The upcoming calendar provides a mixed brew of inflation data, Fed news, and continuing world crises. Adding the recent daily focus on energy prices and skepticism about stocks leads to the likely media focus for the week:

Is it time to buy commodities?

Prior Theme Recap

In my last WTWA I predicted that a light week for data would produce a parade of pundits, all wondering whether it was too late to join the stock market rally. That was an accurate guess. Whether you were watching on financial TV or reading your favorite sources, there was an extra helping of commentary. It covered the full range from crashes and recessions to year-end rallies.

Feel free to join in my exercise in thinking about the upcoming theme. We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead.

This Week’s Theme

We can expect a normal flow of economic data this week featuring key reports on housing, the FOMC minutes, and the monthly inflation reports. The backdrop for this news includes four additional factors:

  • Daily discussion of the continuing decline in energy prices.
  • The year-end quest for big gains to meet performance benchmarks.
  • Continuing skepticism for the most hated stock market rally.
  • The upcoming OPEC meeting – not until November 27th, but close enough for plenty of discussion.

    • From this combination, I expect many to ask whether it is (finally) time to buy commodities. Here are some key viewpoints:

  • The commodity “supercycle” has ended, dampening gold and oil prices for the next decade. Howard Gold at MarketWatch explores the underlying factors. (See also Mike Bird at BI.)
  • Cold weather. This may provide a trading bottom, but not a long-term trend change. Cam Hui provides a detailed discussion with plenty of charts.
  • Supply constraints will hit as prices fall. The Economic Times reports some interesting data, including this chart:

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  • The bottom is in. Energy fund manager Tim Guinness opined (two weeks ago) that oil prices might move lower, but the stock prices had already over corrected.
  • Energy earnings revisions have halted the downward slide (Brian Gilmartin).
  • A look ahead to the OPEC meeting. Have the Saudi’s been posturing for a better negotiating position? (Daily Reckoning)

    • Before turning to my own conclusions, let us do our regular update of the last week’s news and data. Readers, especially those new to this series, will benefit from reading the background information.

    Last Week’s Data

    Each week I break down events into good, and bad. Often there is “ugly” and on rare occasion something really good. My working definition of “good” has two components:

  • The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially – no politics.
  • It is better than expectations.

    • The Good

    The news last week was mostly good, even better than stock prices suggested.

  • The employment quit rate has increased dramatically. For years I have encouraged readers to ignore those who tried to use the JOLT’s report (labor turnover) as a back-door method for estimating job growth. It is inferior for that purpose, but better at analyzing structural employment issues. If you want to look at overall economic health, the quit rate is a solid indicator. Fivethirtyeight (see strong and similar analysis and chart from Business Insider) has strong analysis and a helpful chart:

    The rising number of quits is good news for several reasons. It’s a sign of confidence. Quitting your job almost always entails some risk, even if you have a new one lined up, so workers’ increasing willingness to do so suggests they think the job market is getting better. Changing jobs is also an important source of wage growth, particularly for younger workers. And job turnover of all kinds acts as a kind of lubricant in the job market, as employees who leave jobs create opportunities for others.

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  • The technical market prospects are encouraging. Charles Kirk’s weekly chart show and magazine are always part of my preparation for the week ahead. (Individual traders and investors will quickly earn back the modest subscription fee). Charles provides his typical detailed discussion – this time highlighting bullish targets achieved and the remaining setups.
  • Gas prices declined another nickel. Doug Short provides his regular update with both analysis and charts.
  • The Keystone pipeline is moving forward quickly. I expected approval in the next Congress, but it might come much sooner. Democrats are moving to help Sen. Landrieu’s Louisiana runoff election, something that happens more easily when an eventual loss is expected anyway. “The Hill” has good coverage, including this story.
  • Michigan sentiment set a new recent high of 89.4, best since 2007. This series correlates with employment, spending and stock prices, so it is worth watching. (See Calculated Risk).

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  • Small business optimism is up. Reports of poor sales are lower and employment is better. Ed Yardeni has the story, including this chart:
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