February 23, 2011
Fasten your seatbelt! The revolutions spreading throughout the Middle East and Northern Africa are apparently throwing the world’s daily oil supply into jeopardy, the result having been several monster up days in Crude Oil that have had sizeable repercussions in just about every market we trade. As this headless monster (the Arab masses) is not going to quietly fade into history, I would suggest all the markets are just beginning to get volatile, and with the world now facing this MAJOR, totally unanticipated event, I believe every value there is may be dramatically affected during the coming 2-3 months…and beyond… but, for the purpose of trading, two or three months is enough to consider at this point.
I assure you I don’t have any more of an idea what’s going to happen than you do (even though I did spend about 1 ˝ years of my young adulthood in the Middle East) but nevertheless, here are my “shortwinded” impressions of what I personally am looking for.
To start with, here’s Oil.
I am VERY bullish Treasury Bonds
(try to find anybody else who is)
Several weeks ago, Bonds broke into new lows and my guess is 95% of bond analysts and traders ended up short this market with visions of a 10 point plunge...Now, due to economic uncertainties (and a host of other reasons) causing a flood of money into the world's safest paper instrument, Treasury Bonds are back up near their recent highs...and there are most likely a zillion shorts wondering why they are now sitting on losers...The uncertainty is NOT going to fade in the near term, and I start every day thinking Bonds could explode on the upside..."NOBODY" is long this market. I CONTINUE TO SEE THEM HEADING, MINIMALLY, INTO THE 130'S.
Gold should have done more?
While Gold has risen a bit with recent events, maybe it’s just my bearish bias, but with the gravity and obvious ramifications of the Middle East instability, I would have expected to see Gold rallying something like $50-$75 a ounce. While I respect the fact it has approached new highs, the tepidness of its response still leaves me thinking, “everybody who would buy it, has bought it”, which means, as I said before, the next thing it seriously does is crap out…big time.
I will say this…If it shows any sign of weakness from here, dropping back and closing under $1400 for example, I would take that as even more of an indication that this market has no buyers left…and would then aggressively recommend getting short.
In this same vein, here’s an excerpt from one of my old, old trading bibles…This is one “rule” from a famous commodity trader who is no longer with us (killed in a car wreck):
“Surprising price response to news is one of the most reliable price forecasters. Bullish response to bear news, or vice-versa, means the price had already discounted the news and next move will probably got the other way. Actually, this only one example of a wider principle: When a market does do what it “should”, then it will probably do what it ‘shouldn’t’, and fairly soon.”
Again, maybe I’m just stuck on bearish in Gold, but with the Middle East blowing up, I sure would have expected more of a “bullish response”.
Corn and Soybean Oil have cracked?
Corn and the Soybean complex have started to roll over…I am STILL reading nonsense about prices “needing to make new highs to ration demand” or “to attract acreage from other crops”. I continue to recommend being short the contracts following and still expect to see them ending up with net 30-35% declines in value.
A new one…Cattle
With my overall bearish commodity attitude, this will probably be a surprise, but I think the Cattle market has a shot at the same sort of lunacy we have seen in Cotton...as in going parabolic on the upside…With all the fears of higher energy prices, there is a general theory that consumers will not have the disposable income to afford luxuries such as beef…therefore the overwhelming majority of opinion I see is trying to call a top in the Cattle complex…Without going into all my reasons, under the present overall market circumstances (fear of oil prices damaging the consumer), if Cattle can make a new high, I would say the odds are quite strong this we could see a potentially mind boggling move up from there…
Give me a call if you want to talk about any of these ideas…