Articles

Walking Blind Into An Energy Crisis

A theme is emerging in the energy space. Oddly, it is not a theme focused on green energy. At this point it appears to be a theme focused on the energy squeeze that is right before us.

California to Build Temporary Gas Plants to Avoid Blackouts

Unplanned Outages Hit Texas

Electricity Prices Spike in Alberta

Bills Soar as Spain Approaches Record Electricity Prices

Two UK Energy Suppliers Collapse

UK Energy Bills to Rise After Record Wholesale Electricity Prices

German Power, Carbon Rise to Record on Soaring Gas Prices

Japan’s Surging Electricity Prices are a Warning For Asian Countries

Australia Energy Prices – The Story Behind Rising Costs

India – Spurt In Electricity Prices

China’s Coal Supply Crisis Means High Prices, Blackouts

Type in a country with the words electricity price spike into your Google search bar. A result pops up. Every country is experiencing record demand for electricity, but utility companies are not building power stations to match demand. The governments worldwide are quick to mask the problem by announcing green plans. The real problem is the Sun and wind are renewable, the infrastructure to catch that power is not. These plants wear out as fast as a Samsung fridge.

All of a sudden, in the last few weeks, a major surge has shown up.

The Uranium ETF is soaring. Part of this is apparently due to ETF’s but the other part of it is the chart has been improving for a while. But the chart is on a rocket ship higher.

Natural Gas has been soaring worldwide as Europe is paying 4x more than North America. The price below is for North America.

West Texas Crude Pricing broke out this week moving back above the 10-week moving average. This looks set to challenge the 5-year highs.

What has not broken out yet is the Solar ETF.

Copper is all lined up to break out.

As winter approaches, be ready for massive issues in power supply. We continue to have government inaction to approve new power generation, but we keep increasing demand worldwide.

This entire sector looks like the pressure relief valve is about to blow on these charts. Stay tuned! Here is an article I wrote on Monday about the Copper linkage. Green Energy – All Aboard ?!

For more information on following my recommendations for investing on this energy crisis, visit Gregschnell.com/explore. It might be the best $500 you’ve spent this year! I cover energy every week in my newsletter extensively.

Greg Schnell, CMT, MFTA

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Green Power – All Aboard?

Copper is the most important metal in the greening of our energy sources. Lately the commodity has pulled back, but the copper stocks got smoked. So the real question is: Is this a bull flag or is this the end of the run for a while?

Copper popped on Friday as the Biden Presidency said they would not approve the big copper mine in Southeast Arizona. Copper’s price has also been impaired by the Chinese government creating strategic reserves of metals like Copper. When the price of the metal gets too high as decided by the government, they release copper into the market to slow/reverse the price back down and refill the reserve when price is near the bottom.

This use of the strategic reserve strategy is similar to the wider strategy of the USA strategic Petroleum reserve in my opinion. The difference is the Chinese government is using it across many of the commodities and more often.

What that does is confuse the supply/demand picture. It also has the effect of slowing investment in new mines to replace reserves for the future. If the new mines won’t be approved by government, can the Copper price stay low?

There are a few major copper companies, and these companies have to deal with these wide price fluctuations. Such is a commodity investors lifecycle. Seeing the big swings either way! When they are heading higher it’s pretty bullish and they can move rapidly!

Freeport McMoRan pulled back 30% on copper’s flag pattern. The full stochastic is making a higher low suggesting a nice setup for a trade here. On the zoom panel we can see the overlapping price action lately. Price is now oscillating with the 40-week moving average as support. The PPO is down near zero. Usually stocks in an uptrend will bounce near zero and start the next leg higher. The same can be said about the 40-week MA. Most bull market runs stay above the 40-week.

SCCO – Southern Copper double topped in May, plummeted for 5 weeks and is now trying to hold support near $60. With the price action underperforming the $SPX, this doesn’t look particularly bullish. Volume has declined for most weeks since June with two exceptions. One was the week of July 4th, a short week was really low making the next week look higher. The second was a one week surge that couldn’t start a rally. The PPO momentum indicator needs to turn up here or this is going to be setting up for another leg lower.

RIO. Rio Tinto has not tried to rally and is now below the 40-week MA. All the indicators are pointing straight down and the full stochastic hasn’t tried to turn yet. With the PPO approaching zero at a steep angle, it doesn’t look ready to base just yet.

TECK, TECK/B.TO. Teck Resources looks a little better. It has broken the downtrend and is a dollar away from the 2nd quarter highs. It wouldn’t take much to hit two year highs in relative strength, shown in purple. The good news is the PPO is turning up! Be watchful of a double top! We need to make new highs which would bring the $30 level into play as the old resistance.

So a bright spot within a few cloudy charts stuck in downtrends. I like the breakout in Teck and it might just help us with the direction in some of the other names. Watch closely!

Good trading,
Greg Schnell, CMT, MFTA

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Is Lumber Out Of Its Slumber?

Lumber has been on a remarkable ride this year.

Up 6x on the lows of last year, it quickly plummeted to being less than a double. What is important to recognize is the chart bounced off support at $440 and yesterday was now up $100 from the low in a couple of weeks. Talk about trading ranges!

Based on the other steep downtrends on the chart above, this is not lumbers first felling competition. These wild swings go with the business and price moves fast both directions. Add on the tariffs and WTO trade disputes and this is not a simple trading environment. But it is a good one on the uptrends.

A longer look at lumber makes it more compelling here.

For newer investors, the reason the chart is more compelling here is that the market typically topped out around this $500 level historically. For technicians, what was resistance, becomes support. If it stalls here and trades lower than support, we can leave our positions with the stop relatively close.

Below is the chart of lumber companies, compiled into the WOOD ETF. The volume is light, but it does give us a sense of the trend. Right now, $90 is a friction level for this ETF.

Zooming in on the daily, the resistance line is meaningful. It was support for the peak and this is the third rally test. If it breaks out, that is an entry with a tight stop. While a tight stop is always a good idea, the problem with this pattern is a false breakout can quickly drift to the bottom of the range at $84. If it fails to break out, no entry.

While the lumber chart is interesting here for an entry, typically futures traders trade the commodity. The companies related to the commodity can be traded individually or through the ETF. At this place in time, it is good to be watching for a breakout, with full recognition of the importance of a stop.

Good trading,
Greg Schnell, CMT,MFTA

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Sector Rotation Gets More Difficult

Some of my regular breadth indicators are getting stronger, but others are getting weaker. Here is a chart so out of sync with history it’s almost like the indicator is broken.

Notice how the percentage of stocks above the 200 Day Moving Average (long term trend line on each stock within a group) has declined from a very high level since February. Less than 45% are above the 200 DMA, yet the market is spitting distance from an all time high. Historical readings would suggest a meaningful pullback has already started when the market is this weak. It would also suggest it is so weak, it is time to start rallying.

Two exceptions to this level of weakness have occurred in the last 3 years. The 20% decline in 2018 and the 35% decline in 2020.

When we look at the PPO (a momentum indicator), this is historically a bounce level, but it also signalled bigger breakdowns when it got weaker than current levels. The amazing part is the markets resilience, sporting new highs every week, with the majority of stocks not just below their highs but below the long term average.

The red arrows are where we bounced after noticeable pullbacks. The black arrows are where things really broke down.

Taking this same chart style and reverting it from the Nasdaq list of stocks to the New York Stock Exchange (NYSE), the data flip-flops and looks like a bullish breakout. The NYSE has a lot of utilities and consumer staples companies and these companies are holding up well. The indicator is at one of the highest ‘lows’ in three years, declining since December, but the chart is turning up. The stock index on the lowest panel is hitting new highs after breaking out of a 4-month consolidation.

This looks very bullish. The one part of note for this is that the Consumer Staples and Utilities are making higher highs, while the semiconductor index appears to be showing a failed breakout.

Recently, Utilities, Financials, Materials, Industrials and Consumer Staples are breaking higher, while the higher growth groups like tech, communications, healthcare and consumer discretionary are starting to underperform the other sectors.

This all started with the turn in rates last week.

If the NYSE stocks are going to start outperforming the Nasdaq names, it’s hard to understand how the top chart in this article is going to improve. Will the divergence between the Nasdaq near all time highs and the percentage of stocks above the 200 DMA continue, or will all stocks (both Nasdaq and NYSE) broadly get a bid here?

A more pessimistic case would be seeing the move into the defensive sectors like utilities, staples and financials while the rest of the market pulls back.

There is a change going on, and we are about to find out which way this finishes. Watch closely.

Good trading,
Greg Schnell, CMT, MFTA

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