After the core PCE numbers came out on Friday, the market had the expected reaction of selling off in anticipation of a more aggressive Fed.
To us, we find the reaction less than surprising.
What we do find more surprising is that the metals sank along with equities, although gold fell less than 1% while silver fell over 2.5%, and the S&P 500 fell just over 1%.
Oil, on the other hand, and the oil sectors (exploration and service) all rose.
Last week I wrote about the United States Natural Gas Fund (NYSE:UNG) and how that had a textbook blow-off bottom at $7.40 a share. It closed the week up over 20% from that price.
The energy sector, like all commodities, cycles within a cycle.
Speaking of cycles, the indices only rallied into the 23-month moving average or 2-year business cycle resistance (the point where they are guilty until proven innocent as far as a soft landing) before last week’s painful retreat.
Natural gas was left for dead as it, too, broke well below its 2-year business cycle. And to date, we do not know if this rally is like the indices-a-bear market rally or the beginning of a more sustained upcycle.
What we do know is that VanEck Oil Services ETF (NYSE:OIH), XLE (NYSE:XLE), and the United States Oil Fund (NYSE:USO) all closed green on Friday, and unchanged for the week.
Furthermore, all are ABOVE their 23-month moving average or 2-year business cycle. Will energy continue rising, and what does that mean for the market?
The Oil Service (OIH) chart, although the price sits under the 50-DMA, is still in a stronger phase than the USO chart. OIH shows the 50-DMA above the 200-DMA. The USO charts show the 50-DMA under the 200-DMA.
OIH is in a warning phase, while USO is in a bearish phase. However, OIH underperforms the benchmark according to our Stockcharts Plugin Triple Play indicator. And USO is now outperforming the benchmark.
Our Real Motion Indicator, also a Stockcharts plugin, indicates a momentum diversion in USO as the momentum recaptures its 50-DMA before the price does.
Generally, when we see a divergence in momentum and triple play with an outperformance, we wait for price confirmation.
In USO, a move over 68.00 confirmed would be a signal to buy. Most likely, OIH, already in better shape, will also move up.
The more significant point is that with natural gas potentially bottoming, oil potentially ready to go higher, and the oil services sector already in good shape, this is the place to watch this coming week.
Most importantly, we see commodities taking turns in leadership. That tells us the super cycle is getting ready and that commodities offer great active trading opportunities.
ETF Summary
- S&P 500 (NYSE:SPY): 390 support with 405 closest resistance.
- iShares Russell 2000 ETF (NYSE:IWM): MA support around 184. 190 has to clear.
- Dow Jones Industrial Average ETF Trust (NYSE:DIA): 326 support 335 resistance.
- Invesco QQQ Trust (NASDAQ:QQQ): 284 big support 300 resistance.
- S&P Regional Banking ETF (NYSE:KRE): 65.00 resistance 61 support.
- VanEck Semiconductor ETF (NASDAQ:SMH): 228 support 240 pivotal 248 key resistance.
- iShares Transportation Average ETF (NYSE:IYT): Most interesting economic sector-Confirms back to a Bullish phase keeping bears on their toes and bulls hopeful.
- iShares Biotechnology ETF (NASDAQ:IBB): 125-130 new range.
- S&P Retail ETF (NYSE:XRT): 66-68 huge area to hold if the market still has legs.