Commodities | Time to Buy? | Episode 56

By Jason McIntosh | Published 29 July 2022

Trade the Trend is a weekly video focusing on where the stock market is going. It’s for investors and traders looking for insights to the market’s next move. Jason uses technical analysis of stocks and trend following techniques to help you piece together the world’s biggest puzzle.

Where is the Stock Market Going?

00:00 Intro

00:24 Why you should be cautious with individual stocks

01:32 This is what can happen when you buy too early

03:23 Is now the time to buy gold?

05:34 What about gold stocks?

07:57 Is copper ready to rally?

09:09 Oil is testing support… will it bounce?

10:10 Uranium is setting up for its next run

Transcript (abridged)

Please note: Charts available from video

I’ll get to commodities in a moment. But first, I ant to finish what I was telling you about ASX stocks in my last video.

I was looking at Nick Scali. It was an ASX-listed stock, and I was talking about why I don’t want to pre-empt a potential rally by getting into individual stocks until I get positive confirmation from the moving averages. I want to see the 50-day moving average cross over, as it did over here during this period. I’m waiting for the 50-day moving average to cross, and be rising above the 100-day moving average. This strategy doesn’t get you into the low, but what it does do, it helps you avoid getting into stocks during bear market rally stocks, which rally a bit, start to look interesting, and then quickly fall away. That’s not to say that’s going to happen here. This could be the start of a new bull market in Nick Scali. We just don’t know at this stage. It’s too early to tell until we get some more information on these moving averages.

Now, let me show you why I avoid buying stocks during this part of the trend. Why I don’t preempt this turning into a bullish phase. So, here’s another stock in a similar situation. This is from an earlier period. Now, you can see it had a long fall. It looked like it might have been forming a base. The moving averages were starting to turn up. They were close to crossing. The price was even above the moving average. So, from a lot of perspectives, it could have been said, “This is looking like a stock, which is about to rally.”

The problem for me was that the moving averages hadn’t crossed. I didn’t have that confirmation that this is a stock that I would have stayed away from. And now this won’t happen all the time, but it happens a lot. And the stock turned lower and started to fall again, staying about 50% from where it looked like it was getting interesting. Had you been looking at the moving averages, though, you never would have gotten in.

So, this is why in the current part of where the market is now I’m interested in ETF exposure, for easing back into the market, than pre-empting a turn in some of these individual stocks until their moving averages turn positive because an ETF, you’ve got market risk, but you don’t have individual stock risks so much. And that’s a problem with some of these stocks. They can come out with a bad announcement, and the price gaps lower, and it can be a disaster. So, I’d rather buy stocks, which I can see are in uptrends, not ones which are potentially still struggling.

So, having finished up on ASX stocks, if you missed the first part of the ASX section, I’ll leave a link in the description section below. Now, let’s move on to some commodities because commodities are… There’s been quite a bit going on in the commodity space. Now, I’m going to start with… Let’s start by having a look at gold.

You might remember last week, I was talking about gold had just reached this big support zone at $1,680. It’s been a key level for a couple of years now. And I said, “Don’t be surprised if we get a bounce in gold here because it has reached that support.” And we actually have had that bounce. Gold has had a good rebound off that level. But despite the rebound, it doesn’t get me excited to start going out and buying gold stocks just yet. I think the longer-term picture for gold looks fantastic, but whether it’s the time to get in there and start buying now, I just don’t think it necessarily is.

One other quick look at a weekly chart. So, gold had this big 10-year rally, then we had a multi-year correction, and now we’re moving higher again. We had another big, big rally during 2020, but since then, we’ve been in a two-year holding pattern where it’s been going sideways. So, when you look at this from a weekly standpoint, it’s quite proportional. It fits in quite nicely. And I think this could work as a launching pad for a move up to much higher levels. We’re off for another run at least up to…it could support a move up towards $3,000. But when that happens, and if that happens, we just don’t know. We need to wait for the market to break out of this range, and need to see whether it breaks to the top side.

At the moment, gold’s in a holding pattern. While it’s looking interesting, I think it’s looking really good longer-term. From all the commodities I look at, I think this has one of the best longer-term chart setups. From a daily perspective, we’re still in the chop of this big trading range. We’re getting a bounce, but really it’s back and forth. We don’t have a sign that this is time to start accumulating gold.

And just looking at a couple of gold stocks. If we go down and we look at a stock like Evolution, for instance, there’s just nothing bullish about this chart. This stock is in a clear undeniable downtrend. Someone could say, “Well, I think this could be a low. It’s oversold. This could be it.” But yeah, it could be, but that could have been the low, and that could have been the low, and that could have been the low, but they weren’t. The downtrends were in place, and the downtrends continued. So, at some point, there will be a low, but the odds favor that this isn’t it. So, I’d rather stay on the sidelines and play gold at the moment. Gold’s just away… At the moment, gold’s a capital-destroying trade. I think it will shape up as an opportunity at some point, but it’s just not today.

And then just briefly looking at Newmont, the world’s biggest gold producer. And just look at what it’s done in the last couple of weeks. It’s just completely fallen away. They had a negative… Profit result came out, share price was below that moving average. We’re always talking about the bad stuff happens below the moving averages. And sure enough, it completely fell away. It’s also interesting, you might remember I was talking about a waterfall set up in the S&P 500 a few weeks ago, and this is where the market…and this is it. This is one of those waterfall patterns. So, this is where the market falls. You get a rebound. The next fall is a little bit steeper. The rebound is a little bit shorter. The next rebound is a bit steeper again, the rebound is shorter again, and then the trap door opens, and the bottom falls out. That’s a waterfall pattern in motion.

Fortunately, we didn’t get that in the S&P 500, but it just shows when you see this pattern. And this is what technical analysis is all about. It’s not about certainty. It’s not about telling you what will happen, and that frustrates a lot of people. They think, “Well, this is rubbish, it doesn’t tell me what’s going to happen.” Nothing is going to tell you what’s going to happen. It’s going to help you identify what could happen, and then position yourself accordingly.

So, when you see a pattern like this develop, it’s not a time to say, “I’ll give it a little bit longer.” It’s about taking evasive action and saying, “I’ve got to shut down this risk because there’s danger.” And that’s what technical analysis can help you do.

So, let’s move on to another commodity. And let’s have a quick look at copper. And it’s a similar story to most of the commodity complex at the moment in that the trend is just not on our side. It’s below the moving averages. We’re getting a shallow bounce at the moment. Maybe it turns into something else, but at this point, there’s not enough to go on to say, “Now is the time for copper.” So, interesting during this period here, people couldn’t get enough copper. And then in the early stages of this pullback, it was still buy the dip, buy the dip. This is a thing to remember with markets. Markets take their time. They do what they need to do to consolidate and to shake people out, and to frustrate people, to get people fed up, and then move on, and then they get interesting again.

And this is what we’re seeing with copper. I think copper will be a terrific opportunity at some point, but it’s still in the process of shaking out all the people who were talking about how much copper was going into electric cars, and wind farms, and whatnot. It’s these markets don’t move higher in a straight line. And yeah, I just think there’s nothing happening at copper at the moment. Keep watching it. And there will be an opportunity, but just not now.

Oil, another interesting one. Oil is interesting because it’s just come back to a support zone. They’re supporting there around $91, $92. It has had a really big run-up. This is a consolidation, whether that’s enough consolidation for this big move. Maybe where oil is now, maybe it’s like copper here. And there’s a whole lot more. Of course, it’s not going to map out exactly like that, but just to give you the idea. Big moves take more than a couple of months to work their way off. What will oil do here? Oil could bounce off this support zone. It could keep moving sideways. It could also break down and have a bigger consolidation. There’s not a clear near-term trend. The bigger trend is up, but nothing happening at this very point in oil.

And lastly, I just want to have a quick look at uranium because uranium is… I think uranium is my preferred of all the commodities at this point. It’s really been much of the last 12 months. For the better part of the year, it’s been pretty much going sideways, sitting above this big support around $1,270-ish thereabouts. This is a Sprott physical uranium ETF listed on the TSX, which is the Toronto Stock Exchange. And it’s holding the line quite nicely. There’s been a big shake-out in commodities, but uranium is holding together quite well. It has had a bounce in the last few days. I don’t know when this is… I’ve got to say if. Don’t know when, or if this will rally to new all-time highs. I think it will with new highs above here at any rate. I think it will make a new high at some point in the months ahead. But we just don’t know. We don’t know the timing, but I do think it looks one of the better commodity plays.

This is the way I’m playing, and I’m playing it through this ETF. It used to be called the North Shore Global Uranium ETF. It’s now the Sprott Uranium Miners ETFs and had a name change. Different manager I think. But what we see with this big uptrend, we’re having the big consolidation, but it’s holding in well. Every time it gets down, there’s good buying interest. There’s good buy the dip interest. Every time it gets low, we get a strong move back up. At this point in time, I think the consolidation looks constructive. I think it sets up both for higher levels in the future.

But we just don’t know when. It’s often a waiting game investing. You’re waiting for the right setups. I’m still holding. I got into this dark round here. So, I’ve been weathering the pullbacks. For me, this is a medium to longer-term position rather than a trade. A trade I had, my trailing stop probably would have triggered during this section here if it was a trade, but this is more of a medium to longer-term investment. I’m prepared to give it more room and stay with what could be a big, emerging, potentially a megatrend. So, I’m really interested in this uranium space.

Please see video for more detailed analysis and charts

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Meet Jason

I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney. 
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.