideways action for commodities.

Energy contracts are correcting. Copper continues to consolidate. And gold is chopping around in the middle of its multi-year range.

But when it comes to commodities, there’s always an opportunity right around the corner. 

Last week, we pointed out the burgeoning strength in natural gas futures despite the corrective action in crude oil and its derivatives.

Today, we’re going to outline a few developing setups with a focus on ags.

Let’s dive in!

First up are corn futures:

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

Benchmark yields have moved in a vertical line higher since the beginning of March. This isn't just the case in the US; we're seeing similar action all across the globe.

But as rates rally higher and higher, more and more classic intermarket relationships are failing to confirm the move.

Yes, commodities and commodity-related stocks remain resilient, and bonds are an absolute dumpster fire.

Most other assets we would expect to do well in a rising rate environment simply aren’t. This is especially true for the banks!

Meanwhile, those groups that we'd expect to underperform in this kind of environment, such as utilities and other defensive stocks, are actually outperforming.

All of this speaks to risk-aversion, not risk-seeking behavior.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

King dollar is sitting perched upon its throne. But the floor beneath it is beginning to crumble.

The rally in the US dollar index $DXY isn’t as strong as today's fresh highs would suggest. In fact, when we dig beneath the surface, the dollar is only trending higher against a few currencies over shorter timeframes, while underperforming the vast majority.

Conveniently, the handful of currencies the USD continues to best are the most heavily weighted components of the US dollar index.

This lack of internal strength can be seen pretty much anywhere outside of the chart of DXY itself. Whether we're looking at our USD trend summary table, our custom USD advance-decline line, or the individual crosses themselves, it all suggests the current trend in the dollar lacks support. 

Let’s take a look.

Our USD trend summary table illustrates both the broad weakness as well as those critical areas of strength that are driving the current uptrend in the DXY:  

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

The relentless outperformance from commodities and commodity-related assets shows no signs of slowing.

The CRB Index is up 27.03% year to date while the S&P 500 and the 30-year Treasury bond aren’t even in the ballpark, posting lackluster performances of  negative 4.95% and negative 6.25%, respectively.

Commodities are really the only game in town these days.

With that as our backdrop, we want to continue focusing on this asset class for buying opportunities.

As many of these contracts consolidate or correct following explosive upside moves, we’re paying extra attention to those that have been basing in recent months – such as natural gas. 

Let’s take a look.

Here’s a zoomed-out weekly chart of natural gas futures: