The Next Commodity "Super Cycle"

Some Key Charts To Watch

If you’re anything like me, you’ll likely be noticing some very definitive and compelling moves in many of the boring areas of the market.

While everyone else is watching the tech stocks and wondering whether they might stop going up, my work pivoted a few weeks ago and began the pain staking process of identifying the best beaten up commodity / oil & gas / agricultural / chemical / industrial names in preparation for a likely rotation.

In this weeks letter, I’m going to expand on some of those charts and some of the data I started presenting around 6 weeks ago and give some food for thought and some ideas for the weeks ahead.

Lets start with commodities.

Bloomberg Commodity Index (BCOM)

Commodities across the board have been labouring over the last 12 months, we just need to look at the energy charts to see that, but the big question I have just now is along the lines of, are we close to a bottom?

BCOM is the chart I like to use to gauge a general overview of the commodity space, and for me, it looks a little “basey”. How do you see it?

Natural Gas

How about Natty Gas?

It’s 1 of those areas in the market where comfort with volatility is absolutely needed, and while many folks look for the “technical” setup like a base in the BCOM chart above, sometimes we just need to use common sense and comparatively look at historical declines to see that Natty was approaching a bottom.

I posted this chart to my Twitter months ago and it got very little attention, but in my world, when we see capitulation, it’s often a good starting point.

Gold

With everyone calling for a recession and broad based market declines, I can’t help but think the 2nd half of the year is going to see some kind of move for the gold bugs out there, my level here is $2100 and if we’re above that, I think we have 50% upside, and the gold miners are probably thriving in that environment also.

How about some individual stocks?

Archer Daniels Midland Co (ADM)

Despite the poor relative strength 6 weeks ago, Archer Daniels has been 1 of our plays on the possible rotation into commodities over the last 6 weeks and it’s been working very well going into earnings tomorrow.

Relative strength is something a lot of professional technicians swear by, but I view it very differently when looking for those buy low/sell high charts… by the time they start to show up on the relative strength lists, you’ve often missed the bulk of the move in these beaten up areas, just something I’ve observed over the years.

I never advocate gambling before the event on an earnings reaction, but if we break out on positive earnings, we’re working with further 18% upside.

YPF SA (YPF)

I get it, Argentinian Oil and Gas companies won’t be front and centre for many of you but the trend has been higher for while and that base break out 6 weeks ago on a low P/E, high earnings growth company is typical of what we often observe within those perceived “boring” areas of the market.

Another name that’s been working well, and a further break out would represent a further 18% in my world.

In Conclusion

The forthcoming week promises to be wild.

We have the FOMC, we have mega cap earnings getting into full swing, we’re nearing potential exhaustion in many of the high flying tech names so my work is very much open to all possibilities.

As most of you know, I’m neither a perma-bull or a perma-bear, I analyse the charts and data as it comes in, for me it’s just easier that way, but if we do see a meaningful move into those value areas, I don’t see the harm in being prepared for it and I don’t see the harm in preparing for a correction either.

Have a great week and please forward to your friends if you enjoyed the read.

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