Precious metals are consolidating, energy remains weak. How to use the NDW platform to diagnose weakness in real time.
Commodities blinked. After roughly a month of the top three assets in NDW’s DALI rankings sitting within just a handful of signals from each other, there looks to finally be a “relative” winner & loser within our broad rankings on August’s doorstep. While the spread between first place Domestic Equites and third ranked Commodities is still tight by historical averages, the now 24-signal spread between the pair is the widest since early May. International equities hold strong in second (and won’t be the topic for today’s feature) but remains an asset class to watch as the US Dollar (DX/Y) is trying to put in a meaningful 2025 bottom on its default chart.
Commodities have been shedding strength at both ends. Precious metals have largely consolidated - and while the group remains a relative leader, their lack of upside strength while domestic equities have marched forward is starting to show. When sorting by near-term strength (X-count) within NDW’s pre-made asset class matrix, representative GLD sits in 16th… still in the top half but at its lowest level since October of 2023. Said more plainly, relative strength looks to be gearing up to leave precious metals for other asset classes. Before moving on, it's important to note that the long-term picture remains defendable for gold and precious metals in general… just exercise caution when entering into new exposure.
On the other end of the spectrum, energy remains a relative laggard. After Middle East-induced tensions spurred intense upside action at the start of June, price action has largely cooled off for major names within the energy complex. Crude oil CL/ has fallen back to a near test of its bullish support line, and bulls would be largely discouraged by a general inability for CL/ to climb back into the $80’s on the most recent rally. Down over 7% this year, crude is also well behind its “average” year, detailed below. While the 3rd quarter is at least somewhat historically productive (gaining just under 3.5% on average in Q3) the overarching technical picture remains largely unconstructive for now.
There will be some of you who will believe that there is a “catch-up” trade to be had here, suggesting that crude will rocket higher in the face of poor technical posture to get back to “average” for the year. To start, this flies in the face of trend following, a strategy that largely believes in a continuation of similar movement until competing action dictates otherwise. Besides this anecdote, price action for other energy focused areas doesn’t necessarily support this idea either. Energy equity representative XLE maintains a poor fund score despite the fund putting together a string of three consecutive buy signals on its default chart. While constructive at first glance, a relative strength test between XLE and benchmark SPXEWI reveals quite a different story. XLE posted its third consecutive sell signal against the benchmark just last week, suggesting persistent weakness from the group.
All this to say, tread lightly when taking outsized positions within the commodity space. Precious metals are showing the markings of a group shedding relative strength and no other sub-asset group seems poised to pick up the slack. Energy names (which make up a heavy percentage of broader commodity funds) remain on rocky footing and exposure should be limited when possible.
