INDEX OF STOCKS TIED TO COPPER REACHES EIGHT-MONTH HIGH -- FREEPORT MCMORAN IS ONE OF MARKET'S STRONGEST STOCKS -- RISING NUCOR STOCK REFLECTS STRONGER STEEL STOCKS -- GLOBAL METALS & MINING ISHARES RISE TO FIVE-MONTH HIGH
COPPER STOCKS REACH EIGHT-MONTH HIGH... My weekend message suggested that copper and stocks tied to it might be bottoming. This week's strong action by both appears to be confirming that optimistic view. Copper closed at a five-month high yesterday (and is trading higher again today). Materials are today's strongest market sector; and copper stocks are leading it higher.
Chart 1 shows the Dow Jones Nonferrous Metals Index rising to the highest level in eight months. Its relative strength ratio (upper box) is rising as well. Freeport McMoran (FCX) is the day's biggest percentage gainer in the XLB (and one of the day's top gainers in the S&P 500). Chart 2 shows FCX also rising to the highest level since April. Steel stocks are also rising.
Over the last three months, steel shares have been been the second strongest part of the XLB (behind copper stocks). And their chart patterns also look more bullish. Chart 3 shows Nucor (NUE) also rising to the highest level since April. It's one of the today's XLB leaders as well. That steel leader recently achieved a bullish breakout by clearing its July peak; and a falling trendline extending back to mid-2018. That's further confirmation that funds are flowing into industrial metals and stocks tied to them. Even on a global basis.
GLOBAL MINING STOCKS ARE ALSO RISING... The recent rotation into industrial metals can also be seen on a global scale. Chart 4 shows the MSCI Global Metals & Mining Producers iShares (PICK) rising to the highest level in five months and having already risen above a falling trendline extending back to April. That index includes stocks involved in the production of aluminum, copper, iron ore, and steel. It doesn't, however, include stocks tied to gold or silver. Thethree countries with its biggest exposure are the UK (25%), Australia (20%), and the U.S. (11%). It also includes stocks from Brazil, Canada, and South Africa.
BHP and RIO TINTO ARE ITS BIGGEST STOCKS... The two biggest stocks in PICK are tied to Australia and the UK. Chart 5 shows BHP Group (formerly Billiton) rising to a five-month high today. Chart 6 shows Rio Tinto (RIO) doing the same. The two biggest stocks from the U.S. are Freeport McMoran and Nucor which are shown in Charts 2 and 3.
NEWMONT LEADS WHILE GOLD MINERS LAG BEHIND... Last Thurday's message showed Newmont Goldcorp (NEM) also rallying. And it's continuing to do so. Chart 7 shows that big gold miner nearing a test of its summer highs. A close above that level would put NEM at the highest level in three years. Gold miners as a group, however, are lagging behind. Chart 8 shows the VanEck Gold Miners ETF (GDX) starting to firm after pulling back for four months. But it still has a way to go to turn its trend back up again. And is still lagging behind stock indexes tied to more economically-sensitive industrial metals.
RISING INDUSTRIAL METAL SHARES SHOW MORE OPTIMISM... My weekend message showed that rising global bond yields usually favor copper over gold because it reflects optimism on the global economy. The recent upturn in global stocks tied to economically-sensitive industrial metals may also be sending a more optimistic message on global construction and manufacturing activity. Gold shares may also rise in that environment; but maybe not as much. The weekend message pointed out that rising bond yields since September have hurt gold's value. A weaker dollar, however, may start boosting precious metal assets.
