Ask me Anything Answers Part 3- The Loch Ness monster pattern!

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:

  • Recent video topics include a look at the Canadian dollar – and a look at “innovation” stocks. You can check these, and other videos out by clicking here. I tend to cover topics and ideas NOT covered in my blogs on these video’s. You can subscribe to the videos, or just visit the video page periodically to see if anything grabs you!
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On to the questions:

Commodities

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).

 

 

Chinese Equities

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.

Do a friend a favor and let them know about the blog -encourage them to subscribe. They’ll get the same great information and the same early signals on markets and sectors that you do – and they’ll have you to thank for the referral. And if they are not good at managing their money (or have a buy n’ hold Advisor – heaven forbid), tell them to consider contacting us. The same goes for yourself. We’re here to help.

 

9 Comments

  • Hi Keith,
    Thanks as always for your insights.
    Can you remind me? How low do you think this sell off will go?
    Oil you think will hold at the $65 resistance level. Do you think the S&P will fall to or below 4,000? Any thoughts on how far you think the TSX will correct to according to the charts you watch? Do you have a range?
    Thanks Wendy

    Reply
    • Wendy–I literally just finished recording a video entitled “How low will the current correction go?”
      It should be on the video page by the end of the week
      Meanwhile–two important spots on the SPX to watch are 4100 and 3400–the video explains. The tsx is driven by oil and banks–so just watch them to see what’s in for that index

      Reply
      • That’s hilarious!
        I’ll be sure to watch the video😁
        Thanks

        Reply
  • Hi Keith can you explain algorithms? Does the computer pick up on world events ? Like Trumps Tweets. Or a good YouTube video would be good

    Reply
    • John–I devoted a chapter in my new book on Contrarian investing to alternative data–yes, there are algo’s designed to search various feeds like twitter or news streams for words–and then look for peaking or trending themes–from there, it is determined if the trending theme is overbought, oversold, or mid-trend and likely to continue. Please read my new book for greater detail–in the book I actually present some sources (including free or pretty affordable sources ) of such data and I offer suggestions on how to use it, including examples.

      Reply
  • Keith, we miss you on BNN Bloomberg. What’s the problem with having technical analysts on market call during the pandemic? Your blog is rich enough for those of us who read it and there are plenty of other online resources for those who wish to explore further. Nevertheless I see the exclusion of technical analysts from the mainstream media as an intrinsic bias that is detrimental to the knowledge base of many investors who are either unable or unwilling to explore technical analysis by other means. What do you think?

    Reply
    • Joe–they tell me its because the studio cant have people in yet–and us TA people need to use the telestrator (charting screen) to illustrate our points

      Reply
  • Good morning Keith,
    I am eager to know how best to play the electric vehicle (EV) movement? Is there one company that supplies the electric batteries to the majority of auto-makers? Or do most auto-makers make their own batteries? Then maybe a lithium miner is a better play? I don’t even know if a lithium battery is the main car battery used or if there is some other technology leading the way? I look forward to your reply as I’m sure you have looked into all this already.
    Jason

    Reply
    • Jason– I havent done a ton of research on this, as we have focused on electrical energy–aka my call for uranium to be (over time) positive. EV’s–not sure who does the batteries, but I tend to like the back-door plays on stuff like that (eg uranium). In that regard- I do know that certain rare earth minerals –along with “common” minerals like Nickle and aluminum are used. For this reason, I feel that certain mining stocks are likely to benefit. You might want to google the question- probably much more info online than I have in my head.

      Reply

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