Musings on stocks, commodities and the Canadian dollar

Today I am posting 3 charts with commentary from the “birds eye view” technical perspective. We’ll look at the S&P 500, Commodities, and the C$ today.

Commodities

Saying the word “commodities” is a little like saying the word “stocks”. Within a broad stock market index, you will find everything from high-beta growth names to low-beta dividend payers through a huge variety of sectors and sub-sectors. Its pretty hard to compare a REIT to Tesla – not only from a  business perspective, but from a  volatility and dividend perspective. And yet, we classify both of these broadly as “stocks”.

The same goes for a commodity index. In a broad commodity index, you will have everything from “Agriculture- grains ” like sugar, orange juice etc. Then you have agriculture “livestock” like lean hogs and cattle. “Energy” is a huge group consisting of the traditional sources like WTI crude and Natural gas – along with heating oil, propane and gasoline, and more. Forestry products have multiple sub-categories, as do industrial metals. Precious metals include gold, silver, palladium and platinum. Finally, we have the “other” goods like rubber, palm oil, wool, etc. Like our Tesla to REIT comparison, I would suggest that pork bellies have very little correlation to copper prices. And yet, we can track a commodity index weighted between all of these groups, just as we do stocks. I should note that this phenomenon is why at ValueTrend, we prefer “stock picking ” (or individual commodities/ producer stocks) over broad index plays most of the time – with some exceptions.

That said – below is the S&P Commodity index. I’ve posted this on the blog in the past, and you will note my target for a 24% return potential when I wrote that blog. We have seen about half of that potential materialize. Right now we are at a critical juncture – the major downtrend is being tested as I write. If we see a break of about 2350, that might imply my target of 2800 will be hit quickly. From there, we could see substantial upside – given that such a trendline break would imply a new secular bull market for commodities on the whole. I am betting the trendline will be taken out. It is to be seen if I will be right.

S&P 500

Hats off to Sergio who posted a reader comment in my last blog regarding minor divergences on the various momentum and moneyflow indicators on the weekly index charts. True enough, as the SPX makes new highs, we are not seeing the confirmation of the momentum indicators. Its early yet, but it is something to watch.

Having said that, sometimes markets don’t correct as quickly as they might when being artificially pumped up by the Fed. In fact, this has become the norm since the Trump election 5 years ago. And now, on top of monetary policy, we have fiscal stimulation via stimulus cheques. One estimation suggested that 10% of this money goes into the markets. Recall the old adage “Don’t fight the Fed”. Don’t get me wrong. Such artificial market stimulation eventfully stops, and markets correct. But for the time being, we have a fresh batch of money that is about the enter the market. Keep your eye on the momentum indictors for prolonged divergence – they will provide a heads up to let us know if the new Fed money isn’t working the way it has in the past. Meanwhile…dont fight the Fed!

The loonie

Short and sweet comment here: We recently saw a fairly significant level of $0.77 taken out for the loonie. My thoughts were that $0.80 would be hit if the $0.77 breakout would hold. Ultimate upside is probably $0.83.

 

Seasonal trends for the loonie are shown below- courtesy Equtiyclock.com. The C$ tends to do well until the summer. My thought is to look for $0.83 by the summer and then look for a correction into the fall as the US economy strengthens.

Video update

Here is my latest video. I cover the subject of sector rotation in current markets. Click here to watch it.

 

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