February 27, 2020
After the Dow dropping 3200 points this week, about as straight down as anything we ever see, I have to think this Coronavirus “swoon” is about over…And…will soon represent just one more example that the “values” of all these pieces of paper in this investing GAME are more a function of “mob psychology” than anything else. As always, I ask the question with each supposed crisis we endure (like Brexit, for one), “Has the value of BUSINESSES like Home Depot, or Microsoft, or Visa, or Coke or Disney, etc. actually changed by 10% in the past 4 days? And when stocks are back on their highs in 3 weeks, or 3 months, or whatever, will the intrinsic values of those BUSINESSES actually have gone back up by 10%?” I think not. During the past 40 years I’ve easily seen hundreds of EMOTION BASED events like this week…some smaller, some bigger…and they ALL seem to pass, and fairly quickly become “old news.”
This is not to say that the Coronavirus “crisis”, as overblown by the markets as I think it is (like virtually everything in the media in the news-by-the-second Internet Age), is going to instantaneously disappear as a “force” in the markets…but I DO think we are probably seeing the peak of its hysteria this week…and that the daily head count of “infections” and “deaths” and appearances in new countries WILL become less and less of a negative influence towards stocks…AND all of the commodities that have pretty much nose-dived with the stock market this week…For sure, this may be a dumb read on my part, but pretty much going forward from this week, I expect to see the markets begin to IGNORE the same headlines that have produced all the angst for the past few weeks…and begin solid recoveries back to the upside…In some cases it may be fast, and in some, just a grind…but the point is, I do think this “crisis” has peaked in the psychological sense…and that Coronavirus IS a temporary problem that can in no way be compared to, for example, the mortgage based debacle that resulted in the Great Recession, which took YEARS to remedy and recover from…while COVID-19, I believe, will no longer really be news 2-3 months from now…Obviously, I might be dead wrong. As I previously stated, I’m no epidemiologist…and like 99.9% of the planet, am just making guesses about how I think this think will play out.
But what I do think I know, and the real subject at hand for this newsletter, is that SOMETHING is happening behind the scenes on the demand side in the Soybean Meal market…that for some reason, while just about every commodity on the board (other than Gold as a fear driven “safe haven”) has absolutely gone in the tank along with stocks this week, the Meal market has not only been “rock solid”, it has been singularly STRONG…having closed up $5-$6 today, and up $9 for the week and is dead on its highs for the month of February…Again this is against a backdrop of virtually all of the markets having COLLAPSED in the past 4-5 days.
See the devastation for yourself…the extent of various market declines in the past 4-5 days…
And then this…the Soybean Meal market…And not another market on the board has been going UP this week…or even close to that.
I do not know why...but I DO think it is significant...that today is the single biggest up day on this chart...especially considering what was happening in all of the other markets...I suspect it could be connected to China perhaps quietly buying for delivery somewhere out in the future...but again, I do not know...As I've said before, part of this business of GUESSING the future IS looking for clues...And I THINK THIS WEEK'S STRENGTH REPRESENTS A CLUE AS TO WHAT MAY BE COMING IN SOYBEAN MEAL.
Here's what I recommend at today’s close…
And yes, the 1 & 1 is becoming slightly more expensive…which, if you think what I keep presenting makes sense, is the reason I keep encouraging you to go ahead and get something on…If I am right, option prices are probably NOT going to get better…Also, as always, I could be dead wrong about what I think…and if I am, it could mean losing every dollar you invest.
All numbers guys…Go back and look at the historical stats and charts I have been showing you…that in 19 of the past 20 years there has been a double digit percentage rally, at some point, between now and the July expiration. That’s a FACT…and it doesn’t mean it will happen again this year…but it is a FACT.
The Soy Complex, along with a number of other agricultural markets, has been in the hole for the past 5-6 years…And I believe that the Trade War, which has been a lead weight for these markets for the past 20 months, is essentially over…and from here, I THINK THERE IS NO PLACE TO GO BUT UP.
Call me and do something with this…or let me hear what YOU think.
All charts are by Aspen Graphics.
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Soybean Meal