With all of the news from OPEC, Crude Oil ($WTIC) had a massive move this week. This is the highest weekly close since July 2015. The 12% move definitely got everyone's attention. The real debate for December is whether or not it can hold the breakout and keep moving up to $60. The volume was also very solid. That sort of confirmation is very bullish.
This week was a wild week for the Dollar ($USD). It tested 102 but closed the week just slightly higher. However, the breakout last week was confirmed with this week closing higher so the breakout is valid.
I usually look for the $USD to weaken around month end, so this will be interesting to see how it all plays out. If you look at the candles going back to the beginning of 2016, 8 months out of 10 sold off in the last week or the first week of the month. I mention it because the dollar may need to rest a little bit but I still think the big bull is intact.
The US Dollar ($USD) roared to new heights today. It closed at a 13 year high with a rapid surge in the last few weeks.
There is an even larger trend at play as well. If you rest the red trend line on the recent highs, the $USD is breaking out relative to the major previous peak using the 2011-2002 highs as well. I have also shown a dotted line connecting the 1985 peak with the 2002 peak that shows the recent 2-year consolidation taking place above the orange trend line. Which ever trend a chartist uses, the $USD is making a meaningful trend change. Whether it is the horizontal breakout going back thirteen years in Chart 1, the dotted trend line off the 1985 highs or the more shallow trendline including the 2015 highs, the move in the $USD will be one of the biggest factors in the investor landscape for 2017.
For commodity investors, the $USD represents a major headwind. After recently breaking below the 40 year lows, Commodities have struggled to make a meaningful bounce off of these levels. Currently the $USD is slightly above the horizontal level and the 40 Week MA as shown in the legend but the gap is marginal at best. A US Dollar headwind suggests this may mark the start of a meaningful turn down in Commodity price levels below what we have seen previously in our investing lifetimes.
The webinar covered off some alternative ideas for investing if Commodities have a headwind. You can watch the recording by opening this link. Commodities Countdown 2016-11-17. Alternatively, I have included it in the article for your viewing convenience.
Lastly, there are some big events coming up that make this a particularly important place in the market timeline. We have Options Expiration tomorrow which has marked some meaningful turning points. We also have the US Thanksgiving next week marking low trading volumes throughout the week and Thursday/ Friday have the focus elsewhere. We also have the OPEC meeting next week which adds volatility more than anything. The Italian Vote regarding the EU is December 4th and then the Fed meets for the December meeting where a rate hike is expected. Immediately following the meeting is the December quadruple witching day for Options. On Tuesday I laid out one of my recent global market reviews. The Canadian Technician Webinar 2016-11-15. My webinars are to help investors see some of the macro trends as well as the market rotation. Hopefully they help in formulating some ideas for 2017.
As I mentioned above, the webinar covered off some brighter areas than the commodities currently and I would encourage you to let it play if you are looking for themes. I tried to build some optimism with better investment strategies than going long commodities in the face of a rising dollar. You can always forward these articles on to friends and family.
I would like to take this opportunity to wish all of our US readers a happy, warm, safe holiday next week. As many of you start travelling for the Thanksgiving weekend, best wishes for a great holiday.
Greg Schnell, CMT, MFTA.
When the financial press starts discussing Copper we should all perk up. However, it is after a 24% rise. So what should we do now?
Well the chart below suggests sell it if you own it. Trying to capture 25% every month is hard to do. We are up against the 5-year channel. How you choose to trade it is obviously important, but I would suggest this is too late to enter.
Everyone seems to be on board with a December rate hike. US, Canadian and European financial stocks are all shooting higher. Arthur Hill pointed out some interesting action in the financial sector. Defence stocks, Insurance, financials, healthcare, private prisons, biotechs are running while the Nasdaq tech stocks are getting crushed. Is this just political posturing or is it something more?
The market is aggressively changing positions. Today shows a massive push down in AMZN, FB, NFLX, GOOGL, AAPL.
Copper has been frustratingly resilient to any of the 2016 bullish sentiment since the US Equity markets bottomed in January / February. Monday marked a new shine for $COPPER as it finally moved above the base.
A few things have been working on this chart. The price action shows Copper pushing higher each day of the last 10 with steadily increasing volume. The Relative Strength line in purple broke to fresh 6-month highs. That definitely makes it more interesting. As a footnote, the MACD is not really showing us anything that jumps out as extremely bullish yet. However, a more engaged look will see a series of higher lows on the MACD with this recent bottom being very close to zero. If momentum can start oscillating above zero, expect a steady rise to continue. We can see the 200 DMA in green finally turned up creating a positive upsloping long term trend. This is also a nice example of a base being built and breaking out this week. We can see how the price action is changing relative to the long term moving average in green. It used to be below it, now it is mostly above it.
Sometimes you have to dive deeper to understand the short-term and long-term setups for a particular chart. This week's webinar went into a deep dive on the knife edge that is the US Dollar ($USD).
Why so focused on the US Dollar? It is so important for the macro direction over the year end. If we are about to substantially rotate into a new bull market, I think the direction of the $USD will be key. Which side of the knife edge it sits on in the upcoming weeks will be a major date with destiny based on my chart work.
If you like to invest in commodities, this will be an important week for you to examine the charts. I worked through an hour on my webinar that went by like minutes as I tried to explain the $USD /$CRB charts. We didn't get any time to review indexes or bonds which are equally exciting here.
Here is a direct link to the webinar if you can spare the time.
Webinar Skim // US Dollar 0:00 // $CRB 26:00 // $CRB Components 38:00 // Energy 47:00 // Gold 53:00 //
So I won't rehash the US Dollar in another chart parade here. I would encourage you to roll through the webinar and make your own conclusions.
On the back of that, I will cover off that Copper has broken out of a pennant, and is trying to move higher.
Here is the Shanghai A-Shares Tracking ETF (PEK). While it has not broken out yet in $USD, it is starting to outperform the $SPX. We can see that the SCTR shows PEK to be one of the top performing SCTR's right now which it has not been for over a year. Perhaps this is the reason for Copper's breakout.
The news that oil is dropping lower, not dripping lower is not news. The energy sector is getting renewed attention to the downside which is also covered in the webinar.
Stay tuned for the outcome of the US Dollar. I think it is the trade or the trigger to the best trade of the fourth quarter.
Greg Schnell, CMT, MFTA.
Wow, that was a webinar! Commodities Countdown Webinar 2016-10-27. I spent a lot of time explaining breadth measurements. If you have not used the Bullish Percent Indexes (BPI's) to help understand market breadth this will be an important webinar to review. For more information on the background of BPI's check out this great article written by Arthur Hill.
Here is a good example. The Bullish Percent Index for the Nasdaq 100 ($BPNDX) is usually one of the strongest BPI's. Notice the note that I wrote in the callout box in May 2015. The market was hitting new highs but the Bullish Percent Index had dropped to 63. After the $NDX made new highs earlier this week in October (Gray shaded area with a black line on top), the $BPNDX (Blue line) is at 63% after being at 79% in July. The lime green horizontal line reflects the current level for the $BPNDX. The market is bullish when it can get above the red lines and cautious when it stalls below the lower red line. One has to be aware of the precarious level.
Each week I roll through my charts preparing for my Commodities Countdown Webinar. For this week's webinar, I could not be more pulled in different directions.
Which bookshelf should I be staring at? Below we can see The Time Thief, evermore, blue moon, Marked, Betrayed, Chosen, Ink Exchange, The Longing, and Change of Heart. Those titles represent the emotional swings we experienced this week! They make pretty strong Stock Market references for traders being whipsawed daily and weekly.
Then we have the books I've come to rely on in my career. Those all seem to be fighting this sideways market. The $TSX is breaking out to new highs. The US market is making a series of lower highs. The Summation Indexes are breaking down. The Bullish Percent Indexes are positioned for a breakdown. The % of stocks above the 200 DMA are breaking below the levels that usually mark a significant pullback for equities. Commodity charts are ripe for big moves, but the US Dollar Chart looks like they are about to be crushed.
When we read about the stock market, Jesse Livermore has some of the more memorable quotes. "It was never my thinking that made the big money for me. It was always my sitting."
Well, here we are fence sitting but I am positive that is not what he meant. The market is making small losses but no real sell off. Recently we made three-month lows but no real follow through. Crude is hovering at $50 whereas Gold is trading between $1250-$1270.
Earnings pops-and-drops seem particularly acute this time around. However, the big names like Microsoft, Alphabet, and Facebook are doing well and pushing to new all-time highs.
For the Commodities, there was no real strong directional change this week. Below is the West Texas Crude chart ($WTIC). It stayed above $50 for the second week in a row.
Gold fired up on Tuesday, only to retreat by Friday. It closed the week $10 higher. We do have a positive MACD crossover from a low level. We could see a rally from here as the gold miners briefly started to outperform the metal. It is something to watch.
I spent a good portion of the webinar renewing the Solar stocks. Here is an example of First Solar (FSLR). These stocks are tremendously volatile both directions. Note how well they respond when the SCTR has given them up for dead and then they start to re-emerge. For those that like to bottom fish, there may be an opportunity on some of the solar names.
Webinar // $CRB Commodities 0:00 // Energy 15:00 // Industrial Metals 20:00 // Precious Metals 24:00 // Ag 31:00 //Autos 37:00 // Foreign Indexes 38:00 // Solar Stocks 42:00 // Q&A 52:00//
You can click on this link to watch it in a new browser window. Commodities Countdown Webinar 2016-10-21.
Enjoy your weekend.
Greg Schnell, CMT, MFTA.