Commodity ETF/ETN Bull May Be Ready For A Breather
20 September 2010 at 1:36 pm by Gary Gordon
On Monday, September 20, all of the “buzz” surrounded the S&P 500’s breakout above the 1130 trading range high. After all, the U.S. benchmark had visited the 1040 level… the low end of the range… 3 times in late August alone.
Yet there has been scant recognition that a base of stock support began back in July. What’s more, there has been even less recognition that the best built floor came back in May… where emerging markets had bottomed. Not only did single country emergers turn it around in May, but regional emerging markets turned it around in May as well.
Why does the emerging market turnaround that started several months before the U.S. upswing matter so much? It all comes down to the global industrial cycle; and that means, it largely comes down to commodities.
When China and India demonstrated an increased demand for natural resources back in May/June, belief in the global growth cycle accelerated. You then began seeing ”higher lows” for emerging stocks. Shortly thereafter, you began seeing “higher lows” for U.S. stocks. Afterwards, new 52-week highs became the norm for resource-rich developing nations as well as the actual commodities themselves. And at the very present, you’re beginning to see developed nations play “catch-up” to emergers… just as they did in ‘08 and ‘09.
If you’re swift, maybe you’ll get in on a temporary period of outperformance for the developed world. Yet that won’t last. Japan has needed to interfere in the currency market. Europe is a long way from solving its ongoing sovereign debt issues through quasi-austerity. And the U.S. can’t shake the banking/housing flu as easily as it would like.
It follows that, in assessing longer-term market direction for emerging stock assets as well as domestic stock assets, investors would be wise to track the relative strength and percentage performance of key commodities. For instance, the relative strength of ETNs for copper, agriculture, and nickel are all at their highest respective 3-month percentile rankings.
In some ways, this could be viewed as a net positive. In other ways, Monday, September 20th’s bullishness for U.S. and European equities significantly outpaced resource-rich countries, the materials sector and commodities themselves. If that becomes more than a one-day or a 5-day phenomenon, a longer-lasting “breather” for commodities could be on the horizon.
| Popular Commodity ETNs: Relative Strength Percentile Rank and 9/20/10 Performance | ||||||||
| 9/20 RS Rank | 6/24/RS Rank | 9/20 % | ||||||
| iPath DJ Agriculture (JJA) | 97.0 | 20.3 | -0.1% | |||||
| iPath DJ Nickel (JJN) | 96.1 | 46.6 | -0.6% | |||||
| iPath DJ Copper (JJC) | 90.2 | 40.9 | -0.2% | |||||
| iPath DJ Industrial Metals (JJM) | 86.5 | 22.3 | 1.1% | |||||
| iPath DJ Total Commodity (DJP) | 62.4 | 32.4 | 0.0% | |||||
| S&P 500 SPDR Trust (SPY) | 41.8 | 41.2 | 1.5% | |||||
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