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Three Charts Every Commodity Trader Should See

By Brian Hunt, Editor in Chief, Stansberry Research
Friday, June 7, 2013

 "What's happening in natural resources?"
As far as I'm concerned, a speculator always needs to keep this question in mind...
We've detailed many times how natural-resource industries like oil, gold, copper, and iron ore are among the market's biggest "boom and bust" assets. Get into the booms early and avoid the busts, and you can make huge returns in natural resources. (Read our educational interview with master resource financier Rick Rule for more on this.)
Most S&A readers know how natural resources in general enjoyed a huge boom period from 2002 to 2008. The benchmark commodity index (the CRB) rallied 135% during this time... which helped many resource stocks climb 200%, 300%, even 500%.
Like most every asset, natural-resource stocks were killed in 2008... and then rallied into early 2011. Since then, however, it's been all downtrend in natural resources.
And today, I'm going to show you why I think it's still a good idea to mostly avoid this sector.
 The first chart displays the past three years of trading in BHP Billiton. BHP is the giant of the industry. It's a diversified producer of iron ore, energy, coal, copper, and uranium.
As you can see in the chart below, BHP reached $95 per share in early 2011. Since then, it's been locked in a giant downtrend that has taken shares to $65.
bhp share price chart
A downtrend like this can create bargains... But sentiment toward miners like BHP isn't "black death terrible." That means you're not getting this stock at a bargain price. I'll wait for a "wash out" before getting interested here.
 The second chart we need to study is Brazilian mining giant Vale. Vale is the world's largest publicly traded iron-ore producer. It sells much of its production to China.
As you can see, it's the same story as BHP. The trend continues downward...
vale share price chart
The Chinese economy isn't growing fast enough to absorb the world's iron-ore production... and prices are collapsing. But again, there's been no "wash out" selling climax in this stock.
 The third chart shows the awful price action in coal stocks.
China is the world's largest consumer of coal. And just like iron ore, China isn't growing fast enough to consume global coal production.
The important Australian benchmark coal price index (Newcastle FOB) is trading near depressed 2009 levels. This has clobbered the Market Vectors Coal Fund (KOL), which holds large coal producers and related stocks. Shares struck a 52-week low this week.
kol share price chart
 The right time to buy a physical natural resource or a producer of that resource is when it's at a wash-out bottom... when no one can stand the thought of owning it.
While stocks like BHP, Vale, and KOL have declined since 2011, there's no panic selling going on here. At this point, it's just a gradual stair step decline that owes itself to the declining Chinese economy (with an "assist" from Europe's recession).
That's why it makes sense to avoid these sectors for now. They'll eventually reach screaming bargain prices. But they are not there right now.
Brian Hunt

Further Reading:

The resource sector can produce incredible gains – if you know how to take advantage. Find Matt Badiali's guide to safe commodity investing here...

In The Daily Crux
Market Notes
Shares of "Big Cheap Tech" favorite Cisco break out to their highest level in nearly three years.
Turkey stock fund TUR breaks down to a six-month low as protests in Istanbul continue.
High-yield bond funds HYG and JNK are sitting at six-month lows... both are down nearly 5% over the past month.
Dividend-paying giants are on sale... Procter & Gamble, Philip Morris, and McDonald's are all trading at or near three-month lows.
Market Watch
Symbol Price
S&P 500 1614.90 +0.4% +22.8%
Oil (USO) 33.68 +1.3% +4.8%
Gold (GLD) 136.72 +0.9% -13.0%
Silver (SLV) 21.92 +0.6% -23.1%
U.S. Dollar 81.56 -1.2% -0.8%
Euro 1.32 +0.8% +5.0%
Volatility (^VIX) 17.44 -0.3% -21.3%
Gold Stocks (^HUI) 282.62 +1.8% -37.8%
10-Year Yield 2.07 -1.4% +25.5%

World ETFs
Symbol Price
USA (SPY) 161.84 +0.4% +25.4%
Israel (ISL) 14.80 +0.3% +26.9%
Japan (EWJ) 10.57 -0.3% +19.9%
India (IFN) 20.57 -0.3% +17.7%
Singapore (EWS) 13.37 -0.4% +18.2%
Taiwan (EWT) 13.60 +0.4% +16.9%
Russia (TRF) 14.20 +0.0% +9.0%
China (FXI) 35.79 +0.3% +9.8%
S. Korea (EWY) 57.08 -0.1% +8.4%
Canada (EWC) 27.53 +0.4% +9.2%
Lat.America (ILF) 39.59 +0.2% +0.6%
S. Africa (EZA) 57.87 +0.0% -7.2%

Sector ETFs
Symbol Price
Construction (PKB) 19.49 +1.5% +55.4%
Media (PBS) 20.24 +0.7% +45.9%
Financials (IYF) 71.47 +0.7% +37.5%
Defense (PPA) 24.35 +0.4% +34.8%
Health Care (IYH) 100.33 +0.9% +34.8%
Biotech (PBE) 28.75 +1.1% +34.2%
Consumer Svcs (IYC) 100.89 +0.0% +29.9%
Industrials (IYJ) 83.30 +0.2% +29.1%
Water (PHO) 22.40 +0.6% +28.2%
Alt. Energy (PBW) 5.32 +1.1% +28.4%
Transportation (IYT) 110.23 +0.5% +23.9%
Retail (PMR) 30.07 +0.3% +25.1%
Telecom (IYZ) 26.07 +1.1% +25.9%
Big Tech (QQQQ) 72.02 0.0% +16.7%
Software (PSJ) 29.43 -0.5% +15.6%
Nanotech (PXN) 6.87 -1.0% +13.6%
Insurance (PIC) 19.01 +0.1% +18.3%
Basic Mat (IYM) 70.89 +0.4% +14.1%
Real Estate (IYR) 68.23 +1.3% +14.8%
Semis (PSI) 15.68 -1.0% +9.0%
Utilities (XLU) 37.64 +0.9% +7.4%

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