What Were Long-Term Monthly Charts Showing at the End of January?

• As computer algorithms continue to change, market analysis is also evolving, putting the spotlight on the value of classic technical analysis. 

• The Energies sector is one of the more muddled, with natural gas showing the clearest picture. If that doesn't frighten you, nothing will. 

• Monthly charts for US stock indexes are littered with failed classic technical reversal patterns. 

At the beginning of every month, I put together long-term analysis of a variety of monthly charts for investors, both individual and institutional, interested in the commodity complex. This covers all the major sectors, as well as the three main US stock indexes. I’ve been doing this for a number of years (decades?), consistently being made aware of the evolution that has been, is, and will continue to take place. (I forget, is “evolution” one of those words that have been banned by the new US administration? I’ll have to check into that.) Just as humans (and other apes) lost their tails roughly 25 million years ago (theoretically) because they were no longer useful, so too is market analysis losing its technical side, at least the classical analysis we studied and honed over the past number of decades. I’ll be talking about this with Barchart’s Senior Market Strategist John Rowland in this coming Friday’s Market on the Close program. Stay tuned for details. 

In the meantime, let’s talk about some of what I saw on monthly charts at the end of January. 

The most glaring commodity sector is Energies, where both Brent and WTI crude, along with distillates (heating oil, diesel fuel, jet fuel, etc.) and RBOB gasoline all spike to new 4-month highs before selling off to close out the month. Did this mean these four markets moved to major uptrends, or remain in long-term sideways patterns? Solid arguments could be made both ways, with no conclusive answer. Fundamentally, all but RBOB have backwardated forward curves, meaning supply and demand is bullish, yet this has failed to spark clear long-term uptrends. Ironically, the only market in the sector showing relatively clear technical patterns is natural gas (NGH25). Yes, the Widow Maker itself is still showing a 5-wave (Elliott) uptrend pattern with January’s activity indicating the peak of Wave 3. But does it mean anything? For the last number of months, I’ve included this Warren Buffett quote to my Energies sector analysis, “I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer.”

But what about US stock indexes? As you might recall, the 3 major indexes have completed bearish technical reversals at the end of October and December. However, the S&P 500 ($INX) pushed to a new all-time high of 6,128.18 during January before closing last Friday (January 31) at 6,040.53. Not only was this up 158.90 for the month, but a new all-time high monthly close, easily taking out the previous mark of 6,032.38 from November. What is continuing to drive the index higher? Is it fundamentals? If so, what happened to all those Chicken Littles who spent the previous four years telling anyone who would put them on the air that the record climb in US stock indexes was not sustainable because markets had lost all touch with fundamentals? Has this somehow changed now? 

I was asked this weekend what my top trade for the next four years might be. My Blink reaction was owning precious metals, and since gold is already at its record high and silver isn’t, the latter might be a good buy. However, the monthly chart for silver’s cash index (SIY00) doesn’t paint a clear picture, technically, meaning we shouldn’t use chart analysis but rather logic. Long-term investors don’t like uncertainty, and as we all should realize at this time, there is nothing but uncertainty ahead. This makes safe-haven markets like precious metals more attractive, regardless of classic technical analysis. A side-note: I was visiting with another long-term investment analyst and tossed the question at him. His top trade was the VIX ($VIX), for the same reason of daily chaos over the coming years. 

What about my favorite long-term investment market – Corn? The events of this past weekend, most notably the announcement of promised tariffs on key US trade partners – Mexico, Canada, and China – the various aspects of King Corn (National Cash Index, December futures, ETFs) may have found the high-end of long-term sideways ranges. Recall this is what happened between the autumns of 2014 and 2020, highlighting the fact corn prefers to trend sideways for long periods of time. This time around, the National Corn Index ($CNCI) posted a low of $3.50 last August before rallying to a January high near $4.65. From October 2014 through December 2020 the range was roughly $2.80 to $4.00.