The Canadian Technician

Commodity Sunshine

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Commodities have being doing well to start off 2022. I have been hammering the drum on energy and copper throughout December and into January; this trend is just breaking out from some consolidation.

Today, I did a screenshot of the Dow components because it was down so hard relative to the other indexes. I was trying to figure out what was changing so quickly. What I was more impressed with is where the leadership has been for the first two weeks of 2022.

It's worth doing some analysis here. Oil names have been reduced to just one oil name in the Dow, which is Chevron (CVX). CVX also has the highest SCTR ranking in the group of stocks. The list sort is based on SCTR; the % Change is year-to-date for 2022.

Chevron looks really solid. The SCTR is at the highest level in three years. The chart is just breaking out and it is still unloved. The relative strength is breaking out to new 18-month highs. The chart looks really solid.

The Caterpillar chart is also strong as miners look ready to break out topside. Copper keeps flirting with $4.58, which was the previous high in 2012. Big mining companies look great. RIO, VALE, TECK, BHP and FCX have great charts, which supports the strong look of CAT.

The third best performer on the list year-to-date is Boeing (BA). This chart looks well set up to follow the breakout leads of CVX and CAT.

As the world rotates out of tech, they seem to be moving money towards solid, tangible businesses like the three listed above.

A friend of mine on Twitter listed off his chart review for the evening, which included 18 tech names and zero of the stocks breaking out. If you are staying in your lane for trading tech stocks, you are probably in cash, as the sector compresses a bit here. For the industrials and energy investors, it's been a wonderful start to the year.

Investing is fast-paced and tech investors are watching for the rotation back into tech for the next ride. Looking at the chart below, I am comparing oil and gas exploration with the XLK. It has been a wild swinging ride over the last year. As we approach the level where tech starts to take control again, it is a good time to be prepared for both outcomes. Can oil keep going? The relative strength of this ratio compared to the $SPX suggests yes. The actual ratio in the main panel has not broken above yet.

If the ratio breaks out to new highs because oil names are improving faster than tech, that will probably ignite a further capital flow to energy stocks. If we stall here, it will be a great time to be getting back on the tech trade. Keep an eye out to see what happens.

We can do the same for copper-related miners compared to tech. We are at a pivotal resistance point once again. Both the indicators suggest the main panel will break higher. We'll have to watch and see if it can.

These rotations are quite vicious, so try not to overstay your welcome. As the market is so split right now, be prepared to take gains off the table, because the reversals are painful as tech investors suffered the first two weeks of the month.

To stay on top of these rotations, consider investing in a membership to gregschnell.com. It's been an awesome year for our members already.

Good trading,
Greg Schnell, CMT, MFTA
Senior Technical Analyst, StockCharts.com
Author, Stock Charts For Dummies


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Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
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