RISING BASE METALS BOOST MINERS -- COPPER AND STEEL ETFS HAVE STRONG CHART PATTERNS -- MINING LEADERS INCLUDE BHP BILLITON, RIO TINTO, AND VALE -- SHANGHAI INDEX NEARS 2016 HIGH -- EMERGING MARKETS OUTPERFORM -- RISING DOLLAR LOOKS OVERBOUGHT
POWERSHARES BASE METALS FUND JUMPS 2%... Base metal prices like iron ore and steel are seeing big gains in China. That strength is spilling over into aluminum, copper, nickel, and zinc. That's giving a big boost to global stocks tied to those commodities. Chart 1 shows the PowerShares Base Metals Fund (DBB) jumping 2% today. The DBB includes aluminum, copper, and zinc. Exchange traded funds tied to those commodities are also rising today.
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Chart 1
COPPER MINERS ETF NEARS UPSIDE BREAKOUT... The Global X Copper Miners ETF (COPX) includes global stocks tied to the production of copper. Chart 2 shows the COPX in a sideways consolidation pattern that started in the spring. The chart pattern has the look of an "ascending triangle" which is normally a bullish pattern. Steel stocks are also doing well. Chart 3 shows the VanEck Vectors Steel ETF (SLX) trading at the highest level in eighteen months.
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Chart 2
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Chart 3
BHP, RIO TINTO, AND VALE ARE MINING LEADERS... The next three charts show foreign miners with strong chart patterns. Chart 4 shows Australia based BHP Billiton (BHP) in a clear uptrend. The big miner is nearing the highest level since last October. Chart 5 shows UK based Rio Tinto PLC (RIO) trading at a six-month high and nearing a test of its spring high. Chart 6 shows Brazil based Vale (VALE) trading at an eighteen month high. All three are traded on the NYSE.
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Chart 4
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Chart 5
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Chart 6
CHINESE STOCKS STRENGTHEN ... It's normally a good sign for commodities like base metals when Chinese stocks are doing better. That's because China is the world's biggest buyer of commodities. The green bars in Chart 7 show the Hong Kong Hang Seng Index (through yesterday) in a strong uptrend. The red bars, however, show the Shanghai Stock Index (through yesterday) nearing the highest level since the start of 2016. A decisive close through its August high would be a bullish sign. That would be a good sign for emerging market stocks which are also closely tied to commodity prices. The red bars in Chart 8 show the Emerging Markets iShares (EMM) consolidating within a 2016 uptrend. EEM stocks have done much better than foreign developed markets. That can be seen by the rising EEM/EFA ratio on top of Chart 8.
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Chart 7
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Chart 8
U.S. DOLLAR INDEX LOOKS OVERBOUGHT ... The U.S. dollar has been rallying. The rally, however, is starting to look over-extended. The daily bars in Chart 9 show the PowerShares Dollar Fund (UUP) nearing a resistance line drawn over its 2015 highs. At the same time, its 14-day RSI line (top of chart) is at the most overbought level over 70 since spring 2015. The dollar has been rising on expectations for a rate hike this December (combined with easier monetary policy overseas). A rising dollar is normally bad for commodities and large cap multinational stocks. A dollar pullback might provide some relief to both.
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Chart 9
S&P 500 SHOWS LITTLE DIRECTON ... The U.S. stock market continues to trade sideways with little trend direction. Chart 10 shows the S&P 500 still holding above the support line drawn over its June peak and below its September low. The SPX, however, has been unable to exceed its falling 50-day average (blue arrow). That gives its trend since August a slight downside bias. Technology stocks have one of the few bright spots recently. The rest of market, however, hasn't been following.
