By J.C. Parets & All Star Charts
1/ Copper Miners Swing for the Fences
2/ Equal Weight Over Cap Weight
3/ Bullish Initiation for Chinese Equities
4/ Pipeline Stocks Join the Party
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1/Copper Miners Swing for the Fences
Copper futures just posted their best single-day return since 2009, while a key mining bellwether stock, Freeport McMoRan (FCX), climbed over 11%.
We’ve been watching copper closely as it churns above its prior-cycle peak. It’s not surprising that the Global X Copper Miners ETF (COPX) is trading almost identically to copper futures, coiling just above its 2018 highs.
Today’s upside resolution in COPX marked its largest single-day gain since March of 2020, confirming that stocks and futures are rising in tandem. This adds to the conviction of today’s move, as does the recent strength from the Metals & Mining (XME) and Steel (SLX) ETFs, both of which rose over 5% today.
Participation continues to expand for the materials sector and the cyclical value areas of the market more broadly. This is a very bullish development, as copper futures could be foreshadowing a turnaround in the markets.
2/ Equal Weight Over Cap Weight
While weakness from mega-cap growth stocks continues to weigh on the major averages, things aren’t as gloomy when we look beneath the surface.
The price chart below shows the Equal Weight S&P 500 ETF (RSP) emerging to fresh multi-year highs relative to the cap-weighted S&P 500 index (SPY).
This price action illustrates the fact that SPY has a much higher weight in mega-cap technology stocks, whereas RSP has a higher representation of the broader market, due to its equal-weight composition.
Seeing this ratio make new highs is a bullish development that could indicate an expansion in participation, providing more evidence of improving market internals. In other words, more stocks are performing well, even as the largest component stocks continue to falter.
3/ Bullish Initiation for Chinese Equities
After falling over 50% from its early 2021 highs, Hong Kong’s Hang Seng Index just registered its best weekly performance in over 11 years. As investors rejoiced at the idea of China reopening its economy, there was a similar momentum thrust in the Shanghai Composite Index, which registered its largest weekly gain since the summer of 2020.
Extreme rate-of-change readings like these tend to occur at either the beginning or the end of trends, signaling either initiation or exhaustion, respectively.
As Chinese stocks have been in a steady decline for over a year now, there is little evidence of exhaustion from buyers. We’re not looking for a top; instead, we’re looking for a bottom.
However, we can see evidence of exhaustion on the side of sellers in the one-week rate of change. Last week, the Hang Seng fell over 8%, recording its worst weekly performance since early 2018. This week’s price action could signal a bullish initiation event. If that’s the case, Chinese equities could carve out a bottom and move higher from here.
4/ Pipeline Stocks Join the Party
When it comes to energy lately, it’s just a matter of what’s making new highs.
Whether we look at explorers and producers, oil services, or midstream companies, we’re seeing participation broaden within the energy sector.
This week, the Global X MLP ETF (MLPA) closed at fresh multi-year highs.
The fact that a growing number of industry groups are joining in on the energy rally is a strong bullish signal for the sector, and confirms the price action and outperformance from this group.
We’ll be looking for upside follow-through next week to confirm the breakout in MLPA. If we get it, we could expect a fresh leg higher from these stocks.
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Originally posted 4th November, 2022
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