February 16, 2013
This is a brief, mostly charts, update of all our positions. As my opinion remains the same in all 9 of our current recommendations, and there is a lot of ground to cover here, I will try to keep commentary to a minimum…If you want to see more in depth reasoning behind my ideas, go to our newsletter archives at http://www.crokerrhyne.com/newsletters/index.htm , where every newsletter is labeled with whatever markets have been addressed in the posting.
Again, none of my opinions have changed. I basically think we have just started the year and look for fairly sizeable moves in all of these trades during the next 3-5 months. To summarize:
We are still Long:
Stock Market Indices
Cotton and Lumber
We are still Short:
Gold and Silver
Corn, Wheat, Soybean Complex
Cattle Complex (Live and Feeder Cattle)
The Stock Market…
Yes, more people are getting on board with the idea the market is going up but there is still a ton of doubt everywhere…as evidenced by just a few recent headlines that follow…I continue to believe Stocks are about to make a “mighty leap”, that any of the chatter about 14,000 is meaningless, and am very comfortable being long…and still buying…until something dynamically bullish has happened, AND, all those hoards of analysts talking about a “top”, “correction” or “bear market” have totally changed their tune. And they will. Again, this is all just one big mob psychology game and when it IS time to get off the buy side, I believe the media will be loudly and unanimously bullish.
Those headlines, found just about anywhere you want to look, still telling you, “Don’t buy it!”….
This is not to say we can’t see sharp, BRIEF, sell offs attributable to the latest hysterics coming out of Washington…similar to the Fiscal Cliff nonsense, or the upcoming Sequestration claptrap (Congress WILL legislate this away), but in general, I see any dips as an opportunity to buy the market.
Here is a medium term picture of the Dow…
Still Buying Cotton…
When I started recommending Long Cotton last October, I pointed out the “fundamentals” were supposedly so incredibly negative that I read one analyst calling a recent USDA report as “possibly the most bearish supply demand report ever”.
In that same original recommendation (Oct. 2, 2012) I wrote: Part of this game is in understanding what everybody else thinks, and here is what seems to be the universally held opinion among cotton analysts (with whom I totally disagree): “There is too much Cotton, especially in China. There is so much cotton it doesn’t matter if we make a crop or not…The world economy is weak and may be headed into a global recession…Cotton currently, at 70 cents , is probably headed for 60 cents.”
Six weeks later, I included the following VERY bearish quote off the newswires from early November…
“Allenberg estimates that China now has 41.3 million bales of cotton in their strategic reserves, enough to allow them to operate their mills at current levels without importing cotton for 6 entire years.”
I have retrieved these excerpts as real world examples of how “fundamentals” and “expert” opinion can steer you dead wrong in the markets. No, I’m not saying that fundamentals are useless, but I do subscribe to an old market adage, “any known fundamental is a worthless fundamental”, when it comes to determining which direction you need to be trading a market…Cotton has rallied almost 14 cents since November, which is definitely NOT what those quotes would have led you to expect…And believe me, that sort of talk was EVERYWHERE.
But this has nothing to do with what happens next…
As I am trying to cover all of my positions here, I’ll just say I am still bullish Cotton, still buying, and still looking for a trade over the $1.00 mark (at least).
Still Long Lumber…
What I wrote back in January appears to have been proven out…(so far?).
From my January 24th newsletter…Lumber cranked up a good $60 pop on the upside, then had what I’m assuming was a $30 “correction”. Just taking a little experience in hand, I’m going with the idea every violent bull move (which is what I’m looking for) has maybe one hard core correction…and then they just go. I don’t know if this is the case here but I am definitely a buyer of call options, at the market, in Lumber right now.
As can be seen below, the $30 sell off might actually have been the sort of violent correction I thought could be the case…And with Lumber now having traded STRAIGHT back up to the highs, I can’t help but think something big is still coming on the upside from here…My original two reasons for buying this market were the NE USA rebuild following Sandy’s destruction (a totally unaccounted for demand factor back in November) and my perception that housing and construction would be taking off this spring…Lately, in scanning news regarding the lumber markets, I have seen a few references to potential Chinese wood imports from North America…and kind of shudder at the thought of what this could mean for the demand side of the equation. Due to the Great Recession, a lot of production has been shut down during the past four years…Throw the China factor in and I have no idea what it could therefore mean for lumber prices…I do NOT know what will happen in this market but Sslashed production and big demand can be the recipe for some real ballistics.
I AM STILL LONG LUMBER AND STILL BUYING. AS I HAVE SAID BEFORE, I HAVE NO SPECIFIC TARGET IN MIND. I JUST THINK PRICES COULD GO A LONG WAY UP FROM HERE.
Still Short Gold and Silver…
As I have repeated many times, “Buy Gold” is probably the most popular idea I have ever seen in this business…and I FIRMLY believe, in trading, POPULAR IDEAS TEND TO LOSE MONEY. I have seen this far too often to think it will be any different with the precious metals and I look for the price drops in Gold and Silver this year (and the years thereafter) to be stunningly big…as in Gold trading under $1000 and Silver under $20.
I wrote a note to myself earlier this week. It is a simplistic statement but It sums up my opinion here: I cannot imagine what incentive there still is to buy Gold now, other than, “Everybody says it is going up”.
The world didn’t, and won’t, fall apart and all that “safe haven” hype that was EVERYWHERE has gone totally out the window…And hyper-inflation? I’ve heard that malarkey for 30 years and it still hasn’t come to pass…
Every market has its day…I think Precious Metals have had their run (while stocks went sideways for a decade) but now they are in the beginning stages of cracking wide open…possibly, especially, RIGHT NOW (see charts following).
I AM STILL SHORT GOLD AND SILVER AND STILL BUYING PUT IN BOTH MARKETS.
I THINK THERE IS MAYBE AN
“ARE YOU KIDDING?” SORT OF DOWNDRAFT GETTING STARTED…AGAIN, THIS HAS BEEN THE
MOST POPULAR IDEA I HAVE EVER SEEN IN THE MARKETS…AND IF I AM RIGHT (I MIGHT NOT
BE) THE STAGE MAY FINALLY BE SET FOR THE BEGINNING SALVOS IN A MASSIVE
Here is the same $28.00 put option, just with less time…and this is a daily chart, as opposed to the July weekly above.
One further note…Short hedging by producers in precious metals seemed to have become an almost non-existent market factor in recent years. But I cannot help but think there are now mining company managers who must be saying, “We are making a lot of money at these prices. It makes sense to lock them in (prices) for at least part of our anticipated production for the years to come”…This means new sellers. Old sellers really, but major guys who have not actively been there for a while…But they will be back (or already are) and this WILL, in my opinion, become a major influence in driving prices again. One should never forget that the futures markets exist to serve commodity producers and users. Speculators are only fodder for the machine…and we do know where the bulk of speculators are now positioned…and what would hurt them the most.
STILL SHORT CORN, WHEAT AND THE SOYBEAN COMPLEX
I have no idea in which order these three markets will fall but I remain firmly convinced the next 3-6 months will see far more selling (from farmers who HAVE to sell sooner or later) than buying (from users, who have long ago been scared into buying), and prices therefore have nowhere to go but down…A LOT. Again, my opinion.
Contrary to all the hype last fall about maybe “running out” of these commodities, this has most definitely not been the case, and with record acreage going into these crops around the globe, I see current prices levels as being EXTREMELY overvalued…particularly in respect to last year’s crops which many farmers are still holding, still hoping for rallies back to last year’s record levels…I don’t think this will happen, and quite the opposite, but quite in the way it has been for as long as I’ve been in this business, all those guys holding for higher prices will end up scared into selling….deep, deep in the hole from here.
I CONTINUE TO SELL FUTURES AND BUY PUTS IN ALL THREE OF THESE MARKETS.
And DO take another good look at the way Soybeans have come down (when they do) for the past 40 years. In some ways, there is no market that matches them for their tendency to drop precipitously…over and over again.
And I think the following is highly important…
I would also point out that, per Commitments of Traders, in recent weeks SMALL SPECULATORS HAVE REACHED A NET LONG POSITION IN SOYBEAN FUTURES FOR ONLY THE SECOND TIME SINCE 2004, with the only other time having been last September, dead on the highs. . No indicator is an absolute in this business but I do find this to be perfectly in line with my opinion in the Soybean Complex. I am bearish and all I seem to see is bullish press…and the fact the “little guy” is pretty much the least bearish he has been in almost 10 years tells me I am on the right track. This does NOT, by any means, insure that I will be right…but I do love having uncovered this small, but I think extremely significant, detail.
STILL SHORT THE CATTLE
2013-One of my long held impressions is the Cattle markets semi-frequently make
what I can only call “stupidly big” non-stop, one directional moves, by which I
have a tendency to get a move going, often out of the blue, and then keep it
going relentlessly in one direction, sometimes seemingly beyond all reason…And
they do this, I believe, more so than any other market we trade, particularly
when that move is to the downside.
I followed by pointing out the bullish cattle story is, I believe, already fully discounted in the markets…and the next move in Cattle will be sharply lower…Recent market action suggests (to me) the move may be getting underway.
I AM SELLING FUTURES AND BUYING PUTS IN BOTH LIVE CATTLE AND FEEDER CATTLE. I THINK BOTH MARKETS COULD EASILY TRADE 15-20 CENTS LOWER…AND FAIRLY QUICKLY.
If you look at the chart above and do not expect to see it trade to the downside, I think you are ignoring the past 40 years of history shown here. Sure, maybe there’s a bit of a rally left…but will it STAY at these levels?...And, in this business, “If it’s not a buy. It must be a sale”.
And that’s it.
I salute you if you actually waded through this whole thing. I think there are some GREAT ideas here. Give me a call if you want to talk about any of them.
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Silver, Corn, Soybeans, Live Cattle.