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March 14, 2013

 Still Buying Stock Indices

Let’s just start with what everybody is looking at…and in general, still not believing…the Bull Market in Stocks…Yes, we are now getting statistics on all fronts that provide ample evidence the economy is definitely on the upswing (as I have been emphasizing for several years now), and yes, all those “professionals” who have been staunchly bearish the stock market for 1000’s of Dow points, have lately been pounded into accepting the market’s direction is up, NOT down,  but even so, the overwhelming majority of those same naysayers are STILL telling you, “Oh no…Don’t buy it here. The correction MUST be coming. Wait for the ‘pullback’.”

I THINK ALL THE DOUBT OUT THERE IS STILL WRONG. MORE AND MORE, I THINK THE ODDS HAVE DRAMATICALLY INCREASED FOR A TRULY EXPLOSIVE UPSIDE MOVE…IN THE ORDER OF MAYBE PUSHING 16,000 ON THE DOW (15,000 WILL BE MUCH TALKED ABOUT BUT “IGNORED” BY THE MARKET ITSELF) WITHIN THE NEXT TWO TO THREE MONTHS. PERHAPS I AM DEAD WRONG, BUT IN MY OPINION, SOMEWHERE, AND SOONER RATHER THAN LATER, WHAT MUST BE IN THE CARDS IS AN ABSOLUTELY DYNAMIC “RUNAWAY” MARKET WHERE ALL THE MONEY THAT IS SUPPOSEDLY ALREADY “POURING”INTO THE MARKET…ACTUALLY DOES…WHERE THOSE HOARDS OF “PROS” WHO HAVE BEEN FOREVER SAYING “SELL” THROW IN THE TOWEL AND START SCREAMING, ‘BUY IT NOW, BEFORE IT GOES ANY HIGHER!”

As I have repeatedly said here, markets tops are generally not accompanied by an overwhelming majority of supposed “experts” telling you to sell, or “Don’t be so stupid as to buy it here”, which is exactly what I still see all over the place.  Therefore, for this reason (and others) I will  keep buying the Stock Indices until I at least get some sense all the painted talking heads and internet expert columnists have massively changed their bearish tunes…

As evidence there IS still a ton of doubt out there…AS THE MARKET CONTINUES TO MAKE NEW HIGHS…here is the usual batch of headlines collected from newspapers and various well know web sites over the past few weeks…

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It’s almost comical to go through that list and note how the various reasons to sell keeps changing as the market climbs steadily higher…Italian elections, “Greedometers”, technical indicators, “no conviction”, “trashtalk stocks” leading, bullish complacency, Chinese data, and most lately, “panic buying”…and all those have come just in the past few weeks!

Much of the most recent “logic” I’ve seen suggests that the public is finally “pouring into stocks”, thereby signaling a top, which I believe, is simply a bunch of nonsense. My very best stockbroker contacts tell me the only calls they are getting from clients (the public) are requests to sell, “before the almost-guaranteed-to-happen BIG correction takes place”. I have no doubt there will come a time when the masses, like proverbial lemmings, do “jump back into stocks”, at the top, but I say it sure as hell isn’t the case right now…or even close to it.

I AM STILL LONG AND STILL RECOMMEND BUYING THE STOCK INDICES.

Here is the Dow from the traditional perspective…

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Liquidated Long Lumber

As of today, we have liquidated our last Long positions in Lumber. I suspect it may be going higher but my original game plan was to be long until about the beginning of spring…which is now about a week away…So I am now out and have no immediate plans to initiate further trades in Lumber…in either direction.

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Liquidating all Short Positions in Wheat

I still believe Wheat will eventually trade much lower, but after trading down about $2.00 in the past 3 months, my sense is some degree of sideways action is what we will now see here…and have therefore decided to move to the sidelines...Among Corn, Wheat and Soybeans, the Wheat market has definitely been the downside leader for the past four months. In reality, Corn and Soybeans have gone nowhere. I expect that to change and now want to focus solely on being short those two markets…which I will address later in this newsletter.

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Still LONG COTTON

Cotton appears to be accelerating on the upside…I still see it trading substantially higher but this is probably not the place to be adding new positions…so our current approach is simply to hang on to what we already have. The USDA will issue a “Prospective Plantings” report at the end of March and I may be exiting all positions ahead of the report. I am recalling some historical research I did 4-5 years ago that suggests this report (which presents a picture of how much Cotton farmers intend to plant) is often followed by brief but quite sharp downside action…no matter what the actual acreage numbers may have suggested…

At any rate, we are still long…and still thinking this contract will at least take out the $1.07 contract highs before it goes off the board…but not without some potentially high volatility along the way…which, to date, has not been that much of an issue.

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Still Short the Soybean Complex

I have reminders taped all over my office expressing the same sentiment: EVERYTHING I READ AND HEAR ABOUT OLD CROP SOYBEANS IS SLANTED OVERWHELMINGLY TO THE BULLISH SIDE.

This market has been stubbornly sideways for months, which is painful if you own options, and I put those signs up to make sure I do not get discouraged and go to sleep on this trade…I continue to see the Soybean Complex trading sharply lower and continue to recommend owning puts in Soybeans and Soybean Meal.

Wheat just dropped approximately $2.00 during the past 3 months. I believe the Beans are next…and would not be at all surprised to see them fall $4.00 a bushel within the same time frame.

I THINK ANY DOWN DAY (like we’ve already seen this week) CAN BE THE BEGINNING OF A VIRTUALLY STRAIGHT DOWN MOVE. MY RECOMMENDATION IS TO GET SHORT…AND STAY SHORT.

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I am still Short Corn but I am going to leave it for another newsletter…

 

The Cattle Complex looks to be on the verge of an outright price collapse

Those are strong words but this is exactly the way I see it…As I have pointed out in previous newsletters, the cattle market has long had a tendency to make what I can only classify as “dumbfoundingly big one way moves”, that is, they semi-frequently make about the biggest straight up or straight down moves as you will ever find in the futures markets.

The “record low cattle numbers” story has been out there forever, but somehow cattle have recently found their way back to almost one year lows, and to me, look like they are on the verge of absolutely falling off a price cliff…which, according to the bullish rhetoric I have seen everywhere, for FOREVER, it not the way it’s supposed to be.

AS ALWAYS, I MAY HAVE IT DEAD BACKWARDS, BUT I THINK THERE IS BEARISH DEBACLE COMING IN THE CATTLE MARKET. I AM MOST LIKELY TOO ENTHUSIASTIC BUT THIS IS A MARKET I HAVE BEEN SHORTING SOMEWHAT AGGRESSIVELY, AND CONTINUE TO SHORT AGGRESSIVELY…AND AS I HAVE NO IDEA WHICH WILL MOVE THE MOST (IF I AM RIGHT), MY RECOMMENDATION IS TO POSITION EQUALLY SHORT IN BOTH THE LIVE CATTLE AND FEEDER CATTLE CONTRACTS.

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I am still short and still buying puts on both Gold and Silver but I will cover them soon in a newsletter devoted to the two of them, as well as a new recommendation in Copper.

Enough for one day…Give me a call if you are interested…If it’s not obvious, I will tell you I LOVE the tandem of being Short the Soybean and Cattle Complexes. Maybe I am dead wrong, which definitely means losing money, but I think they both offer major leverage and have major potential. One more time, I’ll repeat the old axiom that markets tend to go down much faster than they go up (fear factor as opposed to greed), and I think that will be precisely the case in both of these markets.

Thanks,

Bill

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The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Short Soybeans, Short Live Cattle, Short Feeder Cattle.

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