There is another commodity that can now be added to the list of assets that have experienced wild swings this year. Reminiscent of lumber earlier this year or natural gas more recently, in the agriculture space, cotton has experienced an explosive move to the upside.  As shown below, front-month futures were already seeing a solid move higher since last year’s lows. But in the 12 trading days since the recent low on September 20th, cotton has surged over 20%.  As of this writing, that leaves the commodity at the highest level in a little over a decade as it has broken out above the May 2014 and June 2016 highs.

Going back since 1990, there are not many examples of cotton rallying over 20% in the span of only 12 sessions; especially in more recent history. As shown in the second chart below, this is the first +20% rally in 12 days since June 2012 when cotton rose 28.38%. Going back over the decade leading up to that occurrence, there were a handful of other rallies of the same size if not larger.

Given the rapid rise in cotton prices, the commodity is now very extended relative to its 50-DMA. In fact, there has only been one time since 1990, March 2003, when cotton was as extended above its 50-DMA as measured in standard deviations.  With that said, there were some instances in which the overbought reading was at least similar though.  For example, November 2017, July 2016, March 2008, and December 2006 also saw cotton move to over 3.9 standard deviations above its 50-DMA as is the case today.

Given the surge in prices, speculator positioning around the commodity is overwhelmingly long.  Data from the CFTC’s Commitment of Traders report—which we also reviewed with regards to other assets in last night’s Closer—shows the percent of open interest for cotton futures is currently 40.97% net long.  That is the highest and first reading above 40% since the week of July 2018. It also ranks in the top 2% of all readings on record going back to 1986. In other words, speculators broadly have held a positive outlook on cotton and they have been proven correct.

As for agricultural commodities more broadly, cotton has not necessarily boosted the aggregate space. The Invesco DB Agriculture Fund (DBA) which tracks 10 agricultural commodities including cotton has remained in consolidation over the past several months with a failed attempt to break out of that range only a couple of days ago.  As for why the surge in cotton has not also led to a surge in DBA is that the commodity has a relatively low weighting accounting for just over 3% of net assets tying it with Feeder Cattle for the smallest weighted future of the ten tracked by the fund.   Click here to view Bespoke’s premium membership options.

Mega cap tech tracked by the NYSE FANG+ index is getting crushed today and is down 3.2% for its worst single-session since May 10th when it fell 3.6%.  One key difference between today and then is the technical damage done from a charting perspective.  Today’s drop brings the FANG group below its August 19th low and more importantly below its 200-DMA.  That marks the first close below its 200-DMA in 378 trading days. While the index does not have the most extensive history dating back to only to 2014, that makes for the second-longest such streak on record behind one that lasted 573 days ending almost exactly three years ago to the day.

Panning over the largest of the FANG stocks by market cap, most are still above their own 200-DMAs with the exception of Amazon (AMZN).  Like the index, each of these names have been breaking down a bit from a technicals standpoint.  In the case of Facebook (FB) and Alphabet (GOOGL), long-term uptrends are now broken.  In tonight’s Closer, we illustrate the impact that the decline of these stocks have had on the S&P 500. You can read more about the FANG breakdown and more in tonight’s Closer with a two-week Bespoke Institutional trial.

It’s only been two trading days, but Q4 has already started off on a volatile note. On the first day of the quarter last Friday (10/1), the S&P 500 rallied 1.15%.  Today, though, last Friday’s gains have been more than erased as the S&P 500 is down 1.2%. A rally of more than 1% on the first trading day of a quarter is not that uncommon as it has happened just over 20% of the time since 1990. Since 1990, though, this quarter is on pace to be just the third time that a quarter has started with a 1%+ gain only to be followed by a 1%+ decline. The first occurrence was at the start of Q3 in 2000 just after the dot-com bubble burst.  The only other occurrence was just over two years later at the start of Q4 2002 just as the 2000 – 2002 bear market was ending.  Given the small sample size and the completely disparate paths of the S&P 500 following both periods, there’s really not much you can read from these two occurrences except perhaps that they were both periods of extreme volatility for the equity market.

As far as the inverse situation is concerned, there are more occurrences when the S&P 500 dropped 1% on the first day of a quarter only to rally 1%+ the following trading day. Since 1990, this has occurred seven times. Occasionally, this signifies the bottom of a market pullback, such as April of 2020, April of 2018, October of 2011, and October of 1998. Click here to view Bespoke’s premium membership options.

Throughout the day on Friday, quarterly US vehicle sales figures from WARD’s Automotive Group were released. In aggregate, US sales continue to plummet likely more as a result of supply constraints and low inventories.  Total sales came in at 12.18 million SAAR versus expectations and a previous reading of at least 13 million.

Delving into which brands are the most prominent, below we show the percentage share of Q3 sales that can be attributed to each brand.  As shown, Toyota (TM) topped the list in the third quarter by a wide margin accounting for 16.63% of total sales versus 13.02% for the next highest brand: GM (GM).  Stellantis (STLA), Ford (F), and Honda (HMC) are the only other brands that accounted for a double-digit share of total sales. Of those, only Honda and Toyota saw their share grow versus before the pandemic with the latter seeing much larger growth. While those brands make up a larger share of total sales than they did at the end of 2019, they are not the ones to have seen the largest growth year over year.  Tesla (TSLA) holds that title with sales up 30% YoY.  Mazda, Hyundai, Volvo, Kia, BMW/Mini Cooper, and Toyota are the only other brands to have grown year over year.

In spite of the massive drop in aggregate sales, the stocks of these global auto manufacturers have held up well, especially relative to the broader market as the S&P 500 is now down 5.4% from its 52-week high.  As shown below, at the end of September, Bloomberg’s World Auto Manufacturer Index stopped short of its 52-week high set on January 25th.  Currently, the index is down roughly 2.16% from those levels, but it also appears to be finding support at its 50-DMA as it has a handful of other times over the past several months.  The strength in the auto stocks in the face of weak sales suggests that investors know the drop in sales is due to supply issues instead of demand issues, and they expect those supply issues to be resolved at some point.  Click here to view Bespoke’s premium membership options.

Please click the image below to view our October 2021 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Start a two-week free trial to one of Bespoke’s three research levels.

Gold and silver are two precious metals typically used as investment vehicles for diversification and as a hedge against the dollar.  Because gold and, to a lesser extent, silver don’t have a lot of industrial utility, prices are often defined by the value the consumer is willing to pay.  In times when the dollar is weakening, investors have typically rushed to ‘safe havens’, a category that precious metals tend to fall in.

While it would be reasonable to expect gold and silver to trade similarly, that hasn’t necessarily been the case over the last decade.  Using the two ETFs that track the metals (gold- GLD and silver- SLV) as proxies, while they have been positively correlated, gold consistently outperformed silver from the beginning of 2013 right up through the start of 2020.  The lower chart shows the relative strength of GLD versus SLV over the last 10 years.  In it, a rising line indicates outperformance on the part of GLD while a falling line indicates SLV outperforming GLD.

With the outbreak of  COVID, gold’s relative strength versus silver went parabolic in March 2020 but quickly pulled back thereafter.  As optimism over economic growth surged in the months after the economic lockdowns, silver continued to outperform gold through the first quarter of this year.  However, as economic expectations have started to reset as the re-opening hasn’t been as smooth as originally hoped, silver has once again taken a back seat to gold.  Even as both have declined over the last few months, as shown in the top chart, the drop in silver has been larger than gold.  Given that it has at least some industrial utility, silver’s relative strength versus gold tends to be impacted more by sentiment regarding economic growth.  Read Bespoke’s most actionable market research by joining Bespoke Premium today!  Get started here.