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Commodity Stocks Rally, How Much Is Left In The Tank?



January 10, 2012 – Comments (0) | RELATED TICKERS: RIO , SCCO , BHP

All across the media the headline reads that commodities are rallying on Alcoa's bullish forecast. Alcoa reported a loss for the fourth quarter in case people did not see. Rarely, if ever does Alcoa even move the markets these days. More important than the poor Alcoa earnings report was the fact that the Shanghai Index (China) finally caught a bid over the past two trading sessions. That two day rally in China was also good for about 5.0 percent to the upside. This is the catalyst for the move higher in many of the leading commodity stocks today.

Some leading commodity stocks that are trading higher today include BHP Billiton Ltd (NYSE:BHP), Rio Tinto plc (NYSE:RIO), Southern Copper Corp (NYSE:SCCO), and Cliffs Natural Resources Inc (NYSE:CLF). If China tries to inflate its economy this certainly is bullish for most of the world's leading commodity stocks. The problem is that these stocks still look weak on the charts. The near term upside for all of these stocks is very limited should they continue to rally from the current levels. This sector is also still trading significantly below the important daily chart 200 moving average. This tells us that the industrial metal sector is very weak relative to the S&P 500 Index which is trading above its daily chart 200 moving average.

The commodity stocks had a very tough time in 2011 and outside of the January effect they could be very vulnerable in 2012. Traders will often see a favorable January, however, this month has a tendency to be very tricky. All traders and investors should remember that the leading commodity stocks are holding up well today, however, that could change very soon as they are severely lagging the major stock indexes.

Nicholas Santaigo

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