Crude Oil Continuous Contract (CL.F) & Copper Continuous Contract (HG.F)

It has been another choppy week for world equity markets and sectors with investor sentiment getting pushed around from several directions at once. Over the last three days, dominance has shifted from bulls driving a Monday rally, to a mixed market on Tuesday, to bears gaining control and pushing indices downward yesterday. So far this morning, US index futures are pretty much flat again. Earnings season has started with generally positive results, mainly from US banks. Last Friday and Monday, it seemed that the street was prepared to reward companies beating lowered expectations, but that seems to have evaporated as the week has progressed. Although companies continue to beat analyst estimates, investors appear to be looking for reasons to exit such as higher loan loss provisions at some banks, or higher fuel costs at airlines which could potentially impact future earnings which led to United Airlines and Morgan Stanley falling 9.6% and 6.8% respectively yesterday. On the other hand, a 13.4% aftermarket gain for Netflix last night suggests selected companies who beat the street may still attract interest. Economic news has been a mixed bag. Activity indicators like Chinese GDP, US retail sales, and Canadian housing starts have generally come in above expectations, indicating that global economy continues to muddle along, so far looking like a soft landing, which is a more positive environment for corporate earnings than a recession. On the other hand, a stable economy combined with inflation reports from Canada, the Eurozone and the UK all remaining at relatively high levels, means that central banks may need to remain hawkish and may need to continue their inflation fight for some time. This has started to push treasury yields upward once again and has created increased headwinds for stocks and bonds.

Meanwhile, the growing conflict between Israel and Hamas has also impacted trading this week. Not only have Crude Oil and Gasoline soared in the last few days, precious metals including Gold and Silver have caught fire, reasserting their role as a store of value and indicating that some capital exiting equities has been looking for perceived “save havens”.

Not including any external surprises, earnings dominate the business news calendar for the coming week. It’s a big week for results with numbers on the way from Big Tech, Big Rail, Big Pharma, Big Oil and Big Industry. At this point, it appears that investors are more interested in guidance, and digging down past the headline numbers for signs of weakness. We’ll see if that changes as more results roll out from more sectors. Headliners include: Union Pacific today, American Express tomorrow, Microsoft*, Alphabet, Visa, GE, GM, and 3M on Tuesday, Meta and Boeing on Wednesday, and then Amazon.com, Caterpillar, Mastercard, Merck, Ford and others next Thursday.

The main economic event for the coming week is Wednesday’s Bank of Canada meeting, which may set the tone for the Fed meeting a week later on November 1. Canada’s central bank is widely expected to remain on hold, but comments related to monetary policy, inflation and the economy may be closely scrutinized by investors.

The economic data calendar for the coming days is lighter, dominated by US housing numbers throughout the week, plus flash PMI reports on Tuesday. In this edition of Equity Leaders Weekly, we look at the resurgence in Crude Oil and at recent action in the Copper price.

This summer’s rebound in Crude Oil, has helped to drive the outperformance of Commodities in the SIA Charts Asset Class Rankings and Energy stocks in the SIA Charts Sector rankings over the last several months. This resurgence in Oil after a year-long bear market has been driven by three main factors: continuing demand for fuel, particularly during a strong summer travel season, limited supply with OPEC+ maintaining discipline and the US running down its Strategic Petroleum Reserve, ongoing sanctions against Russia (although apparently some sanctions against Venezuela have come off), and more recently, increased instability in the Middle East.

At one point in late September, the oil rally appeared to be defying gravity, climbing while other commodity prices were falling after the Fed meeting, and it did fall back briefly earlier this month. Oil’s correction was contained, however, above its previous low, keeping its current upward trend intact.

Crude Oil has started to climb once again, with a bullish Double Top breakout signaling the start of a new upswing. Initial upside resistance appears near previous column highs in the $92.55 to $94.20 zone, followed by $98.05 based on a horizontal count. A 3-box reversal suggests initial support may appear near $83.60.

With its wide variety of applications in industrial and consumer products, Copper (HG.F) is widely seen as being one of the markets most sensitive to swings in the global economy. In recent years, due to its high demand for resources, business conditions in China have become a significant driver of Copper demand.Copper sold off in late 2022 and rebounded in early 2023 around the last round of COVID lockdowns in China. As the United Kingdom has struggled to recover economically throughout this year, Copper has been trending downward since February, recently peaking at another lower high in August.

Copper now appears to have reached a potentially significant inflection point. Earlier this month, HG.F completed a bearish Spread Triple Bottom pattern but so far the breakdown has only been by one row. Meanwhile, Copper is testing a 45-degree uptrend support line which dates back to the 2020 market bottom.

A close below $3.50, and particularly below $3.41, which would snap the uptrend line, could be troubling as investors may see it as a sign of weakening resource demand and potentially a recession starting. Next downside support appears near $3.28 and the $3.15 based on previous column lows.

On the other hand, China’s latest GDP, retail sales, and industrial production reports released earlier this week were encouraging, beating expectations and suggesting the country may be turning the corner. A close above $3.85 would complete a bullish 3-box reversal, while a close above the $4.00 round number would snap a downtrend line which has been in place since the spring of 2022.