Equities on a High, Commodities Poised to Move!

October 7, 2017

Weekly Market Outlook

By Keith Schneider


Equity markets continued to run up to all-time highs up on average another + 1.5% for the week. All this   despite multiple hurricanes, geo-political uncertainty, an unconventional presidency, and mass murder.

Attribute this to an economy that has received its medical marijuana card and not feeling any pain. It’s also has taken its flu shots thereby immune to all the above. In fact, the economy is just humming along.

One key number to watch is unemployment and that has dropped to 4.2%, its lowest since 2001. Major recessions and very nasty bear markets occur when the current unemployment rate jumps above its 12-month moving average, which is just not in the cards. ( See Chart Below)

 

Other positive news is hourly wages have improved. Furthermore, supporting the bullish overall climate was that the PMI (Purchasing Managers Index) climbed to the highest levels not seen since 2004. Overall, the economy is growing at a little over 3% and improving, providing a strong underpinning to this old bull market.

Looking much further out and for those old hands with a proclivity to analyze economic history, commodities have only been this cheap relative to stocks twice in the last one hundred years and each time (give or take a few years), it preceded a very long-term market top in equities.

Long term bottom formations are setting up in Cocoa, Sugar, Wheat, Gold, Gold Miners and even Silver. All have bounced off support levels or approaching key long term moving averages.

Despite this week’s action, even oil, based on weekly charts looks like the bears might be heading into hibernation, with Goldman looking at an $80 target. So, regarding commodities, if Yellen or whoever assumes the mantel of the Fed, doesn’t raise rates too quickly, commodities offer some great risk reward, assuming one can read charts and get the timing right.

Delving into the stock market vitals, volatility is at historic lows consistent with volume patterns that are very supportive, with just a few distribution days or institutional selling over the past several weeks. All key risk indicators are showing risk on mode and still improving. The likelihood of an October surprise like we had 30 years ago seems unlikely, assuming Rocket Man and President Trump stay calm.

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