foxex: Nervous Reaction

Chart Advisor | Focus on the Price

Tuesday, October 08, 2019

1. Investors Show Mildly Nervous Trading in Reaction to Trade Negotiation News

2. Natural Gas Prices Driving Oil Prices Lower

3. Weyerhauser Outperforming Timber ETFs in 2019

Market Moves

U.S. stock indexes opened the day around one percent lower and trended higher up until about one hour before the close when the news broke that the U.S. has issued visa restrictions on Chinese officials in association with human rights abuses in the Xinjiang region. This rather startling development could easily disturb trade talks scheduled to resume on Thursday.

It isn't much of a surprise that news traders sold off in the last hour, but considering what the news was, and how offensive such a move could potentially be to the Chinese government, it is surprising the market didn't sell off even more. This makes the comparison chart below all the more interesting. Shares of Apple (AAPL), a stock well represented in the Dow Jones Industrial Average, the S&P 500 and the Nasdaq 100, and included in the holdings of over 300 individual ETFs, don't look all that bearish. Consider that today's close still put the share price above its highest close in a year as of four days ago. It's worth keeping an eye on because if AAPL shares trade higher, it is nearly impossible for the indexes to trade lower day after day.

Natural Gas Prices Driving Oil Prices Lower

Since natural gas acts as a substitute for oil among many consumers, market prices for natural gas tend to be somewhat correlated to prices for oil. In particular the general trends observed in the prices of these two commodities tend to be observable as natural gas leads oil prices lower.

The chart below depicts how this has happened in the past by comparing the price action of two exchange traded funds. Looking at the price of U.S. Commodity Fund's United States Natural Gas Fund (UNG) and comparing it with their United States Oil Fund (USO), you can see that the natural gas ETF tends to lead the oil ETF lower, especially when the prices of the two funds diverge significantly at times. Investors may want to observe the difference over time, particularly now as it appears to signal that oil may have further to fall.

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Weyerhauser Outperforming Timber ETFs in 2019

The price action for shares of Weyerhauser (WY) has been strong for the year so far with share prices up 23% to date. But either this stock's good fortune is short lived or there will be a potential rebound among timber and lumber stocks in the near future. Investors have seen two timber ETFs decline in price ever since the earliest months of the year. The Invesco MSCI Global Timber ETF (CUT) and the iShares Global Timber & Forestry ETF (WOOD) have both tracked lower since February, but rose with relative strength in September. If these ETFs continue trending lower, then shares of WY would eventually fall to faster to match the rate of decline shown by these ETFs, but if not, then these ETFs will likely continue to accelerate their current upward trend to catch up with Weyerhauser.

The Bottom Line

U.S. stock indexes resumed their nervous trading late in the day as news was published concerning the status of visas for Chinese officials. Some stocks, such as Apple, seemed to hold their ground, suggesting that some buyers may yet hold enthusiastic hopes for a fourth-quarter rally. Oil prices may trend lower if natural gas prices are any indication. Timber prices are trending lower, but Weyerhauser shares are trending higher. If something has to give in this divergence, you would expect that it would be the individual stock. Otherwise the industry could rise rather significantly.

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