Safety First
Im dabbling in a theory that when it comes to commodities and commodity stocks, the stocks lead the commodities out of the bottom. The premise is that after trading futures, its just very apparent that you have to be a commercial user or it is nuts to go counter trend. too much leverage for speculators, which means stops or margin calls are hit very easily on countertrend moves.
With stocks though, with “safety” stocks, you can make a bit of a stand and pick up a dividend too.
So here we see XOM, the safest of safe with a very secure dividend, bottoming out before RIG did–which doesnt have a dividend but is a stock. and RIG bottoming out before oil did. Now, they both started their higher low as oil made its low, but they held up when oil did not.
The question i have right now, are natural gas stocks signaling the same thing? if so, there is a killing to be made in the futures. On the flip side, XOM seems to top out before oil. and RIG followed USO
However, natural gas stocks topped out when natural gas did.
So perhaps there is no “safety” stock like XOM in natural gas. or it has a different nature. that is what im unsure of at the time. It does seem to be an interesting intermarket relationship that id like to study further.
the Baltic Dry Index and DRYS is another one im intrigued by
Notice how in this double top formation, DRYS never made the higher high that the BDI did.
My general assumption it is easier to take speculative/countertrend positions in stocks because they are less leveraged. Therefore, they are a leading indicator of their underlying commodity.
