Strategas Technical Strategy & Analysis
GIC Commodities Conference, February, 2015
Strategas Technical Team Chris Verrone, CMT Partner Head of Technical Analysis Strategas Research Partners
Todd Sohn, CMT Vice President Technical Analyst Strategas Research Partners
(212) 906‐0135 cverrone@strategasrp.com
Strategas Technical Analysis – Please Do Not Redistribute
(646) 292‐7958 tsohn@strategasrp.com
STILL TOO CONSENSUS?
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2
CRUDE POSITIONING HASN’T CHANGED MUCH WTI Oil 50 & 200‐Day MA
CFTC Non‐Commercial, Net Position Net Long
Net Short
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3
KEEP YOUR SEATBELT ON Number of Days with WTI Oil Range > 5% Yearly, Since 1983
100
94
91
90
83
80
70
58
60
45
50
45 40
40 30
28
30
38 32
Expect this bar to grow...
32
28
24
21
20 15 11
10
0
0
0
2
15
17
15 11
10 4
3 0
0
2
10
9
0
'83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
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WE HAVE TO RESPECTFULLY DISAGREE...
OIL ENTERS BULL MARKET; INVESTMENT CUT SEEN CURBING GLUT BLOOMBERG, 2/3/15
OIL SPIKES 9%, ENTERS BULL MARKET BUSINESS INSIDER, 2/3/15
OIL IS BACK IN A BULL MARKET, BUT CAUTION IS NEEDED FINANCIAL TIMES, 2/3/15
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OIL IS AN OVERSOLD BOUNCE, NOT A TREND WTI Oil 50 & 200‐Day MA
Bouncing from a very oversold condition, but unlikely the start of a new trend.
Strategas Overbought / Oversold Indicator +2
‐2
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6
ENERGY… OVERBOUGHT IN DOWNTREND S&P 500 Energy Sector 50 & 200‐Day MA
Fade rally near 200‐day resistance.
% of Energy Stocks Above 50‐Day MA
Overbought
Oversold
% of Energy Stocks in an Uptrend
7%
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IS TOO MUCH MONEY STILL CHASING THE ENERGY STOCKS? U.S. Sector ETF Flows YTD 2015, $MM $4,000
$3,000
$2,000
$1,000
$0
‐$1,000
‐$2,000
‐$3,000
‐$4,000
‐$5,000
‐$6,000 Energy
Health Care
Materials
Real Estate
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Utilities
Staples
Telecom
Discretionary
Industrials
Technology
Financial
8
U.S. CRUDE OIL INVENTORIES NOW AT RECORD HIGH WTI Oil Log Scale
EIA Total Oil Inventory
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RIG COUNT IS DOWN, BUT NOT EXTREME YET Baker Hughes Crude Oil Rig Count Log Scale
‐34%
‐60%
‐77%
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OIL BOUNCE NOT REFLECTED IN LAT-AM FX EITHER WTI Oil
Latin America FX Index
Lat‐Am FX isn’t buying the recent bounce in Energy.
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HISTORICAL ANALOGUE... OIL VS. S&P IN 1986 WTI Crude Oil 1984 to 1987
1986
‐67%
It took Oil nearly a year to stabilize after this sharp drop.
S&P 500 1984 to 1987 After initially rallying, stocks went dormant for much of 1986 before breaking out in early 1987.
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INDUSTRY GROUP PERFORMANCE DURING ’86 OIL DECLINE (November ’85 to March ’86) TOP 10 GROUPS
Global Autos have improved lately, and Homebuilders are quietly acting better as well.
SAVINGS & LOAN COMPANIES
61.5%
HOMEBUILDING
46.6%
TOBACCO
45.7%
BUILDING MATERIALS
42.2%
RETAIL ‐ SPECIALTY APPAREL
42.1%
PAPER PACKAGING
40.3%
HOUSEHOLD FURNISHINGS
38.1%
TRUCKERS
36.1%
TEXTILES (APPAREL)
34.5%
AUTOMOBILES
32.4%
BOTTOM 10 GROUPS OIL ‐ DOMESTIC INTEGRATED
‐15.0%
OIL & GAS DRILLING
‐10.1%
OIL COMPOSITE
‐5.8%
GOLD & PRECIOUS METALS MINING
‐2.6%
NATURAL GAS
‐2.2%
COMMUNICATIONS EQUIPMENT
0.3%
OIL ‐ INTL INTEGRATED
0.6%
RETAIL ‐ FOOD CHAINS
6.9%
TELECOMMUNICATIONS
8.5%
IRON & STEEL
9.7%
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OIL DECLINE OFTEN BULLISH FOR CONSUMER STOCKS S&P 500 & Consumer Discretionary Forward 6‐Month Performance When... 8.0%
Consumer Discretionary 7.2% 7.0%
S&P 500 6.0%
5.8%
Consumer Discretionary 5.1% 5.0%
S&P 500 Consumer Discretionary
4.2%
3.9%
4.0%
S&P 500 3.3% 3.0%
2.0%
...Trailing 6‐Month % Change of WTI Oil is Positive. Strategas Technical Analysis – Please Do Not Redistribute
...Trailing 6‐Month % Change of WTI Oil is Negative.
...Historical 6‐Month Average Performance Since 1990
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DIFFICULT TO NOT VIEW THIS AS A TAILWIND Average Annual Real Retail Gasoline Prices
$4.00
$3.74
$3.71
$3.75 $3.58
$3.58 $3.59
$3.56
$3.50 $3.36
$3.25
$3.20 $3.08
$3.00
$3.02
$3.03 $2.87
$2.95
$2.75
$2.75 $2.68 $2.59
$2.57
$2.50
$2.32
$2.25 $2.05
$2.04
$2.00
$1.90
$1.92
$1.91
$1.75
$1.81
$1.83
$1.88
$1.73
$1.82 $1.75
$2.10
$2.01
$1.91 $1.77 $1.77 $1.72
$1.62
$1.50
$1.50
$1.25 '79
'81
'83
'85
'87
'89
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'91
'93
'95
'97
'99
'01
'03
'05
'07
'09
'11
'13
'15
15
CYCLICALS BACK IN FAVOR, DISCRETIONARY VS. STAPLES S&P 500 50 & 200‐Day MA
Consumer Discretionary Relative to Consumer Staples 50 & 200‐Day MA
5‐month high for Discretionary vs. Staples.
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YET, DISCRETIONARY OUTFLOWS ARE HIGH… ODD SPDR Consumer Discretionary ETF (XLY) 50 & 200‐Day MA
SPDR Discretionary ETF Flows 20‐Day Sum, $MM
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U.S. CREDIT WEAKNESS HAS REMAINED CONTAINED Bloomberg High Yield Indices Indexed to 100
Remaining 9 Sectors
Energy
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THIS IS A STRUCTURAL BEAR MARKET Continuous Commodity Index (CCI Index) Log Scale Equally Weighted Index (5.88% Weighting for Each Commodity)
WTI Oil Heating Oil Natural Gas Corn Wheat Soy Beans Live Cattle Lean Hogs Sugar Cotton Coffee Cocoa Orange Juice Gold Silver Platinum Copper
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Fade rallies, the structural trend here is down.
19
COMMODITY CORRELATIONS REMAIN LOW Rolling 52‐Week Commodity Correlations (Gold, Copper, Wheat, WTI Oil, Natural Gas, Lean Hogs)
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00 '91
'92
'93
'94
'95
'96
'97
'98
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'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
20
GOLD TURNING LOWER Gold
50 & 200‐Day MA
Strategas Overbought / Oversold Indicator
+2
‐2
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21
GOLD RALLY ABOUT AVERAGE FOR THIS BEAR MARKET
Gold Rallies Since 2011 High Start Date
End Date
% Change
Duration
9/26/2011
11/8/2011
17.63%
31 Days
12/29/2011
2/29/2012
17.61%
44 Days
5/16/2012
10/5/2012
17.62%
102 Days
6/28/2013
8/28/2013
21.46%
43 Days
12/31/2013
3/17/2014
17.73%
54 Days
11/7/2014
1/22/2015
15.62%
54 Days
Average
17.95%
55 Days
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22
JUNIOR MINERS STILL WEAK Gold 50 & 200‐Day MA
Junior Gold Miners Relative to Gold Miners Index 50 & 200‐Day MA
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TOO MANY SILVER BULLS? Silver 40‐Week MA
CFTC Non‐Commercial, Net Position
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COPPER STILL A DOWNTREND, RALLIES ARE SELLABLE Copper 50 & 200‐Day MA
Structural resistance between 280‐300. Fade oversold rally.
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25
MULTI-YEAR LOW FOR BRAZIL STOCKS, CDS SPIKING Brazil Bovespa ($ Terms) 50 & 200‐Day MA
Brazil 5‐Year CDS
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New low for Brazilian equities and multi‐year high for Credit spreads…avoid.
26
MEXICO YIELDS INTO RESISTANCE Mexico 10‐Year Yields 50 & 200‐Day MA
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REAL RETURNS... EQUITIES VS. COMMODITIES S&P 500 50 & 200‐Day MA
Real Bull Market
Stocks go up, and they outperform commodities.
S&P 500 Relative Continuous Commodity Index 50 & 200‐Day MA
Nominal Bull Market
Stocks go up, but they underperform commodities.
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