Cv 15 02 17

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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4

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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5

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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7

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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9

RIG COUNT IS DOWN, BUT NOT EXTREME YET Baker Hughes Crude Oil Rig Count Log Scale

‐34%

‐60%

‐77%

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10

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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11

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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12

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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13

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.

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...Trailing 6‐Month % Change of WTI Oil is Negative.

...Historical 6‐Month Average Performance Since 1990

14

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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16

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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17

U.S. CREDIT WEAKNESS HAS REMAINED CONTAINED Bloomberg High Yield Indices Indexed to 100

Remaining 9 Sectors

Energy

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18

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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23

TOO MANY SILVER BULLS? Silver 40‐Week MA

CFTC Non‐Commercial, Net Position

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24

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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27

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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28