From the Desk of Ian Culley @IanCulley

Stock market bears and tech bros are whining in the corner as energy outperforms.

Haters can hate all they want…

Energy marks the spot when it comes to stocks.

Spencer and I discussed it on Wednesday’s “What the FICC?” episode, highlighting the absolute and relative uptrends across the space.

Energy is clearly resuming a leadership role in stock and commodity markets. But crude oil isn’t the only commodity exhibiting strength.

Cattle are ripping higher, too!

Check out the daily chart of live cattle futures:

Live cattle are breaking out of a multi-month consolidation, printing new all-time highs.

The path of least resistance leads higher toward 202 as long as price holds above 184.

I highlight longer-term upside objectives in today’s...

From the Desk of Ian Culley @IanCulley

I recently outlined five reasons to bet on energy.

While I stand by my line of reasoning, I did manage to leave out one overarching theme. And it’s an important one!

It’s a market theme that’s played out for almost three years, extending beyond energy to encompass commodities as an asset class.

I’m talking about the commodity-bond ratio…

Commodities relative to bonds was the most impactful high-level chart headed into 2021.

A major trend reversal favoring raw materials over US treasuries signaled a new, wild world on the horizon – a world characterized by inflation and rising interest rates. 

This shift in relative strength caught many investors off guard as commodities also outpaced stocks for the first time in over a decade.

Shockingly, commodities were back in the conversation as analysts struggled to deem the energy space a viable investment. (As if the price charts didn’t provide ample evidence.) 

Meanwhile, energy stocks...

From the Desk of Ian Culley @IanCulley

Seasonality is not the most heavily-weighted data point in my analysis.

It doesn’t even make the top three: price, price, and price.

Nevertheless, tracking seasonal patterns has proven quite valuable in past experiences, especially regarding commodities. (We discussed it today on What the FICC, outlining three strong seasonal tailwinds heading into the fall. Check it out below.)

Raw materials are clearly affected by the earth’s rotation around the sun. 

And while these trends fail to produce explicit entry or exit signals, they do provide insight into potential market conditions (not unlike sentiment or COT positioning). 

I use seasonality to help guide my focus to those areas of the market that deserve additional attention. Areas such as…

Sugar!

I’ve been watching sugar futures since the beginning of the year, waiting for a breakout. 

And boy, did it deliver!

From the Desk of Ian Culley @IanCulley 

“Looks like cocoa and sugar are poised to break out.” 

That’s the first message I saw on my phone this morning as traders across the US were preparing for the upcoming session.

But I wasn’t ready to get behind a tactical move in either cocoa or sugar.

Instead, my full attention rests with one commodity on the precipice of an explosive rally…

Cotton.

Check out the weekly continuation chart of cotton futures:

My eyes have been fixated on cotton since early February.

Buyers were challenging a critical retracement level at approximately 89 to open the year. And they continue to do so, slowly absorbing overhead supply as momentum steadily improves.

Prolonged periods of contraction often lead to explosive expansions in price. Cotton is in the midst of the contraction phase. 

So when will...

From the Desk of Ian Culley @IanCulley 

We like buying energy.

Who doesn’t? 

Energy stocks are resolving higher and holding their breakouts, something few market areas can claim this quarter.

It makes sense.

Interest rates are rising across the curve as the US 10- and 30-year yields eclipse last year’s high.

Procyclical commodities and value-oriented stocks are responding as they tend to benefit the most as yields climb.

And when we add a dash of stock market rotation – bam! 

Energy-related assets are making contact!

But while rates continue to rise and energy names are ripping, crude oil has not been able to break out…

Check out the daily chart of crude oil futures sliding back within its prior range:

...

From the Desk of Ian Culley @IanCulley

Energy contracts are breaking out.

Crude oil and gasoline futures are completing major reversal patterns.

Heating oil is ripping higher.

Natty gas has traders on the edge of their seats (what’s new?) as it heads into a seasonally favorable stretch.

But what about the rest of the commodity space?

Check out the overlay chart of our equal-weight energy index and our equal-weight broad commodity index:

Both averages have followed the same path since the 2020 lows despite a mere 15% weighting toward energy in our broad commodity index. 

But energy is pulling away. Oil and gas names are taking on a leadership role among US equities as their underlying commodities confirm by digging in and resolving higher.

I like buying energy – stocks and commodities. And I outline two new trade ideas from the energy space at the end of today’s post.

I love a good trade setup as much as anyone....

From the Desk of Ian Culley @IanCulley

It’s commodities over bonds.

In fact, we’re now in an everything-over-bonds environment as rates continue to rise. 

Looking for an uptrend?

Just place US Treasury bonds or the Japanese yen in the denominator, and voila!  

I consider the commodity-versus-bonds ratio one of if not the most important high-level intermarket ratio in our deck.

Why? Because it reveals the inflationary backdrop that colors the entire market,  determining secular leadership between asset classes and US stocks. 

And it’s hinting at the next trend in relative strength…

Check out the commodity-versus-bond ratio, as measured by the relationship between the CRB Index and 30-year Treasury bond futures:

Notice the ratio peaked in 2008 during the Global Financial Crisis and turned lower until the pandemic selloff of 2020. 

Disinflation...

From the Desk of Ian Culley @IanCulley

I started at the top last week, laying out my bullish energy thesis with five charts.

Energy commodities are reclaiming critical levels. They’re outperforming their alternatives. And buyers continue to support a healthy demand for crude oil distillates.

What’s not to like?

Today, I’m drilling down to individual stocks, highlighting five trade setups I didn’t cover in last Wednesday’s What the FICC episode…

And these stocks look ready to rip!

First up is oil services. I like this group of stocks because the oil services ETFs $OIH and $XES are the strongest among industry groups.

Here’s Schlumberger LTD. $SLB, the $81B behemoth:

We highlighted SLB in early January in our Hall of Famers column. It's carved out a six-month base below our risk level since.

...

From the Desk of Ian Culley @IanCulley

Investors hate commodities – especially energy. 

I don’t blame them. 

Most energy stocks and commodities have failed to provide the best opportunities for the average market participant.

In fact, they’ve been an absolute dumpster fire compared to high-flying tech names for almost a decade. 

But everything changed following the 2020 sell-off.

Commodities flipped the script, outperforming bonds and stocks. Long-forgotten energy names worked their way back in the conversation as the energy sector taught a masterclass in relative strength.

This story isn’t finished – not yet!

One glance at the market’s year-to-date performance reveals an explosive tech rally that’s managed to erase the past two years from our collective memory.

That’s why I think it’s more important than ever to reiterate why I still like commodities in the back half of the year, specifically...

From the Desk of Ian Culley @IanCulley

Commodities love the falling dollar.

Crude oil is breaking to multi-month highs. Copper is approaching the 4-dollar level. And Silver is ripping!

I’ll have more on the precious metals front Monday with your weekly Gold Rush.

Today, I’m focusing on the grain and livestock markets. The dropping dollar has helped line up a long list of fresh trade ideas: potential failed breakouts, possible failed breakdowns, and critical levels to trade against…

Let’s get to it!

First up – It’s corn!

Corn – Failed Breakdown?

We might have a failed breakdown on our hands…

Corn futures broke down to their lowest level since early 2021 only to quickly reverse higher.

Check out the Dec. contract:

I like giving Dec....

From the Desk of Ian Culley @IanCulley

The most important crop report of the year has hit.

Yes, it’s generated quite the buzz over the past few weeks, as grain markets ripped higher in anticipation.

Some observers even speculated that Friday’s report was the most important in the history of the agrarian economy.

So let’s round down, be conservative, and call it the most important crop report in 5,000 years.

Seriously, though, it was a big deal, as acreage estimates for soybeans represent the largest miss since the report's inception – or, like, ever, in history. 

More importantly for traders and investors, the report brought increased volatility.

If you’re like me and prefer to sit out these kinds of days, you’re patiently waiting for the dust to settle. 

Meanwhile, if you’re at all put off by the volatility of these futures contracts, I have a vehicle that promises a much smoother ride…

Let’s talk about Archer Daniels Midland $ADM, “supermarket to the world.”

The $41B commodity behemoth has more than 100 years of experience in the grain markets.

And, as JC pointed out on...

From the Desk of Ian Culley @IanCulley

The commodity supercycle will not be televised.

Jim Cramer will not provide commentary on cotton, cattle, and/or the crack spread.

Hollywood will not make a movie on crude oil trading below zero.

Nor will jeera futures have their turn in the limelight.  

That doesn’t mean we should plug in, turn on and cop out.

Instead, let’s focus on the charts…

Here’s the S&P 500 versus the CRB Index, a simple stocks/commodities ratio:

It’s been commodities over stocks since crude traded below zero in the spring of 2020.

Yes, the correction favoring stocks off the 2022 lows has been significant.

But it’s retreating from a logical confluence of potential resistance – a multi-year downtrend line and a key retracement level. 

Let’s call the recent correction a “commercial interruption.”

I expect many such interruptions during the cycle. As we all know, price doesn’t move in a straight line.

Commodity rallies challenge that notion over...