Big one today, folks…This is the final installment of the AMA questions asked by readers. Today, lets take a look at commodities, Chinese equities, and the big picture for the markets, including a genuine sighting of the Loch Ness monster!
Before getting started, a few housekeeping items:
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On to the questions:
I’ll tie three questions together today. Bob (who’s name spelled backwards is still Bob – a little known fact!) wants to know my view on oil. David askes for my copper outlook and what stocks are “copper focused”. Finally, Lee asks about uranium. Lets get at it. Starting with oil…
Below is the WTI crude oil continuous contract chart. I have posted this chart many times in the past. The support resistance/ lines were drawn, in many cases, years ago–and it is amazing to see how darned precise and predictive they have been. Bob, the chart shows some pretty obvious signs of over-bought conditions. Moneyflow momentum (top pane), stochastics and MACD are up there. Its no suprose (OPEC news aside) that oil was looking for an excuse to sell off a bit. Technically, $65 (old resistance) is strong support. Perhaps it will touch that level if it retraces enough. But my target remains $85 (the old support level from the 2011-2015 consolidation pattern). In its corner is seasonality–particularly for the producers. They tend to do well from around the end of this month (July) until the end of September. I’m expecting more noise in the very nearterm for oil as the OPEC decsions come out surrounding supply policy etc- but the bigger picture is pretty bullish for oil thereafter.
Copper, to answer David’s question, has pulled back to near a support line somewhere around $4.20. Some technical indicators, such as moneyflow momentum, show signs of reversing bullishly. Stochastics and RSI may be setting up for a bit of support, but its early yet. MACD is decidedly bearish right now – although its come off quite a bit. Longer termed investors want to see that indicator stop trending negatively. It wouldn’t surprise me to see copper flail around here, and perhaps re-test $4.20 (its a bit over $4.30 now). Seasonally, copper can be a bit flat to weak over the summer. It tends to get its momentum back in the winter.
As far as the producers -they’ve been following copper price lately. You can Google “copper producers” to get the full list – but Freeport, Rio Tinto and Teck (disclosure: we hold Teck) are three well known names with good exposure to the metal. I remain a bull on commodities, but – as I predicted in my blogs and videos (like this one) coming into the summer, it is of no surprise to see an overbought pullback in the group.
Finally- Lee’s question about uranium. At ValueTrend, we are uranium bulls – and I’ve noted our position in one uranium stock on this blog. Thematically, the move towards “clean energy” bodes well for nuclear power. Uranium is not the lowest volatile position you can own…aka it can swing violently as seen on the chart below. However, its a great trading instrument. The chart suggests that old resistance (now support) might come in around $5. Its just above that right now. If that holds, I’d suspect that there will be a move back into the recent high of $6. If the green-energy movement continues to push towards nuclear energy – the price could move beyond that. Its a higher risk trade that’s not for everyone – but we hold a position in both our Aggressive and traditional Equity Platform (albeit a small position in the Equity Platform).
Mathew asks about Chinese equities. What with the selloff in their tech stocks in particular (as seen on the KWEB ETF below), it may be opportunistic. Chinese government policy is one that is pretty hard to cover here–its hard to offer any advice based on what they “might” do regarding regulation etc. So I’ll just stick to the charts. the KWEB chart shows us that support has been broken. Its way too early to suggest it will find a floor here. I didn’t bother drawing lines on this chart– you guys can see the break. I didn’t bother posting the momentum studies either – its obvious that momentum is falling. But an oversold momentum indicator is of no use until the chart starts showing support. Right now, that’s not happening. This ETF could go into the low $40’s – which means lots of ugly ahead for the individual names like BABA, etc.
If we look at a broader Chinese ETF, rather than the internet-focused KWEB, we see a bit more stability…and if we look at specific sectors within the Chinese market, we can spot even safer (relatively) candidates. The Global X ETF’s seem to cover a number of individual sectors worthy of examining. For example, the financial sector – which is trading sideways. The CHIX chart suggests support will come in around $13.50. Its a decent looking trading instrument if you buy on a bounce from there, with an eye on $17 as a sell target. Its mid-way through that range now…and given the negative sentiment of late, I’d wait for an approach of $13.50 before considering a trade. Do a scan through the sector ETF’s for Chinese equities – there will be candidates worthy of a trade. As for KWEB – it will become a bargain at some point. But…as they say…never catch a falling knife!
Lock Ness Monster Alert!
Dan’s question was a fun one. He suggests that the market has formed a “Loch Ness Monster” pattern. Dude – you just gotta trade-mark that!
OK, according to Dan, he has seen the Loch Ness pattern on lots of stocks since the COVID crash of 2020. Up – down – up (head out of the water) formation. Should we avoid charts like that? I’ll add – is the overall market pattern stuck in monster-mode?
Perhaps the KWEB chart above represents Dan’s Loch Ness pattern. Up during 2017, down during 2018, under water until 2019 – then head out of the water during 2020. Like the picture above. This year, it appears the monster is going deep-diving for the stocks that make up KWEB. Perhaps other stocks too. If I am reading Dan’s question correctly – he is wondering if the head – which might represent incredible new highs after all of the prior swings, is an overbought danger sign.
The answer is – perhaps. In Technical Analysis, we view new highs as bullish. But if thigs get goofy-overbought – as they with many tech stocks on both the Shanghai index – and here on the NASDAQ index – it might be a danger signal. Perhaps the SPX and other NA indices are in a Loch Ness formation. Perhaps, like KWEB, the monsters head is too high out of the US markets. Today is certainly suggesting the North American Lock Ness monster may want to stick its head under the water after being exposed to public sightings for so long.
If I may brag a bit (and I will, because its my blog, and I’m allowed!): My Bear-o-meter called a bearish sell back in June. But the market went higher after that signal (aka the monsters’ head stuck further out of the water). Then, the Bear-o-meter went to a bearish-to neutral signal two weeks ago, and the market remained high. On this blog– I noted that the SPX went up after its bearish signal by the Bear-o-meter in the fall of 2020. Just like this time. And then, after the Bear-o-meter went to 3 a month later, the SPX began to fall within weeks of that reading. I suggested that might happen again. And here we are. Its happening again (applause, cheers, Keith carried on the crowds shoulders…).
So- I am not surprised to see the market find an excuse to sell off. It was rather skewed towards that result – which is why I recommended that readers reduce their risk back in June when I got the bearish signal on the Bear-o-meter. For what its worth: this correction is overdue, and healthy. Those who took heed of my Bear-o-meter signal in June have cash – as we at ValueTrend do. You are in a good position. The monster may dive just as it did last year, but he/she/it will re-emerge after playing shy for a while – just as it did last year. Another sighting is coming our way. Pull your cameras out. Get ready to buy, folks. This is how the greatest fortunes are made – patiently, and unemotionally. I will keep you abreast of my views via the blog.
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