Commodity ETFs Top Winners List Wednesday

August 30, 2012 /

Commodity ETFs filled the winners list while basic materials and emerging markets overwhelmed the losers Wednesday — another quiet day on Wall Street, held hostage by Fed Chairman Ben Bernanke’s Jackson Hole, Wyo., address on Friday.

Among the winners,United States Natural Gas ( UNG ) added 2%. Inventories remain at record highs for this time of year and production flows at or near an all-time peak, Reuters reported. The ETF is in its sixth straight week of decline and rallying on short covering or oversold conditions. UNG’s chart looks very bearish as it trades below both its 50- and 200-day moving averages.

Elements MLCX Grains Index ETN ( GRU ) surged 3%. A jump in wheat and corn broke a five-day slide and formed a very bullish-flag chart pattern. GRU is near an 8.59 buy point in a bullish four-weeks-tight pattern. That occurs when prices close within 1% of the prior week’s price for four weeks in a row. Wheat futures soared 4% amid fears that Russia — a big wheat exporter — may curb exports because of drought, the Wall Street Journal reported. That could lift demand for U.S. wheat.

IPath DJ-UBS Livestock ETN ( COW ) fattened 1%. It appears to be rebounding from a sharp sell-off. Its chart looks very bearish as it’s trading below both its 50- and 200-day moving averages. Farmers have been slaughtering livestock because of high feed prices this summer.

Biggest Losers

Among the losers, Global X China Industrials ETF ( CHII ) plunged 3%. Global X Pure Gold Miners ETF ( GGGG ) and iShares MSCI Brazil Index (EWZ) dropped 2%.

The market is rotating out of basic materials and into technology and financials because of the massive slowdown in China, said Kathy Boyle, president of Chapin Hill Advisors in New York. Every economic indicator for China is going down except for inventory, as goods are piling up as a result of Europe’s recession.

“Materials could be a leading indicator for a very volatile September,” said Boyle, who is very bearish on the market.

Market Overview

In afternoon trade, the SPDR S&P 500 (SPY) added 0.08%.

SPDR Dow Jones Industrial Average (DIA) ticked up 0.03%.

PowerShares QQQ (QQQ), a basket of the 100 largest nonfinancial stocks on the Nasdaq, was unchanged.

The major ETFs have traded sideways the past week as traders stepped to the sidelines and wait for the Federal Reserve chairman’s speech before economists Friday.

“Escaping this range to the upside will require positive economic news and some clarity around policymaker action,” Bob Doll, senior adviser to BlackRock, wrote in a client note. “Conversely, policymaker inaction could stoke deflationary fears and cause stocks to slip.”

The failure ofIShares Dow Jones Transportation Average (IYT), down 0.18%, to make new highs along with the market in August suggests the market will correct according to Dow Theory.

“The theory is that if the transportation stocks aren’t confirming the strength in the stocks of industrials companies, then look out below,” Ed Yardeni, president of Yardeni Research, wrote in a daily briefing.

“Rail car loadings of intermodal containers rose to a record high in early August. On the other hand, global economic activity is slowing, and so is business for air freight and logistics companies.”

The coming Bernanke speech overshadowed some positive economic data. Second-quarter U.S. gross domestic product was revised upward to 1.7%, up from the initial reading of 1.5% for the April to June period, the Bureau of Economic Analysis reported.

U.S. pending home-sales rose 2.4% in July over June to a seasonally adjusted index of 101.7, the best reading since April 2010. The July reading was higher than expectations of 1%. The index climbed 12.4% year over year.

“Today’s data suggest that the trend in sales remains upward. New home sales have also been moving up,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, wrote in a client note. “National Association of Realtors’ officials continue to argue that a decline in inventory of ‘distressed’ homes, encompassing foreclosures and short-sales, is holding back sales growth.”

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, shed 0.3%. It’s holding tight above its 200-day line, which presents key price support.

IShares MSCI Emerging Markets Index (EEM) lost 0.5% as it fell deeper below its 200-day average.


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