Momentum Makes a Small Turn
Tech's Fall Opens Window for Commodities Dominance, Can Copper Catapult?
Slow
The long-term momentum system is slow to register changes, hence the name. Marijuana and copper are rising though, while tech funds started sliding:
Commodity-related funds are still rapidly climbing in the relative rankings. The rankings don’t show relative momentum, for example semiconductors didn’t even drop last week despite a big loss because it still has more absolute momentum than the funds right behind it. The funds below will slow their ascent as they get higher and need more absolute momentum to punch into the top, but that may not be the case if the market continues bifurcating with commodities holding up as tech and pure momentum strategies drop.
Fast
Fast momentum confirms the above:
In my experience with the system, the most powerful moves come when the two systems alight. A powerful move could unfold in gold, silver and copper miners, along with Peru if if if they all make new breakouts after building on this momentum.
I might look at both puts and calls though. Blow-off top indicators are firing on the daily copper chart. If it goes through resistance these won’t matter. They’d be indicative of the powerful move underway in hindsight. The market hasn’t revealed if this is a tech pullback only, a stagflation situation or something disinflationary that could eventually bring down commodities too.
Aside from copper miners sitting near their all-time highs and having formed a 13 to 17-year base depending on the stock, here’s FCX 0.00%↑ divided by SPY 0.00%↑
Double bottom with a higher low, the handle is a near textbook 50 percent retrace of the base and the handle looks like an inverse head-and-shoulders. If this goes up, I suspect it goes way up. Note the ratio could surge thanks to SPY tanking way more than copper miners, which seems very likely looking at relative valuation and weightings of tech in the index.
Fast movers were a wave of bearish activity. Even some of the lower ranked movers such as XLP indicate defensive positioning.
The One Portfolio remains in BTAL 0.00%↑
The Discretionary Portfolio remains one-third each in USDU 0.00%↑ , FCG 0.00%↑ and SOXS 0.00%↑ . Though I may have to swap out FCG for COPX if it runs.
What should a momentum reversal look like? My hunch is this:
Momentum should be done, chip stocks have peaked. As in 2000, their initial plunge could theoretically be fairly isolated. Look how well SPX and DJIA held up in 2000. The former has way too much tech to manage that this time. Volatility and derivatives are also linking all markets in ways that didn’t exist in 2000. I cannot bank on market reversals spreading until it happens, but for speculative options trades…
Contagion is possible. Thanks to momentum infecting many sectors of the market, LLY is the largest holding in healthcare. That sector is now lopsided like the three tech-heavy sectors, albeit not as badly. JNJ and UNH are also parked at major support though, adding to the bearish potential. Bank charts look terrible despite financials’ spike. We shall see soon enough…