Commodities Dominate the Headlines

11/24/2015 7:00 am EST


Jim Farrish

Founder and CIO, Jim's Notes

Jim Farrish on Jim’s Notes asks the question, "If Monday was light volume, what will the rest of the week hold in store?" Jim also explains that the news is driving the markets and points out that the biggest news is surrounding commodities, but he also shares why he doesn’t expect much in terms of changes as the rest of the holiday week unfolds.

Markets are willing to tread water as investors watch and listen. The news driving the markets was on the quite side Monday as the biggest news related to commodities, a strong dollar, lower demand, and global weakness. Sounds like the same things that have been in the forefront all year. The S&P 500 index (SPX) and NASDAQ close basically flat on the day. Utilities drop nearly 1% on the renewed drum banging from the Fed on rate hikes in December. Technology fell 0.6% as the semiconductors fell 1.3%. The sector failed to break the mini downtrend off the October high. Financials were off 0.4% with brokers leading the downside…banks actually posted a gain on the day. JPM, C, BAC, and GS all fell 1%+.  The jockeying for direction begins anew as a light volume holiday week gets underway.

Commodities continue the downside move with crude futures lower before getting boost from Saudi Arabia stating they were willing to work with global producers to stabilize the price of crude. The bump failed to keep oil higher as a stronger dollar continues to weigh on commodities in general. Crude closed flat at $41.90. OIL and XLE are both at key support levels…watching how it unfolds relative to any trade opportunities.

Gold posted the lowest close since February 2010. Lower demand, stronger dollar, and a Fed set to hike interest rates next month have contributed to the downside move. The rally in GLD to $113.80 in October has forfeited 10.2% the last six weeks. We have posted DUST, short gold miners, as a trade opportunity several times during this period and a break below the $102 level would present another opportunity as the downside continues.

The price of metals overall are lower with copper (JJC) down more than 27% for the year. Some blame China, but they are only part of the equation for the commodities. The base metals ETF (DBB) is down 14.8% since October and off more than 29% for the year. This is a sector that needs better economic data, weaker dollar, and higher demand globally. Worth watching, but too many negatives still in play to foresee a turnaround any time soon.

Bond yields on the ten-year treasury fell to 2.25% and the thirty-year to 3%. The mini rally in bonds flies in the face of the threat to hike rates from the Fed. Is the hike already priced into the bonds? It is either that or the lack of belief the Fed will actually take action as history shows. Goldman Sachs did forecast four rate hikes in 2016…that would keep things interesting for the bond market. Still watching TBT and the opportunity it will present if the bonds react to the rate hike going forward. $44.35 is support for the ETF.

All said, low volume, little changed, caution flags are flying, and it is a holiday week. If Monday was light volume, what will the rest of the week hold in store? There will plenty of interest in the retail data from the weekend kickoff to holiday shopping. The online retailers are the favorite to win the sweepstakes, but the total sales figures will be most important to get a pulse on the consumer. I don’t expect much in terms of changes as the week unfolds.

By Jim Farrish, Founder & CIO, Jim’s Notes

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