From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

Whether we’re talking about stocks, commodities, currencies, or even the bond market, things have been a total mess. It’s no secret, and you’re probably tired of hearing it by now.

Trust me, we’re just as tired of seeing it.

So, as these choppy conditions test our patience and discipline, why not use this opportunity to take a step back and examine where we’ve come from, where we are now, and where we’re likely headed.

In today’s post, we’re going to do just that by revisiting and analyzing some of our favorite breadth indicators and discussing what some of them are suggesting for commodities over the long run.

Let’s dig into it!

First, we need to understand that a breadth thrust isn’t a singular event. It’s a process that builds upon itself as a new bull cycle unfolds.

These thrusts in participation don’t all just happen overnight. Instead, they develop over shorter time frames at first and eventually culminate with a broad expansion in new longer-term highs.

Using the stock market as an example, we saw our...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

Risk assets have been getting hit for the past two weeks. Stocks have been under pressure, and commodities have been struggling.

Meanwhile, we never saw any real follow-through lower in the Dollar, as DXY has bounced right back to the upper bounds of its year-to-date range.

But, as usual, we continue to see pockets of strength in the commodities complex.

Last week, we wrote about the resilience from base metals, such as Steel, Nickel, and Aluminum.

More recently, we're seeing relative strength from the Energy complex. That's what we're going to talk about today...

Energy is actually the only sector that's positive over the trailing two weeks. And Energy futures haven't been looking too shabby, either.

Here's a bubble chart of all of our commodity subgroup indexes with their one-month return along the x-axis:...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

Industrial metals have been one of the strongest subgroups within the commodity complex over the trailing year. 

The parabolic advance in Steel futures off last year’s lows is an excellent illustration of this.

But lately, we see more and more commodities shift toward sideways trends in the intermediate-term. And lots of them are doing so trapped beneath overhead supply. 

A quick glance at charts like crude oil or copper tells this story well -- the last four months have been a chop fest for most.

Despite an overall trendless market, we’ve seen pockets of strength from a diverse array of contracts. Steel isn’t the only one. In recent months, we’ve covered breakouts in Coffee, Sugar,...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

In today’s Commodity Report, we zoomed out to our monthly charts to reconnect with the primary trend. This exercise really allows us to tune out the noise on the weekly and daily charts.

As we were reviewing our charts, there was one recurring theme that kept popping up...

Pullbacks and retests.

The CRB Index retested its breakout zone near the 2018 highs ~206. 

Crude oil broke back below a 13-year downtrend line only to reclaim it in recent sessions. 

Iron ore fell right back to check in on its 2013 highs. 

And even palladium, the one bright spot in the precious metals space, pulled back to a six-year trendline. 

But guess what? Just like we’ve recently seen in many of the weakest areas in other asset classes, buyers dug in at these key levels.  

Of all these retests, one that stood out most was Uranium. 

Let’s take a look.

Here’s the monthly candlestick chart of the Uranium ETF $URA:...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

Pockets of strength continue to emerge within commodities.

This could be hard for some to believe when we see things like energy chopping beneath overhead supply.

Or the fact that precious metals persist in slumming it as some of the worst-performing assets on the planet.

But this is a diverse asset class with plenty of bright spots that suggest strength and support our thesis of a new commodities supercycle.

We’ve recently covered breakouts in Sugar and Feeder Cattle that are both still in play.

Even some of the laggards, like Silver and Lumber, recently defended critical areas of support.

This week, it was impossible to miss the chart of Oat futures. Let’s have a look!

Here’s a weekly chart of Oats:...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

It’s been a routine hurricane season down here so far this year. Things have picked up lately, and we’ve had a few close calls over the past week. 

But storms aren’t just brewing in the Atlantic...

It’s also beginning to look dicey in the commodities market, with lots of “close calls” these days.

Strong headwinds such as the rising dollar have hit some of the most important procyclical assets this week. Apparently, there’s some geopolitical stuff going on, too. Then again, when isn’t there? 

Let’s discuss what we’re seeing and try to determine just how likely these winds could evolve into a major storm for commodities.

Energy, base metals, precious metals, and ags have either pulled back from recent highs or have broken critical levels of support.

Given that many areas have experienced near parabolic advances during the past year, a corrective phase would be a healthy and welcome development. It makes total sense for commodities to digest their monster gains at current levels. And remember, sideways is always an option.

But headwinds have...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley    

Rotation is the lifeblood of any bull market.

If a sustained uptrend is going to persist, then we need to have broadening participation... or at least some healthy rotation.

And that’s exactly what we're seeing within commodities right now. 

As the energy group chops sideways and base metals hang tough, we’re starting to see signs of strength from one of the worst-performing areas over the past year.

Softs.

Like livestock last week, it appears this group of commodities are ready to play catch-up as they turn the corner and head higher. 

Considering the fact that other groups are simply consolidating or correcting through time instead of price, we'd argue that this looks more like an expansion in participation rather than rotation. But it's really just semantics. It's all bullish at the end of the...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

Breakouts continue to emerge left and right within the commodity space as participation expands to more and more subgroups. 

One of the areas that’s had our attention lately is Livestock. Last month, we highlighted lean hogs. 

And while they’ve since fallen back below our risk level, we’re now seeing cattle futures attempt to break higher from a similar base.

Let’s dive in and outline some long setups in these livestock futures as they’re offering a favorable risk/reward at current levels...

First up is a weekly continuation chart of Feeder Cattle futures:   

We can’t ignore this 5-year base as buyers finally appear to be taking control after a handful of tests at these former highs dating back to 2016.

As the old saying goes…  

The more times a level...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

We can’t ignore the resiliency in base metals. 

Despite the classic year-two chop, base metals have remained buoyant while many other risk assets have come under pressure. They’ve even gained ground during the recent bout of US dollar strength. 

And now we’re beginning to see signs of serious leadership emerge as Crude Oil consolidates its recent gains. The broad-based strength beneath the surface for this procyclical group of commodities has been undeniable. These risk-on metals have been the steadiest performers within the entire asset class for the better part of this year.

Steel has relentlessly pushed to new highs --we can’t wait to see those monthly candles! Tin followed through to the upside after last week’s...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

The markets are a mess and have been a mess for months now.

Risk assets are under pressure as the USD strengthens and overhead supply thwarts potential rallies.

Yet, we continue to find pockets of strength in both stocks and commodities.

We’ve said it time and time again during the past several months...the markets are a bifurcated, choppy mess! 

But during these challenging periods, identifying areas that are bucking the trend can prove valuable over intermediate- and longer-term timeframes.

Basically, the assets holding up the best or even breaking out while the broader market is trendless are likely to be your future leaders.

Let’s take a look at one area of the market doing just that!

Here’s a chart of the ASC Green Revolution Index: 

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

Opportunities are springing up in the commodity space!

Yes, energy, base metals, and (especially) precious metals continue to consolidate below overhead supply.

But this doesn’t necessarily speak to weakness… 

In fact, much of the sideways chop in commodities is taking place at logical levels of resistance. And aside from the dramatic sell-off in lumber, we see more upside resolutions than violations of critical support levels.

We recently pointed out that base metals managed to hang tough in the face of a significant correction in copper. And this week, tin is breaking out to new all-time highs.

...

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

Overhead supply is a theme we're seeing all over these days. And this isn't just true for the stock market, but it's also dominating the commodity landscape.

Crude Oil reached our objective of 76 and turned lower. Copper remains stuck below its former 2011 highs. And Gold has been an absolute mess since peaking last August.

Even the few commodities that have recently broken above resistance zones -- such as Gasoline and Heating Oil -- have yet to follow through and confirm their new highs in any meaningful way.

Remember, commodities have enjoyed some explosive moves over the past year. Now, many are at logical levels to pause and digest recent gains. This is healthy stuff. Normal market behavior.

And when we consider the recent...