BSC stands for Bonds-Stocks-Commodities. The idea is bonds lead the business cycle both up and down, stocks follow and commodities lag.
Here’s a helpful graphic via Pring Research.
So where do we stand in the cycle today? That’s a good question, but we have a pretty decent answer at this point.
We see some evidence for being somewhat before stage 4 with commercial hedgers pretty bearish long term US Treasuries with rates ripping recently off of a false break below the summer lows. Here’s a look at the 10 year yield.
We’re seeing evidence of commodities starting to turn up as seen in the CRB index. The space had a false breakdown this summer and are quietly rising steadily. Again we have a look at some early stage 3 type of stuff.
Obviously stocks are in an uptrend. Given the data we have here stocks are in a sweet spot for continued rotation and speculation.
If we want to follow this cycle, two obvious areas for stock market participants to look are energy and financials.
Here’s a look at energy producers. They reacted IMMEDIATELY to a bullish divergence on the weekly charts. They also confirmed the August low by refusing to make a new low with Oil.
— Aaron Jackson (@ATMcharts) August 31, 2017
The energy stocks are showing the signs of strength we’ve been looking for all year and longer timeframe tradable lows have formed here.
I talked about financials and rates here.
All in all it’s pretty clear we’re in maybe late stage 2 early/mid stage 3 in the business cycle. It seems like there will be plenty of opportunity for active managers in the commodity space and financials despite any correction that may occur in the coming weeks/months.
Trade ’em Well.
Extra: Here’s an interesting look at stocks relative to commodities