Macro micro trader

While the major stock indexes are showing euphoric moves, commodities are on a streak that can’t be ignored, especially when they too are on a tear.

Lets dive deeper with crude – WTI. Earlier in 2021, crude broke out of a multi-year wedge that resulted into prices hitting their highs last seen in 2014. As is the case with any breakout, it almost always backtests the breakout point, which it almost did after hitting the highs of 85 to all the way back to 62.

And when we zoom in further, it shows what’s going on – continuing the parallel channel since the lows of 2020. Sustaining the 50SMA on the weekly and crossing past the 20SMA too.

Copper – Long term says its topped out at 4.9 and we may not see those levels soon. But when you zoom in..

There is basing (triangle formation) going on the weekly charts. Breakout seems around the corner and when it does, the roof might shift upwards.

If crude breaks out and backtests, then NatGas can’t remain far behind. A multi-year breakout and then backtest. Zoom closer..

And it has already taken off again on the daily and the weekly charts after taking support on the daily demand zone which co-incided with weekly 50 SMA.

Lumber – Another long term, multi-year breakout, another backtest and then rally back to the sky.

What does it all signify? Certainly Fed has a lot to worry. It woke up late, but better late than never. The inflation hawks have to be on the works sooner than later. Whether they would be successful or not is a different story, but in either case its not a good news for the risk-on rally in stocks (or cryptos for that matter).

If the Fed succeeds in curtailing the inflation, it would have to raise rates faster than what markets are pricing in. Which is bad for the growth and indeed bad for the stocks in the longer run too. Perhaps that is why the bond curve has been flatterning already, signifying the slower growth and near term higher inflation.

And if the Fed fails to contain inflation then we would see what we haven’t seen in decades – slower (or even negative growth) while inflation remains in high single digits for far longer. That would hurt consumers as well as companies both. In turn, bad for the economy and the stocks.

While, it is difficult to time the market, I would love to be hopeful that this euphoria in the stocks ends NOW, instead of much later. Simply because this longer it continues, the worse it would be for the long term stability and sanity of the global economy as well as markets in general.