A commodity breakout is a key development that deserves our attention. With US equities showing bullish trends, it's important to note the potential for a choppier environment ahead. While I anticipate some consolidation before reaching new highs, the real story lies in the commodity sector.
The Bloomberg Commodity Index has reached multi-year highs, indicating a significant shift in the market. Emerging markets, particularly those outside China, have been displaying remarkable strength, and the LatAm region seems to have made a notable long-term breakout. This week, I'm optimistic about equities, but I sense a potential for some fluctuations before a larger upward movement.
Here's where it gets interesting: The key technical developments are happening in commodities and emerging market equities. The Bloomberg Commodity Index, composed of gold, natural gas, and crude oil, has broken out to its highest levels since early 2023. This intermediate-term breakout suggests a bullish trend for commodities as a whole, and I expect this momentum to continue into 2026.
But here's the controversial part: While I'm cautious about crude oil in the short term, the energy complex appears set to strengthen in the coming weeks. Soybeans, corn, and coffee within the grains sector look attractive, and I believe commodities will perform well given this November breakout.
And this is the part most people miss: The S&P 500 (SPX) is facing near-term resistance, and the recent lows may not be the end of the story. A potential gap fill could take SPX down to 6720, which is a real possibility this week. However, a stronger rally off these lows could lead to new record highs in the weeks ahead.
WTI crude oil and natural gas have both made bullish breakouts, with WTI likely heading towards the mid-to-high $60s before a pullback. The energy sector as a whole may be an underweight for the next couple of months, but the next few weeks could be quite bullish. The VanEck Oil Services ETF (OIH) has broken out and could trend higher before finding resistance.
The equal-weighted energy ETF (RYE) is showing a constructive short-term move, and I expect a test of prior peaks. The key resistance area near $86 could stall out the rally, but the energy sector is helping fuel the larger commodity rally, which I believe can continue.
So, what's the catch? Ideally, this gain reverses course in mid-November as cycles peak, turning lower into the end of the year. While there are bullish cycles for energy in the first half of 2026, the focus should be on the next 1-2 weeks, which look positive. After that, energy may lag in performance and turn down in December.
In the healthcare sector, pharmaceutical stocks have finally gained some meaningful strength. Issues like TEVA, LLY, AZN, MRK, OGN, and CORT have all seen impressive gains in the last five trading days. The VanEck Pharmaceutical ETF (PPH) has broken out above last year's peaks, and the DRG (NYSE ARCA Pharmaceutical Index) is forming a one-year cup and handle pattern, indicating potential strength into late November.
In summary, the commodity breakout is a significant development, with the Bloomberg Commodity Index leading the way. Emerging markets and the LatAm region are showing strength, and the pharmaceutical sector is worth watching. While there are potential challenges ahead, the overall outlook is positive, especially for the short term.
What are your thoughts on this commodity breakout? Do you agree with the analysis, or do you have a different perspective? Feel free to share your insights and opinions in the comments below!
