Geopolitical Risks: Intermarket Relationships with Commodities & Equities
The SIA platform has detected early moves that warrant attention, and these will be highlighted in today’s Equity Leaders Weekly. Noteworthy among these are the relative gains seen in Central Europe, Germany, and Poland ETFs. This is not surprising given the rhetoric from both newly elected President Trump and President Vladimir Putin of Russia. Recent comments from Putin outlined his terms for ending the war: Ukraine would need to abandon its NATO ambitions and withdraw its troops from the four regions claimed by Russia. This comes against the backdrop of Trump’s campaign statements, where he criticized the scale of U.S. military and financial support for Kyiv, claiming he could end the war within 24 hours, without specifying how. While Putin has repeatedly indicated openness to dialogue, talks are expected within days or weeks. However, this remains speculative, and today, we focus less on conjecture and more on the actionable data provided by point-and-figure charts, along with the powerful relative strength indicators available to SIA’s elite advisors. A key weapon in the ongoing war has been the control over natural gas supplies, especially following the Nord Stream pipeline explosion. This disruption created significant challenges for European manufacturers, particularly in Germany and Poland. Fortunately, recent mild winters in Europe and the U.S. kept natural gas prices low, somewhat neutralizing this weapon. However, this winter is different, with deep snow in the Gulf of Mexico (America!) and a sharp chill over continental Europe. U.S. natural gas (NG.F) contracts have surged 53.37% over the past five months, while UK natural gas (GWM.F) has risen by 56.20%. At SIACharts, we focus heavily on intermarket relationships between asset classes. The relative strength of one versus another often provides valuable insights for advisors building a thesis for the upcoming year. If peace is announced, how does that impact aerospace and defense spending? How would it affect international capital flows into Europe and away from the U.S.? Conversely, if the war persists, does natural gas continue its upward trajectory, and how does this affect inflation and the bond market?
Natural Gas (NAT.GAS) Continues To Surge
Let’s start by examining domestic natural gas prices via the SIA point-and-figure chart attached, which shows the recent completion of a bullish catapult on this long-term 5% chart. Here, we can observe the recent break through long-term resistance at $2.63 and $3.20, both now serving as new support levels. There is minimal resistance on the chart all the way up to $5.47, with further resistance at $8.08. These significant levels could have substantial effects on the momentum within the energy sector, particularly natural gas. While infrastructure investments in energy, such as pipelines and compressor plants, have surged, it may be worthwhile to revisit names recently highlighted in SIA Daily Stock Reports such as Baker Hughes (BKR), TechnipFMC (FTI), and Enerflex (EFX.TO) in the services sector, alongside pure plays like EQT Corp (EQT) and Cheniere Energy (LNG). Throughout this period, the SMAX score for natural gas has improved, with a perfect reading of 10/10, reflecting its relative strength against all other asset classes. While natural gas has seen numerous volatile moves, this rally is supported by both relative strength and potential fundamental factors, particularly the strategic use of this commodity in Russia’s operations during a historically cold winter.
Peace in Central Europe?
The next chart presents the iShares MSCI Poland ETF (EPOL), with data dating back to 2014, around the time unrest began in Ukraine. The Polish stock market experienced significant declines following the Maidan Revolution and the escalation of conflict in Donetsk and Luhansk. After a recovery post-Minsk 2 accord, Polish stocks again faltered in 2017 and once more in 2022 following Russia’s special operation in Ukraine. However, 2023 saw another rally, boosted by expectations of a Trump victory, driving Polish stocks to near resistance levels. Does peace bring an end to the conflict, allowing Central Europe to stabilize, or will the region fall back into turmoil? Only time will tell. In the meantime, the SMAX score for iShares MSCI Poland ETF stands at 5/10, which we interpret as neutral but strengthening. The point-and-figure chart, enhanced by the SIA matrix overlay tool, places EPOL within the SIA-favored zone of the SIA International Emerging Market ETF Sector Report, signaling improving expectations for performance, even as it nears long-term resistance. The chart shows a completed double top but also suggests the formation of a bullish triangle (highlighted in the light green oval). If this pattern leads to a breakout (indicated by the light pink zone), the first resistance level would be $31.67, based on a vertical count from the latest consolidation range. A larger, long-term bullish move could push the price toward $47.06 (as shown in the black box). While the outcome of the war remains uncertain, recent relative strength is potentially suggestive of improving relations, which could benefit both the people of Europe and of course the people of Ukraine and Russia.
Are these SIA Relative Strength readings showing us that peace is potentially within reach?
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