Non-stop commodities rally, economic improvement, strong breadth, rally streaks

by Troy

Non-stop commodities rally

Industrial commodities are surging in this “everything rally” as sector rotation occurs:

  1. Precious metals first surged
  2. Agricultural commodities then surged
  3. Industrial metal commodities then surged

It’s not hard to see why commodities are rallying. Massive stimulus packages (money printing!) + global reflation theme + Chinese tariffs on Australia + a multi-year low in inventory…

All of this pushed our copper Short Term Sentiment’s 30 day average to its highest reading ever:

*part of the record sentiment reading is due to record speculator positioning towards copper

There are no comparable historical cases since this is a record for copper sentiment. Less extreme sentiment readings were not consistently short term bearish for copper, but usually led to losses over the next 6 months.

We live in a world where the only way to deal with massive debts is to inflate our way out of it (push inflation higher than interest rates). Such a macro environment is long term bullish for gold and silver. Precious metals are in a consolidation pattern right now. Historically, breakouts on the upside led to huge gains:

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I have a position in silver and I believe that gold/silver will be one of the big winners of 2021.

Economic improvement

The global economy continues to improve from the depths of the pandemic. The Conference Board Leading Economic Index is now less than -3% below its all-time high:

*The economy is worsening a little as countries grapple with massive outbreaks

When the Conference Board LEI crashed and then improved in the past, the S&P 500 usually pushed higher over the next 9-12 months. Most historical cases occurred during the first year of a multi-year bull market.

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Strong breadth

As I noted last week, stock market breadth is very strong all around the world. The NASDAQ New High/Low ratio is at the highest level in almost a decade!

Historical cases of strong NASDAQ breadth typically occurred during the first year of a multi-year bull market. Hence why the NASDAQ’s forward returns were consistently bullish:

Rally streaks

It’s not surprising that many indices are up 7 weeks in a row given that breadth is so strong. Here’s the MSCI Emerging Markets Index:

Recent historical cases of 7 week rally streaks consistently led to losses for emerging markets over the next few weeks and months:

The Russell 2000 is also up 7 weeks in a row:

Once again, this was short term bearish for small cap stocks over the past decade: