Has the Capital Cycle turned for Commodities?
The commodity cycle
showed early signs of bottoming in Feb 2016. Sentiment was about as low as you
could get and they seemed thoroughly washed-out, suddenly they experienced a very
strong up thrust move (impulse move up), leading the entire stock market back
up. Check the point and figure chart for copper (copper is a good industrial
metal to track for the economically sensitive sectors of the market)…
Commodities then had
a spectacular rally (Canadian market surged) which resulted in an overbought
market condition. A counter trend correction then ensued as commodities sold
off the sudden excess of money that flowed into it. This correction seems to
have run its course in June of this year as momentum started to improve. Check
the attached daily chart for the copper complex.
After eight years of
monetary stimulus there is plenty of money on the sidelines ready to be put to
work. It seems to be going into the economic sensitive sectors of the market
(commodity related stocks and economic-sensitive sectors like technology,
energy-related stocks, mining stocks and industrials).
The resource based
Canadian market is showing clues that it is getting stronger. Canada
experienced sharp increases in its five year bond (75 basis points in June and
July). Its ten year bond was up 64 basis points over the same period. On top of
that the Bank of Canada raised its key lending rate by 25 basis points for the
first time in six years. And the Canadian dollar ran up and touched 80 dollars U.S...
Given these signals from the bond market, my feeling is the Canadian stock market has a good chance of outperforming its U.S counterpart in the ensuing months.
Given these signals from the bond market, my feeling is the Canadian stock market has a good chance of outperforming its U.S counterpart in the ensuing months.
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