Metal Health will drive you Mad

I continue to see the US stock market as being attractive, technically speaking, and do not feel sufficient risk is there to warrant a selloff at this time. While price action has been a bit choppy in the last couple weeks, there remain precious little other evidence with regards to frothy speculation to excessive valuation measures that would warrant a major selloff.  Rallies up to SPX-5350-5400 look likely into mid-April before a consolidation gets underway.  Treasury yields and US Dollar should have limited upside after this bounce, and both look close to rolling over.

Much of Thursday’s late day selling caught the market off guard and wasn’t driven by the typical Treasury selloff on Fed hawkishness.  In fact, Yields went lower during the afternoon plunge that seemed to wreak havoc with the slow volatility environment that 0DTE players have gotten accustomed to in 2024.

Dollar/Yen and Treasury yields both worked their way lower after a mixed bag of messages by the Fed, and it’s tough to pin Thursday’s selloff on Fed hawkishness.

However, the selling proved intense, and according to Bloomberg, more than 80,000 S&P E-mini Futures traded in each 10-minute window between 2:10pm EST and the 4pm market close.  That kind of volume has been unusual to say the least during much of this year.

Overall, I feel that Friday’s Jobs report likely could be important towards confirming the recent downside volatility in both the US Dollar and rates and could possibly help Stock indices carve out a short-term low after this recent volatility.  The important SPX support target for SPX Cash index could materialize around 5110 and should not undercut 3/11 lows at 5091.14.

At present, I’m still inclined to believe this minor churning should prove short-lived, and should be resolved by a breakout back to new highs into next week post Friday’s Jobs report.

As this hourly SPX chart shows, the movement since mid-March still looks remarkably corrective in nature.  One can clearly see that the pullback from Thursday 3/28 highs proved to be three waved down, followed by a three wave bounce.   Thus, while the decline under Tuesday’s lows took many by surprise, I don’t feel it’s all that significant technically.

Furthermore, this arguably should represent the final C wave of an ABC pattern that began back on 3/21/24.  While breadth and momentum have waned a bit over the last two weeks, there hasn’t been any sort of major technical deterioration.  Furthermore, the underperformance in Technology has not breached any areas of significance relative to the S&P 500.

Thus, if Friday’s jobs report comes in on the weak side to allow DXY and TNX to continue this week’s slide, my view is that would support Equities and a push back to new highs should commence.   The hourly SPX chart lies below which shows the near completion of an ABC type consolidation phase since 3/21/24.  (In plain English, I do not feel that last week’s highs represent a peak of any magnitude, and should prove short-lived and lead SPX back higher into next week.)

S&P 500

Commodities have been outperforming stocks in the last week

Powell’s recent dovishness seems to be lining up with the weaker ISM data this week to show that the FOMC’s recent “Data Dependency” stance could aid commodities and Commodity based stocks in following through on this past week’s strength.  Importantly, ever since Powell’s dovishness became much more transparent, commodities and commodity stocks have begun to lift more sharply.

Many have witnessed the sharp rise in Cocoa and Frozen Orange Juice prices which have now been followed by the push to new all-time highs in Gold.  Additionally, Silver, Copper and Aluminum have also now begun to show some relative strength and Energy’s rally has been ongoing since February.

The chart below highlights the Equal-weighted Commodity index vs. the Equal-weighted S&P 500.  As can be seen the big selloff happened following the break of this former uptrend back in Spring 2023, but looks to be stabilizing in the last couple weeks and has begun to turn back higher this past week.  Popular momentum gauges like RSI and MACD have both signaled the possibility of a bounce in this ratio.   Thus, diversifying into commodities looks prudent in the short run for those investors who care on short-term direction.

Equal-Weighted Commodity vs. Equal-Weighted S&P 500

Metals and Mining stocks are starting to play catchup

Precious and base metal stocks look to be finally “joining the party” after having lagged the move in metals in recent months.

The SPDR S&P Metals and Mining ETF achieved a meaningful breakout this week above December 2023 highs on a weekly closing basis (with one more trading day to go in the week) and should bode well for further upside progress to challenge 2022 highs.

This looks like a real positive for precious and base metals stocks, and this recent uptick in relative strength has helped the Materials sector turn up meaningfully enough vs. S&P to warrant upgrading this sector in the short run.

Overall, XME looks bullish and should push higher to $67 over the next month.  One should view any minor consolidation down to the high $50’s as making XME even more attractive from a risk/reward basis.

S&P Metals & Mining

My top plays across the Metals and Mining space are as follows:  AIT -1.46% , CENX -1.99% , FCX -2.52% , KALU -2.55% , RS 0.51% , MTRN -0.44% , AA 0.27% , FRD -1.86% , RBC -2.95% , MLI -1.37% , CSTM 3.22% , CMC -0.87% , and ZEUS.  Most of these stocks are affiliated in some way with the Metals and Mining space and/or of production of Technology which aids Metals companies.

Aluminum also looks to be making a serious bottom

Aluminum, as viewed by the London Metals Exchange (LME) Aluminum contract, is set to make the highest weekly close this week since Spring 2023.

This joins quite a few other Metals in starting to push meaningfully off its lows, and likely should help the recent strength in Aluminum related stocks continue.

I like AA 0.27%  technically and would also consider stocks like CENX -1.99%  and/or KALU -2.55%  as Equity proxies which could benefit on rising Aluminum prices.

Aluminum

Gold Miners show bullish breakout-  GDX finally starting to participate, after a lengthy period of consolidation

Despite the push back to new all-time highs in Gold, many names associated with Gold had not been showing much relative strength until last week’s breakout of the downtrend from early 2022.

This is a very bullish move and should help the Gold miners play catchup.  I feel that it’s encouraging that the Miners are finally starting to show some strength, as the absence of Mining strength while Gold is hitting new all-time highs could cause some doubt on the longevity of this rally.  GDX -0.86%  (VanEck Gold Mining ETF) has just begun to start to strengthen meaningfully off its lows to join the move in the underlying commodity in a trending manner.

Despite 10-yr Real yields still trading at 2%, gold has been able to successfully power back to new all-time highs and now GDX -0.86%  has broken its downtrend of the past two years. 

This is a bullish development for GDX -0.86%  and should help this recent rally extend to the low $40’s initially.  Some of my favorite Gold mining names include: HMY -0.43% , IAG -1.56% , EGO 1.93% , GFI -5.68% , and GOLD 0.46% .

VanEck Gold Miners

Uranium Stocks also look appealing

Last but not least, Uranium has begun to show meaningful strength off the recent lows which bodes well for a Uranium rally to start to gain more traction.

Following a sharp rally from last year’s lows which helped the Global X Uranium ETF (URA) to challenge its 2021 peaks, the last few months have brought about consolidation. 

This is a bullish development in the bigger scheme of things, as it shows the formation of a coming Cup and Handle pattern which would be confirmed on a move back over $32.50.

Overall, while I’ve advocated for a bullish stance on many precious metals and base metals and the underlying stocks, I feel that Uranium should also participate on this rally in the months ahead.

Overall, URA is an ETF which contains 48 different Uranium related names.  Cameco (CCJ -0.42% ) is frequently the stock which many reference that explores, develops, mines and refines Uranium for sale as fuel for generating electricity in nuclear power reactors.

CCJ is appealing to me technically along with the Sprott Physical uranium trust and the Global X uranium ETF as vehicles which might participate as the price of Uranium starts to move higher.

Global X Uranium