You could describe yesterday as a mixed day for the markets. All the attention of the trading masses was drawn to Coinbase as its IPO hit the exchange and dominated the financial news cycle. As a stock it gapped crazy on the open, rallied for a few hours, and then faded into the close. More importantly, the crypto currency complex sold off too as many cryptos had been rallying into this IPO day for the past week. Traders like to buy the rumor and sell the news. I have no idea what they will do next with virtual currencies as they are primarily instruments of pure speculation. Trade what you know, what you understand, and what works for you.
What I do know is that we are now seeing a broad based rally in commodities and the most important tracker for them just turned up big time. I’m talking about the Commodity Research Bureau Index. Take a look at the chart.
As you can see, the CRB index just completed a triangle consolidation pattern by rallying hard yesterday. Oil also popped and so did many energy stocks. Check out the XLE ETF as it is the energy sector ETF.
XLE needs to clear $50 to breakout. Notice how the two pink lines, the 20-day Bollinger Bands, are coming together. That typically leads to a big move. I own XLE in my IRA and one energy stock I own that also has a nice chart pattern for an entry right now is SU.
SU is trading in a very narrow range. One could buy it and buy a stop loss on it under $20. It’s paying a 3.10% dividend. Inflation is no longer just coming, it’s starting with the April CPI report showing annualized 2.6% growth. Commodities rallying for months told us this was going to happen, but it’s just the start. The economy hasn’t even come fully back online yet, and is slammed shut still in places like Canada, so just wait till that happens. And then when growth peaks and the Fed needs to do something as traders take stock market profits yield control will begin, so look out. This is simply a trend that’s going to last for years. If this is the 1970’s, well this is 1971. No one is really complaining about inflation yet or even oil prices. But eventually they will.
But, as always, step back and look at the big picture on a long-term chart.
Historically, the CRB is still low too, so it’s not to late to get into this commodity trend.
Cryptocurrencies IS NOT a way to do it, because there is zero mathematical correlation with Bitcoin and the US dollar or the CRB Index. What it is correlated with is the Nasdaq 100, so Bitcoin is a way to lever up (thanks to crypto volatility) on stock market speculation and sentiment swings. The best way to invest in commodities is via commodity ETF’s, futures contracts, and companies involved in them that pay a dividend. And gold is knocking on $1750 again this week making my top stock pick of the month shine.
Check out David Skarica’s new regular stock chart of the day posts. For the one he did today click here.
-Mike
