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Rubber, Rubber Toil & Trouble

|Includes: Materials Select Sector SPDR ETF (XLB), ZEUS

A dark Cave. In the middle, a Caldron boiling. Thunder.

Enter the three Witches.

1 WITCH. Thrice the brinded cat hath mew’d.
2 WITCH. Thrice and once, the hedge-pig whin’d.
3 WITCH. Harpier cries:—’tis time! ’tis time!

1 WITCH. Round about the caldron go;

ALL. Double, double toil and trouble;
Fire burn, and caldron bubble.

from Macbeth

-William Shakespeare-

That last line has always stuck with me throughout the years. Shakespeare sets the tone for the whole play a bit later by telling his audience that everything that is ‘fair is foul, and what is foul is fair’. In a nutshell, he is telling them to expect the opposite of what they hear as truths. Can you imagine audiences today trying to understand this? Attention and comprehension rates today can be seen in the success of twitter which is becoming a champion of ‘idiocracy’

. So often, we see the exact opposite of what we deem as rational work in equity markets. There is always some underlying story that only seems apparent once more of the plot is revealed.

For example, Precious Metals and Commodities have been ripping to the upside, yet many of the Steel names have been intermittently strong, and on Friday we saw them reverse closing at or near their lows for the day. Now today we are hearing news of tariffs on tires from China similar to when we had a selloff on tariffs on steels in 2002 as pointed out today by my favorite technician, Helene Meisler on The Steels were flashing short term caution, and I heeded that signal by relinquishing my shares of fave steel name, Olympic Steel (NASDAQ:ZEUS). Now here is where we take our cues from ‘Billy’ Shakespeare. I think the takeaway is the opposite of what we see. Protectionist ideology would have us selling our Commod names in fear of more trade battles with the land of Moo Goo Gai Pan, China. I think this is going to give us some great risk/reward on the contingent of steel & iron ore names. I would be a buyer of these on weakness here. These names are not as extended, and, if I’m wrong, a stop could be placed fairly close below recent support for minimal damage.

Keep those stops away from obvious levels too!