Inflation has probably peaked
Inflation is the public enemy number 1 for the past few months. Just yesterday Singapore reported her core inflation has hit 13-year high. Inflation has risen 5.6% from a year ago in May. The biggest rise was in transport, by 15.5%. This is not surprising given the surge in oil prices.
While the inflation problem has not gone away, I have taken profits on almost all the commodity related stocks and ETFs. The context is that I use a momentum strategy to trade these commodity plays and the rule was to sell if the prices go below the moving averages, which most of them had.
Metals and mining stocks were the first batch of commodities that showed weakness. The iShares MSCI Global Metals & Mining Producers ETF $Ishares Inc Msci Glbl Mtl&Mng Produ Etf (PICK.US)$ is already down 17% from the start of the year.
The next commodity related plays that got sold were the shipping stocks. An example was Eagle Bulk Shipping (EGLE) $Eagle Bulk Shipping (EGLE.US)$ - while it was still up 10% from the start of the year, the share price has declined steeply by 36% since 6 Jun 2022. The same could be said for the other shipping stocks. It is a reflection of the falling freight rates in the last three months.
The third batch was the oil and gas stocks. Oil majors like Chevron (CVX) $Chevron (CVX.US)$ and ConocoPhillips (COP) $ConocoPhillips (COP.US)$ have tanked by 22% and 29% respectively, in just 2 weeks. Both were still up 33% and 43% from a year ago.
The final batch of commodities to be sold were the grains. Both Teucrium Corn ETF (CORN) $Teucrium Commodity Trust Corn Fd Shs (CORN.US)$ and Teucrium Wheat ETF (WEAT) $Teucrium Wheat Fund ETV (WEAT.US)$ prices have fallen below their moving averages in the past 2 days. Their declines from the peak started in May 2022, even though CORN and WEAT have gained 32% and 46% from a year ago.
The stock market is said to be a leading indicator. If true, the market is telling us that the inflation has likely peaked. It doesn't mean that inflation is going down. Just maintaining at a high level.
Interest rate is expected to rise further but may not be as much as what we used to think it should.
But this does not mean good news to the stock market because recession is the next probable event. The market signals it too. The metal and shipping stocks are down which suggest slower industrial demand and lower trade activities.
Could this just be a price correction for commodities and the bull run resumes subsequently? The recent corrections are a lot deeper and steeper than the previous ones. This suggests a trend reversal more than a mere price correction.
Of course I can be wrong but I will only put on the commodity trades again if the momentum returns.
While the inflation problem has not gone away, I have taken profits on almost all the commodity related stocks and ETFs. The context is that I use a momentum strategy to trade these commodity plays and the rule was to sell if the prices go below the moving averages, which most of them had.
Metals and mining stocks were the first batch of commodities that showed weakness. The iShares MSCI Global Metals & Mining Producers ETF $Ishares Inc Msci Glbl Mtl&Mng Produ Etf (PICK.US)$ is already down 17% from the start of the year.
The next commodity related plays that got sold were the shipping stocks. An example was Eagle Bulk Shipping (EGLE) $Eagle Bulk Shipping (EGLE.US)$ - while it was still up 10% from the start of the year, the share price has declined steeply by 36% since 6 Jun 2022. The same could be said for the other shipping stocks. It is a reflection of the falling freight rates in the last three months.
The third batch was the oil and gas stocks. Oil majors like Chevron (CVX) $Chevron (CVX.US)$ and ConocoPhillips (COP) $ConocoPhillips (COP.US)$ have tanked by 22% and 29% respectively, in just 2 weeks. Both were still up 33% and 43% from a year ago.
The final batch of commodities to be sold were the grains. Both Teucrium Corn ETF (CORN) $Teucrium Commodity Trust Corn Fd Shs (CORN.US)$ and Teucrium Wheat ETF (WEAT) $Teucrium Wheat Fund ETV (WEAT.US)$ prices have fallen below their moving averages in the past 2 days. Their declines from the peak started in May 2022, even though CORN and WEAT have gained 32% and 46% from a year ago.
The stock market is said to be a leading indicator. If true, the market is telling us that the inflation has likely peaked. It doesn't mean that inflation is going down. Just maintaining at a high level.
Interest rate is expected to rise further but may not be as much as what we used to think it should.
But this does not mean good news to the stock market because recession is the next probable event. The market signals it too. The metal and shipping stocks are down which suggest slower industrial demand and lower trade activities.
Could this just be a price correction for commodities and the bull run resumes subsequently? The recent corrections are a lot deeper and steeper than the previous ones. This suggests a trend reversal more than a mere price correction.
Of course I can be wrong but I will only put on the commodity trades again if the momentum returns.
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恭喜发财qz : The idea is clear
Violets : Well said. seems like oil may resume and time will tell. what would be your trigger to you purchase oil again?
Macdonell J : Do you think now is still the good time to enter SCO ETF since you foresee the inflation has peaked and oil and gas related stocks have dropped more than 20%?
Ben 23 Macdonell J : Usually q4, there is higher demand for oil and natural gas due to winter season in northern hemisphere. It can remain elevated but in longer time trend should drop.
Ben 23 : I think it is a price correction for oil and commodities for now. Probably when recession sets in, there will be a reversal. But only time will tell.