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C'mon Commodities, Push That Energy Sector UP!

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Watchers of my show Sector Spotlight will know that I have been watching the development of commodities as an asset class that's going through a long turnaround. Recent developments continue to reinforce that view.

The Relative Rotation Graph shows the rotation for a universe of asset class ETFs vs. VBINX, the Vanguard Balanced Index Fund. The longest tails are for GSG and DJP, the two commodity ETFs that I track on this RRG/Universe. These tails entered the leading quadrant in September/October 2020 after coming from a long rotation through improving, after a multi-year period of underperformance.

Almost immediately after entering the leading quadrant, these tails started to roll over downward and lose relative momentum. That recovery from the depths of relative strength was taking its toll and needed time to refuel. In December '20/January '21, the tails curled back up and entered the leading quadrant at a strong RRG-Heading, setting off a new leg higher in the just-established relative uptrend. That process repeated again from April to October, when both tails once again rotated back into the leading quadrant from weakening, again at a strong RRG-Heading, and then again from November until now.

Once again, the DJP and GSG tails are entering the leading quadrant from weakening, underscoring the strong relative uptrend that is going on.

DJP

GSG

Both DJP and GSG are showing breakouts above major resistance levels this week, which opens up the way for much more upside movement in this asset class.

In the drop-down list on the RRG page, we also have an RRG universe for Commodity groups that allows us to go into the breakdown of the commodity universe.

What we see here is an interesting rotation between the different commodity groups. The tails are seven weeks long and, at the moment, only $GJX (Energy) is turning back into the 0-90 degree heading, while all other groups are turning in the opposite direction. What this means is that, until now, the rally in commodities has been driven by all groups except energy. That is now changing.

It looks as if Energy will be the group driving the next wave higher for commodities.

S&P GSCI Energy Index

The price chart of the underlying Energy index is supporting such a rotation, as it is just taking out its previous high and setting up to continue its rally higher. Making a connection to the stock market brings us to the chart of the Energy sector index.

XLE

Here, we also see an attempt to take out a major overhead resistance level. This week, it was too much and XLE failed just short of 65.

When $GJX will be able to follow through on this week's upward break, it seems only a matter of time before XLE will follow in its tracks and push higher as well.

#StaySafe and have a great weekend, --Julius

My regular blog is the RRG Charts blog. If you would like to receive a notification when a new article is published there, "Subscribe" with your email address.


Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
CreatorRelative Rotation Graphs
FounderRRG Research
Host ofSector Spotlight

Please find my handles for social media channels under the Bio below.

Feedback, comments or questions are welcome at Juliusdk@stockcharts.com. I cannot promise to respond to each and every message, but I will certainly read them and, where reasonably possible, use the feedback and comments or answer questions.

To discuss RRG with me on S.C.A.N., tag me using the handle Julius_RRG.

RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered trademarks of RRG Research.

Julius de Kempenaer
About the author: is the creator of Relative Rotation Graphs™. This unique method to visualize relative strength within a universe of securities was first launched on Bloomberg professional services terminals in January of 2011 and was released on StockCharts.com in July of 2014. After graduating from the Dutch Royal Military Academy, Julius served in the Dutch Air Force in multiple officer ranks. He retired from the military as a captain in 1990 to enter the financial industry as a portfolio manager for Equity & Law (now part of AXA Investment Managers). Learn More
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