On Tuesday, many commodity ETFs gapped lower while the major indices gapped up. Additionally, the Russell 2000 (IWM) finally cleared its pivotal price level at $209. However, while the indices made a nice close on the day, ETFs such as Oil (USO), Agricultural Fund (DBA), and Silver (SLV) regained a large amount of their gap or more by the close.
Commodities are most often seen as lower-risk safety plays compared to securities/stocks. With that said, Tuesday shows that, even with the stock market pushing higher, the knee-jerk reaction in commodities reversed by the close. This shows that we have traders willing to take risk in equities, along with many who believe the market still has weakness. With inflation increasing, we have chosen the middle standpoint; we don't see a large bull market forming, but we also don't see a collapse on the way.
This type of environment bodes well for commodities, which ties back into the stagflation/rangebound market scenario, where growth continues as we emerge from the pandemic, but inflation pulls on the reins of growth, creating a back-and-forth battle. With that said, if the above symbols hold their recent lows, this could be an opportunity to buy commodities.
One thing to be careful of is that, while both commodities and equities are showing strength on Tuesday, I doubt both will be able to sustain an upward trend going forward.
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ETF Summary
- S&P 500 (SPY): 447 support.
- Russell 2000 (IWM): 209 needs to hold as new support.
- Dow (DIA): 350 support to hold.
- Nasdaq (QQQ): 368 the 200-DMA to hold.
- KRE (Regional Banks): Watching for a second close over the 50-DMA at 72.30.
- SMH (Semiconductors): 268 support.
- IYT (Transportation): 270 support.
- IBB (Biotechnology): Watch to hold the 50-DMA at 127.79.
- XRT (Retail): 80 to hold.
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
