May 22, 2012
Sign on my office wall:
ONE GOOD TRADE IS ALL IT TAKES
I THINK I HAVE AT LEAST TWO BIG ONES RIGHT NOW.
To begin with…
Europe is a “situation”. It WAS a “crisis”.
From all the handwringing I see all over the media, you would think the Dow had just dropped 4000 points or something…when, in reality, on the first chart below, you will easily note the recent decline really amounts to “much ado about nothing”…Even so, talk of a market top is everywhere…According to the pundits, Europe is still supposedly falling apart, China’s 8% growth is not enough, and our economy is still on weak legs, so “Don’t buy stocks here.”…To all of which, I say “Nonsense! All the angst is just typical talking heads yackety yak.”
Virtually every economic indicator there is still points steadfastly north…now including the Real Estate sector as well…And with money as cheap as it is, energy prices having declined significantly, consumers having reduced a LOT of debt and consistent job growth (about to accelerate dramatically I believe), ALL SYSTEMS ARE GO! If you want to fall for all the negativity, and still see the stock market as, “not a buy”, go ahead, but I think you are missing a tremendous long term opportunity…I continue to see Stocks and the Dow Jones futures as a MAJOR BUY.
I mean, REALLY. This little fluctuation is what they are all so worried about?
I still recommend owning the Dow Futures contract but my real purpose in mentioning stocks is simply because as Stocks take off, you are most likely going to immediately see some big money leave (SELL) the Treasury Bond market…AND I AM STILL, MORE THAN EVER, A RAGING BEAR WHEN IT COMES TO BONDS.
Short (SELL) Treasury Bonds NOW
I have written at length about Short Bonds in recent months as the market has persisted in basically trading sideways. In a nutshell, I am firmly convinced that 10 Year Notes paying 1.8%, and 30 Year Bonds paying 2.9%, are NOT investments. They are an invitation to lose money…I believe the “safe haven” bid due to the absurd fears of an European collapse will disappear virtually overnight and we could easily awaken to find Bonds down 2 or 3 points before traders even get to their offices…
If you want more of my reasoning, you can find far more than you need at our website newsletter archives: http://www.crokerrhyne.com/newsletters/index.htm
For the moment, though, just start with this for historical perspective…
When this chart is going down, Bond prices are going up…When this chart goes up, Bond prices go down…
Here is what Treasury Bonds have been doing for the pas 30 years as interest rates came down…
I spent this morning studying every Bond top during the last 30 years…This one, encompassing one last climb barely into new highs, I would classify as a potential “silent turn”. By this I mean, there are no last gasp fireworks, just a quiet turnaround, from new recent highs, on no particular news…I am quite certain, with no big reversal day, and no big news event, VERY few traders are looking at this market and thinking, “That’s it!”, when the truth is, within a few days, this market can “quietly” be 4-5 points off the high before anyone really notices it…At that point, people WANTING to short bonds, start thinking, “Boy, if it rallies I am going to sell the you know what out of it”….Only it never does.
If you like this trade. Do it NOW. Spend the money. Buy the time. If it dawdles around a little while longer, so be it…But you need to be there before it gets going…
Aggressively Short Corn NOW
Popular opinions tend to lose money…And by my reckoning, the single most popular opinion in all of the commodity markets for the past year has unequivocally been, “Corn is going up”. I continue to believe the “gonna run out” story has been played TOTALLY to the hilt, the result being, the majority of buyers have been scared into buying, and the overwhelming majority of farmers have still got tremendous quantities of Corn that still, sooner or later, HAS to be sold…
To me, “no” buyers, and a world of sellers, means the letter-perfect set up for a relative CRASH in Corn prices during the next few months...
Here is a bit of a close up look to highlight the action during the past few weeks…and most importantly to point out today’s potentially highly significant action…
Why do I see this action as so significant?
Because I KNOW this…Farmers, after having turned down the opportunity to sell at $8.00, and then having resisted selling at $6.00-$6.50 for the past 9 months, HOPING ( a bad word in futures) for higher prices, are now beginning to get a little nervous. This last rally, again, on the back of Wheat, certainly had many of them thinking “Here comes the rally. When it gets to $7.00, I’ll sell everything I have!”. Finger on the trigger…But the rally failed today, BADLY (2nd biggest down day in 6 months), dropping and again, on no real news, as there were, as I believe, no buyers left.
So…what’s next?...Well, all those people sitting on last year’s crop are certainly not feeling that comfortable right now…It hasn’t happened yet, but if Corn does trade down to last week’s lows, I think they are going to really start getting nervous…and most likely already are…AND THE NEXT THING I EXPECT IS AN AVALANCHE OF FARMER SELLING TO BEGIN. It won’t all come in a single day, or a few weeks, but I do look for it to be constant, unrelenting and massive for the next few months. I DO LOOK FOR A STRAIGHT DOWN COLLAPSE. I have seen it happen over and over in this business, and quite honestly, though I may be dead wrong, this looks like something that almost HAS to happen.
I CONTINUE TO RECOMMEND BUYING JULY (NOT SEPTEMBER OR DECEMBER) PUTS. I THINK THIS BABY IS READY TO GO.
And just to drive the point a little further…This following little blurb came off the newswires this morning…This is an excellent example of the sort of opinion that is all over the place in this market…
If down 32 cents on the day is “limited”, I can’t wait to see a truly bearish day in this market…
I HAVE BEEN WAITING, AND WAITING AND WAITING FOR THIS ONE. MAYBE IT WON’T HAPPEN. MAYBE THIS IS A LOSER. BUT IF IT IS A WINNER, I THINK IT WILL BE A BIG ONE.
This is big leverage. This goes against ALL of the opinion I have seen for over a year now. DO SOMETHING OR DO MORE WITH IT.
ONE GOOD TRADE IS ALL IT TAKES…For real. It’s amazing how this stuff works…There is a lot of suffering in this business, and for my money, when you do get the potential good one, you DO jump on it hard.
Pick up the phone…Write the check…It’s your call…
JUST DO IT. CLOSE YOUR EYES AND PUT THE BUCKS ON BOTH OF THESE TRADES. BOTH OF THEM. IF JUST ONE WORKS, YOU’LL PROBABLY STILL BE HAPPY.