Last week, we discussed China and Gold futures as potential catalysts for resolving a multi-decade basing pattern in Dr. Copper.
If we're in an environment where Copper futures are printing fresh all-time highs, then we should spend some time identifying opportunities in the equities market that benefit from rising base and industrial metal prices globally.
Over the last 6-months, the Steel $SLX, Copper $COPX, and Metals and Mining $XME ETFs have underperformed the S&P 500:
Chinese stocks just had their best week in history, following the People's Bank of China's (PBOC) announcement of rate cuts, among other stimulative actions.
It has been over 1,600 days since Crude Oil futures traded below zero in 2020, which preceded one of its best 2-year bull markets in history.
Since the peak in early 2022, energy has been a tough trade for those with trend-following strategies and a favorable one for mean-reversion strategies.
Crude Oil futures are at the lower bound of a multi-year range, and the Energy Sector SPDR $XLE has the fewest percent of stocks above their 200-day moving average out of all 11 sectors.
Energy has been a laggard recently.
However, it's important to remember where energy has come from. Crude Oil futures went from below 0 to 130 in less than two years, and the XLE is the second best-performing sector since Covid, lagging only Technology $XLK:
It has paid to pick our spots wisely in the commodities complex as it's been a very bifurcated asset class this cycle.
Live and Feeder Cattle are carving out distribution patterns.
Energy has been a rangebound mess.
Meanwhile, the relative strength has been in the soft commodities and precious metals.
Gold recently put the finishing touches on a multi-decade accumulation pattern.
Cocoa has resolved a 12-year base and rallied over 400% to new all-time highs.
Coffee is flirting with new multi-decade highs after completing a tactical reversal pattern.
And we're betting that Cotton will participate to the upside with the rest of the soft complex soon. The soft and fluffy commodity is on the verge of trapping the bears below a key level of polarity.
We want to continue leaning into the relative strength in soft commodities.
Natty gas is falling below two bucks. Copper is retesting four. And corn is rolling to its lowest level since 2020.
But of all the vulnerable commodities contracts, only one area stands out as a viable short: cattle.
Feeder cattle futures closed below 250 this afternoon, triggering a sell signal:
Notice the 14-day RSI led price by registering a new multi-month low ahead of today’s breakdown. The waning momentum speaks to weakening demand and the possibility of a swift move lower.
From the Desks of Ian Culley @IanCulley and Sam Gatlin @Sam_Gatlin
It’s time to buy natty gas.
A bullish momentum swing is on the verge of flashing green. And seasonal tailwinds are due to pick up as price pulls back.
Plus, the dominant four-year cycle is approaching the next expansion phase.
Buckle up!
Check out the monthly natty gas chart with a MAC-D momentum indicator in the lower pane:
The monthly MAC-D is nearing a bullish crossover at extreme oversold conditions. This long-term momentum setup occurs after cyclical lows, marking critical inflection points in 2012, 2016, and 2020.
Also, all three previous natty gas cycles hit bottom in the spring and ripped higher toward the end of summer – the start of the best three months of the year (August- October).