Commodities: Harbinger of Good Things Coming

Posted: Dec 22, 2017 9:18 AM
Commodities: Harbinger of Good Things Coming

On Thursday, stocks struggled to hold early gains as the pattern of selling into the close repeated itself just enough that only the Dow finished at a new record high. Still, market breadth was positive with 1,797 advancers on the NYSE against 1,163 decliners; up volume was 2.3 billion versus 900 million to the down volume.

The biggest sign of confidence this week is the action in the safe haven S&P Utilities Sector (XLU), down again on Thursday and off 4.8%. The sector was up huge this year, but investors are growing confident that the broad market will outperform the solid yields in utilities. Much of that confidence comes from a string of economic data that suggests the U.S. is leading to a global economic rebound, which is gaining momentum.

The action in the S&P Energy Sector (XLE) is up 4.5% this week. I continue to pound the table that you most have oversized exposure to crude oil, especially Permian basin (PBT) names. One of my favorites is Concho Resources (CXO), which rallied yesterday after a downgrade before the opening bell.

Base metals act great as well, particularly copper, which is 6.6% since December 5th and near the high point for the year. Usually, that’s a proxy for China; speaking of which, China will have to ramp its economy to keep up its attempts to catch the United States.

One of the big tell-tale signs this week has been the action in Caterpillar (CAT), a name that regular watchers of the show should own.  It got a downgrade at the start of the week and powered higher. Yesterday, it fetched an upgrade with a target of $160.00.  Industrials and materials don’t have that pizzazz; it never gets any love or Wall Street hype, but these are the dirty-fingernail sectors that will power our economy in 2018.

Don’t Believe (all) The Hype

Speaking of Hype, yesterday, Bitcoin & Blockchain Mania might have hit a near-term peak as Long Island Iced Tea changed its name overnight to Long Blockchain Corporation; at one point, it saw its shares up more than 300%. Remember back in the day when a company could slap a “.com” on its company letterhead and shares would go through the roof.

This Long Island Iced Tea news might have curbed euphoria in bitcoin (BTC) stocks as most sold off, including:

  • Riot Blockchain Inc (RIOT) -24% on 12.6 million shares of volume
  • Longfin Corp (LFIN) -33%

This is why Patrick Byrne, an early adopter for Bitcoin and Blockchain, and advocate for more government regulations was on my show Wednesday night. There is a fortune in the crypto-currency hills; a lot of fool’s gold, too, so be very careful.

Speaking of economic proxies, after the close, Cintas (CTAS) posted very strong revenue and earnings results and guided current expectations higher.  I love this stock because it’s great for buy-and-hold investors.  Nike (NKE) also posted its results, which haven’t moved the needle.

There’s late word that Eric Schmidt is stepping down from his role as chairman at Alphabet, but he will serve as an adviser and remain on the board of directors.