Cash isn’t the only game in town in this bear market

Last week, I noted that we may see another quick n’ dirty relief rally on the SPX. Near termed technical indicators provide some evidence for that potential. Relief rally or not, I am still targeting 3400 or thereabouts on the SPX in the coming months. One reason for this continued bearishness, scoping beyond the technical downtrend of the index itself, lies in the “sell everything” breakdowns of late. True, I noted in last weeks blog that markets illustrating such fear indicate that they are nearer towards the end of a bear than the beginning. Still, as we shall see below, such technical breakdowns can result in further avalanche before the last of the downside is finally seen.

Below is a major sector collection of the SPX for the YTD. The SPX index is the first chart in the top left. Note how even the defensive sectors like consumer staples (XLP), communications(XLC) and healthcare (XLV) have broken support. Utilities (XLU) broke recent support – although are only just now testing their lows from March – an area that has been cracked by literally every other sector on this list.

 

Here is the collection of commodity classifications, with the CRB broad commodity index in the top left. You can see that the broad CRB index is in an uptrend, despite the neartermed pullback. It remains holding its prior peaks and troughs with now breakdown. While one could argue that Agricultures (GKX)are looking weak. The industrial metals (GYX) appear a bit weak on the 6 month charts, but but if you go back a bit further (late 2021) they are holding major support.  Energy (GJX) remains in a bullish trend, while precious metals and Livestock (GVX) are trading sideways.

 

The big picture

I’ve posted this commodity cycle chart in the past. Interestingly, when I posted it, the prediction was for a trough by the CRB index  in 2020, and a rally thereafter. This as one of the pieces of evidence that drove ValueTrend to take a stand in and buy commodities when they were cheap in 2020.

Commodity chart

Below is a monthly CRB chart. Note the precise move down in 2020 as predicted by the cycle chart. Note how accurate the cycle chart has been so far regarding the cyclical commodity bull market.

Conclusion

I started off this blog presenting the mini-charts of the SPX major sectors to give you an idea of how deep the current bear market is looking. There’s really been nowhere left to hide in the equity space. However, evidence suggests that the commodity bull, which I began pounding the table on in late 2020, is well entrenched. Sure, there will be pullbacks in this mega-cycle, but its clear that commodities are still the place to be. In fact, they are even more so than they were when I first began pounding the table on them in 2020.

The mini-charts of the commodity sectors offer us the ability to spot the best bets within the broader index. Energy, precious metals, livestock and possibly industrial metals (assuming support from late 2021 holds) offer the best technical profiles right now.

Who says there’s no place to hide in a bear market outside of cash? I don’t.

 

quote-teal

7 Comments

  • Hi Keith,
    You mentioned in your interview with Brooke Thackary last week that you had reduced your energy exposure to 40% of what you were holding. Given your view today that commodities are still bullish despite this pullback, are you using this pullback to buy more oils and natural gas stocks?

    Reply
    • Haven’t yet Wendy but looking to do so–they have come down to attractive points again.

      Reply
      • Biden looks like he is going to temporarily suspend the federal gas tax, which is 18.4 cents a gallon in an attempt to ease the pain at the pump during the driving season. What I don’t get though in his strategy is that by doing so, he increases demand, thus putting more strain on the tight supply side. That strategy will only increase the price of crude oil UNLESS he compels the 7 big oil companies to produce more when they meet at the White House on Thursday.
        We shall see!

        Reply
        • Smart comment Wendy. Even worse – Freeland/Trudeau are spending more (again, after spending so much both prior to and during COVID) to help fight inflation. Try not to roll your eyes too far up into your head when you think of this. Printing money adds supply of money into the system. This causes inflation. Economics 101. But that’s beyond the knowledge of a non-financial Finance Minister. This is what happens when you hire liberal arts students to deal with numbers. These people need to go back to acting and finger painting, and leave the economy to the adults.

          Reply
  • Can I have your opinion on a contrarian view.
    1. Has inflation peaked and is recession inevitable? If so, will the demand destruction mean we have seen commodity prices peak in the medium term?
    2. Has the market priced in a shallow recession already and now looks ahead to a recovery in 2024, thus a pivot to technology and growth? Markets do tend to look beyond the current position in the economic cycle.

    Reply
    • Who knows if inflation has peaked – although I suspect it has. Recession is not inevitable, but it is probable. I read something (I am not an economist) saying there has never been rising rate policy by the Fed to fight inflation without a recession following it.
      I do suspect that the market is starting to price in the worst case scenario. As noted, we are in the typical capitulation stage when all sectors are abandoned. My view is one last rally (I note that today is starting with an up tape) then a final washout. Regarding tech and growth–YES!
      Please watch my video on that very subject!
      https://www.valuetrend.ca/video/opportunity-is-near-for-buying-the-nasdaq/

      Reply

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