Commodity weakness represents buying opportunity
- Ongoing churning within three-month SPX downtrend still difficult to trust as being bullish until trendlines are exceeded. Bounces into/post FOMC above 4416 important
- WTI Crude Oil’s selloff should lead to opportunities to buy dips in Energy
- Metals along with Treasuries likely also reverse back higher this week post FOMC Meeting
Tuesday’s bounce attempt ahead of Wednesday’s FOMC meeting didn’t accomplish too much technically and until this range is broken, it’s right to think of Markets as being in “No-Man’s Land” with key support at 4157 and resistance at SPX-4300, then 4416. Given the downward sloping momentum and ongoing three—month downtrend, it’s right to view rallies as selling opportunities until proven otherwise. A move above 4416 represents the first time where it’s right to respect a bounce as having the potential to lead higher. At present, this structure remains bearish and is thought to eventually lead back to new lows for a final flush. Therefore, keeping a close eye on 4157 is important heading into/after the all-important FOMC meeting Wednesday.
Commodity selloff seen as offering buying opportunity
WTI Crude oil has quickly lost 24% over the last four of five days of selling pressure. Yet uptrends remain intact, and technically this selling merely looks to have alleviated recent overbought conditions and doesn’t represent anything more serious.
Precious Metals also look buyable after the recent sharp correction seen in Gold and Silver. Similar to Crude, the metals experienced sharp gains and are just correcting overbought conditions, but technical patterns remain sound.
Copper also looks ready to turn back higher, following its minor drawdown to support.
Finally, Grains like Wheat, Corn, Soybeans all look attractive near-term following recent consolidation following their sharp gains. It’s thought that further rallies back to monthly highs are still forthcoming for Grains, so this minor stalling out looks buyable, technically.
The daily chart of front-month WTI Futures is shown below, with prices having pulled back to test this larger area of trendline support. While the extent of the move might suggest to some that Crude might be peaking out, I disagree technically. Consolidation is certainly possible a while longer, but cycles, momentum and technical structure all suggest Crude still has an excellent chance of pushing back to new highs this year. Bottom line, using dips to buy WTI Crude and Energy ETF’s like OIH -1.46% , XLE -1.57% and XOP looks appealing on this weakness.
Precious Metals also look to be nearing an attractive area for dip-buyers. Gold and Silver along with base metals like Copper have all weakened over the last week, though arguably have not done much technical damage. A rapid run-up in Treasury yields has coincided with this pullback in the metals but is expected to stall out and reverse course this week. Overall, precious metals look attractive to buy dips on this weakness. One can consider IAU 1.13% or GLD 1.10% for Gold, GDX 0.57% for Gold Miners, SLV for Silver, and CPER 0.25% or COPX -0.44% , FCX 0.24% which look appealing as a way to play a rebound in Copper. Similar to the thinking in WTI Crude, it looks likely technically that this sharp pullback has merely alleviated overbought conditions but has not resulted in any real technical damage. Thus, dips in the Metals, along with Oil, likely represent buying opportunities for gains into April.
Treasuries should reverse course this week and TLT looks appealing to buy dips down near 2021 lows. Based on a combination of wave structure, cycles and DeMark exhaustion, my work shows a good likelihood of this push higher in Treasury yields reversing course sometime this month. Given that TYX , the CBOE 30-year Treasury Yield index has risen up to former peaks from last Spring and TLT, the Ishares 20+ Year Treasury Bond ETF, has now reached (and mildly undercut last Spring’s lows) this looks to be an opportune time to buy dips in Treasuries, with TLT being one vehicle to consider. While I don’t expect prices to rally all the way back to last year’s peaks from late last year, a 50-62% rally could certainly occur, which would then likely stall out and lead back lower for TLT. Near-term, buying dips looks appealing ahead of Wednesdays FOMC meeting with a timeframe of 4-6 weeks.
