September has started with world markets continuing to climb as investors look past political uncertainty, trade tensions and COVID worries, focusing instead on the potential for an improved global economy supported by fiscal/monetary stimulus and boosted by ongoing reopenings. In particular, the recovery in commodities has been quite telling. While economically sensitive resources like lumber, copper and crude oil have been rallying for several months, other groups which had initially lagged such as grains (Soybeans, Oats, Wheat, Corn, Canola) and softs (Cotton, Coffee, Cocoa and more) have joined the resurgence. With earnings season over, investors have been focusing more on positive economic news including manufacturing PMI, auto sales and employment numbers. A busy week for reports wraps up Friday with US nonfarm payrolls and Canadian employment numbers ahead of a long weekend in North America. In this week’s issue of Equity Leaders Weekly, we take a look at recent breakouts for the Russell 2000 and Soybeans as indicators of increasing breadth in equities and commodities.
One of the indicators that investors look to for signs of the breadth and health of a market trend is whether a move is being dominated by a few large cap stocks or if there is wider participation. The Russell 2000, which consists of 2,000 small cap stocks, is often seen utilized by investors as an indicator of market breadth. Since the US market bottomed out in March, the large-cap, technology-weighted NASDAQ Composite has been leading the charge back upward (and in some cases, on to new heights). Recent action in the Russell 2000 indicates that small cap stocks have completed a summer of consolidation and have started to climb once again as well.Last month, RLS.I completed a bullish Ascending Triangle and a bullish Triple Top with a breakout over 1,475. The index has continued to trend upward, recently completing a bullish Spread Double Top pattern with a breakout over 1,535. Currently the Russell 2000 is testing 1,615 resistance with next potential upside tests on trend near 1,662 (horizontal count), 1,750 (round number and previous peak), and 1.875 (horizontal count). Initial support appears in the 1,520 (breakout point) to 1,525 (3-box reversal) area.
Like other grains, Soybeans (S.F) have been stuck in the doldrums for an extended period of time. Even now, with an SMAX score of 4, Soybeans have been exhibiting weakness relative to the asset classes. Soybeans have started to show signs of life and renewed interest. This week, S.F broke through 958 for the first time in over two years, completing a bullish Spread Double Top pattern, confirming a previous bullish Spread Triple Top breakout, completing a long-term base, and signalling the start of a new uptrend. Other grains such have also been climbing and breaking out to the upside lately, confirming renewed interest in the agricultural sector and indicating widening recovery breadth for commodities in general. Initial upside resistance for S.F appears near the 1000 round number, followed by the 1,017 to 1,037 range based on horizontal counts. Initial support appears near 920 based on a 3-box reversal.
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