"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 22 hours OPEC ‘Supergroup’ Keeps Oil Exports Subdued
  • 23 hours One Belt, One Road, One Direction for Precious Metals
  • 1 day Vicious Trio Keeps Bitcoin in Chokehold
  • 1 day How Infrastructure Is Driving A Commodity Boom
  • 1 day What’s Really Happening With Venezuela’s “El Petro?”
  • 1 day Gold Bull and Bear Markets
  • 2 days 5 Big Drivers of Higher Inflation Rates Ahead
  • 2 days U.S. And China To Face Off Over Aramco IPO
  • 2 days Gold Bulls, Brace Yourselves – Fed Hikes Are Coming!
  • 2 days Stocks Fail to Hold Gains, But Still No Correction
  • 2 days Cryptojacking: A New Threat Vector To Critical Infrastructure
  • 3 days Why The Next Oil Boom Will Be Fueled By Blockchain
  • 3 days 5 Things Investors Should Know About China this New Year
  • 3 days Is The South Korean Crypto-Drama Finally Over?
  • 3 days Miners’ Rally? What Rally? Watch Out for More Fake Moves!
  • 3 days Four Percent 10-year Note Yield Will Be a Floor Not a Ceiling
  • 3 days The End Is Near
  • 4 days 5 Record Breaking Gemstones Even Billionaires Can’t Buy
  • 4 days Irredeemable Currency De-tooths Savers
  • 4 days CFTC Offers Bounty For Crypto Pump And Dump Whistleblowers
GLD May Not Yet Be Ready To Break Out

GLD May Not Yet Be Ready To Break Out

While I have gone on…

The End Is Near

The End Is Near

The doomsayers have been calling…

Are Commodities Waving Red Flags For Stocks?

Worries Not In Short Supply

Are there things to be concerned about? Yes. Europe is weak economically and flirting with deflation, the Fed is on the verge of shifting policy, and recent U.S. economic data has been weaker than expected. Should stockholders add divergences between stocks and commodities to their list?


Recent Example

The 2014 charts below show that on a relative basis stocks have been stronger than copper. Many have cited weakness in commodities as a reason to run for the stock market emergency exits. Is it a real concern?

Copper versus SPX 2014 Chart


18-Year Divergence

In general terms, divergences between commodities and stocks are not reliable "run for the equity exit" signals. For example, the CRB Index, a diversified basket of commodities, was weak between 1982 and 2000 (top of chart below). Over the same period, stocks did quite well (bottom).

Commodities versus SPX 1982-2000 Chart

The economy was in decent shape between 1982 and 2000, meaning weak commodity prices can occur in periods of economic expansion.


Investment Implications - The Weight of The Evidence

We outlined concerns about stock market vulnerabilities on September 26. Even with Thursday's intraday rally, the S&P 500 is still down 1.85% this week. Friday brings Wall Street's greatest over-hyped report; monthly non-farm payrolls. The market remains vulnerable and in "prove it to us" mode. It is not Friday's employment figures that are important, but rather the market's reaction to them. If a bullish reaction allows the S&P 500 to recapture 1979, it would be a noteworthy reversal. Below 1979, it is much easier to remain patient with our cash.

SPX Resistance Levels Chart 1

Longer-term forms of possible resistance on the S&P 500 come in between 1952 and 1991 (see chart below). We will enter Friday's session with a flexible and open mind.

SPX Resistance Levels Chart 2

 

Back to homepage

Leave a comment

Leave a comment




Don't Miss A Single Story