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Ignore the Noise as Crude Corrects

May 3, 2024

From the Desk of Ian Culley @IanCulley

The talking heads are about to call the top in commodities.

It’s coming, so we might as well prepare. 

In fact, it’ll only get louder if the US dollar follows crude’s lead…

Crude oil and the dollar have traded in sync for a few years now (mainly due to the strong positive correlation between the buck and interest rates).

During Q3 of last year, the energy sector rallied with the US dollar while most of the market fell under pressure. 

This relationship has been so strong we actually like swapping bonds for energy stocks in the new sixty-forty portfolio.

But crude oil, interest rates, and the US dollar have rallied for almost four straight months. 

They’re all due for a correction.

Here’s crude oil leading the way, violating a multi-month trendline:

If the dollar tracks lower here, sellers will likely trounce black gold. Energy stocks will follow.

Ding-dong, inflation is dead! 

Which old inflation? 

The wicked inflation!

Get ready. We’re entering the part of the cycle where technology stocks outperform for 3-6 months, transporting investors to a 2017-fashioned dream world.

They’ll show you the Technology Sector ETF $XLK versus the Energy Sector $XLE chart:

See? It was all just a bad dream. Technology stocks are finding support relative to Energy at a logical former resistance level.

Honestly, who could imagine Energy outperforming Tech over any meaningful time frame?

They’ll also highlight crude oil futures slipping back into their prior range:

For now, Crude is holding above our breakout level of roughly 78.

But it will continue to slide as the falling dollar, falling rates, and falling dollar-yen mantra gains traction.

Don’t let all this chatter throw your portfolio off track.

Crude oil futures are messy, just like the rest of the market.

We’ll reassess a bullish commodity thesis if Crude undercuts its December pivot low of approximately 68.

Until then, prepare for a correction – and ignore the noise.


COT Heatmap Highlights

  • Commercial hedgers posted another three-year record-long position for the Swiss franc.
  • Commercials’ net-short position for copper pulled within a new three-year extreme. 
  • Commercials are flipping the book long sugar, adding more than 10,000 contracts. 

Click here to download the All Star Charts COT Heatmap.

Trade of the Week

Today, we’re outlining a household name, $32.5B Dupont de Nemours $DD:

Dupont is carving out an 18-month base below a shelf of former highs at approximately 78.50.

Buyers look poised to drive price to new 52-week highs – as the more times a level is tested, the higher the likelihood it breaks.

We’re buying DD on strength above 79, targeting 103.

Thanks for reading.

As always, let us know what you think. We love hearing from you.

And be sure to download this week’s Commodity Report below!

Click here to download the Commodity Report Chartbook.

Allstarcharts Team


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