Commodities Countdown

Sitting In A European Bank Waiting Room - Webinar Skim 2016-07-21

Greg Schnell

Greg Schnell

Chief Technical Analyst, Osprey Strategic

It's been a month since the Brexit storm rolled through the world's charts. Amazingly, it turned out to be one of the best times to put money to work. One of the blogs I wrote shortly after the Brexit event covered off the global banking charts. When Should You Think About Protecting Your Portfolio ...Ideas Inside. In the concluding paragraph, I said this was not a reason to sell everything. It was a reason to make sure you were in the best-performing stocks. Now we sit having a massive bounce off the lows that broke out charts globally to all-time highs, new 52 week highs, or above down-sloping trend lines.

So what's next? We can see on the ETF chart for European Financials (EUFN) that the stocks dropped 24% and then bounced almost 13%. I have put the Fibonacci retracement levels from the night before Brexit to the lows on the chart. The European banks have rallied back up about 38.2% of the Brexit drop. Some of the European banks are asking for the European Central Bank to recapitalize the European banks. For that, we need to turn to Mario Draghi.


Mario Draghi gave his speech on Thursday and there was not much to take home. European Bank Stress Tests are out the last week of July, I think. Central bankers are listening and studying technical analysis as well as fundamental analysis to help understand market forces. This bounce gave them some breathing room but they still have a problem. The European Financials ETF (EUFN) shown above traded in a range for the last 8 days and failed to get back into the previous trading range between $16 - $18.60. The chart closed down slightly from the prior day after the ECB announcement.

The G20 were meeting this weekend and I am sure the shapes of the bank charts are one of the biggest worries in the room. It would appear that the institutional investors realize they have the Central Bankers attention globally. The FOMC is on deck next week as well. When Central Bankers are ready to add liquidity, its a pretty good backdrop. I think it is important to keep an eye on this chart above, every week. If it takes out the Brexit lows, this will probably start some selling around the world. Based on the institutional investors pushing the broader market to new highs, the price action suggests to me the Brexit lows will hold for now. I've set a StockCharts Technical alert for $15 to remind me if this starts to head toward the exit.

We talked about a wide variety of topics on the webinar this week. First of all, the $SPX is up over 16% off the February lows. 

Commodities Countdown LIVE! with Greg Schnell - 2016-07-21 17:00 from StockCharts.com on Vimeo.

Webinar // $SPX 0:00 //$CRB Commodities 3:00 // GSCI Indexes 17:00 // Energy 20:00 // Industrial Metals 20:00 // Precious Metals 35:00 // Ag 42:00 // Autos 43:00 // Breadth 49:00 // Using The Home Page 50:00 //

One thing that seems very clear to me is the market wants to go higher here. Strong stocks are really starting to breakout and accelerate. However, the $USD also pushed higher this week and that moved commodities lower. While the dollar closed the week above the flat 200 DMA, it appears to be breaking above the centre of the range now.

Gold-related stocks have been screaming higher for almost 5 months. The chart below shows the gold miners outperforming the physical gold by a huge amount. I am watching the blue trend line on the right.

After the move in the dollar, the gold miners ETF (GDX) has fallen hard (10%) in the past week. I took the time on the webinar to discuss the 'gapping' action on the chart. Initiation gaps, continuation gaps and exhaustion gaps.

Both Corn and $Wheat have fallen below support. The crops look exceptional this year in Canada. As we move into August, farmers will be trying to get them off before a hailstorm shreds them. At this rate, they are tremendous crops and that could be why we are experiencing significant downward pressure on price.

The grain rail cars are lined up at the farm sidings to be ready for the harvest. We'll continue to watch how things progress on that front, but at this point, most of the Ag related stocks are pulling back.

I continue to be very bullish on the broader market with lots of risk-on sectors advancing. The commodity space continues to pull back. Biotechs are perking up, Semiconductor stocks are rolling, and some areas like Cybersecurity are getting bid up. One thing that does concern me this week is that the US bank stocks have bounced back to some important resistance levels. Can they break through? 

There is lots more on the webinar.  If you get the time, I think you'll find its worth a look. I also showed how to use the home page as the markets roll between sectors and industry groups later in the webinar. That got a lot of positive feedback from the live webinar audience. Commodities Countdown 2016-07-21You can also follow me on twitter @Schnellinvestor and LinkedIn. If you would like to receive this series in your email, please click on the subscribe button below.

Good trading,
Greg Schnell, CMT, MFTA

 
Greg Schnell
About the author: , CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More