Down the Rabbit Hole of Twin Peaks

Despite a sticky hot inflation print this morning, stocks are mostly mixed amid listless action as we work through another late-summer doldrums type of session. That may change, however, with NVIDIA earnings this evening (plus other notable names like CRM) and then Jackson Hole to close out the week with Warsh's speech on Friday morning. 

That said, the surging price action in the refinery stocks and agricultural soft commodities is noteworthy today. We have been tracking a list of refiners for Members, as they are clearly profiting from crack spreads as demand for oil products remains strong. 

But the scariest aspect about the lagging effects of the Iran War could easily come with the ags. I have a long-time friend who is an executive at a chemicals firm who told me, verbatim, that "farmers cannot afford fertilizer," just to give you an idea of what we may be up against going forward. Recall that the MOO ETF (and the XLB ETF) has tons of agribusiness stocks. 

But as we far as the soft ags themselves go, wheat is among the leaders breaking out along with corn and beans. 

Earlier this summer we looked back to 2022. Back then, wheat was surging due to the Russia/Ukraine war and other inflationary pressures. WEAT topped in March and then again in May of that year. Inversely, stocks bottomed in May and then October of that year, too. There may indeed be an inverse relationship here, with wheat leading it, under the theory of inflation expectations--When they are high, stocks suffer. But when they recede, stocks can flourish. 

Hence, just as WEAT topped and led a bottom in stocks in 2022, we have a situation where WEAT appears to have bottomed (monthly chart, below) multiple times this year, and is perhaps telegraphing a top in stocks coming soon.