johntrade Posted January 25, 2011 Report Share Posted January 25, 2011 Am I Missing the Biggest Commodities Boom in History? No. Watch out bulls – don’t go buying in here – this is the panic round; the ‘oh no I am missing the biggest commodities bull run ever’ panic – the kind of panic that gets a bull in trouble because it’s the kind of bull run that gets an early bubble burst. Remember we are in a period of testing out that rubber band I have talked about. That first stretch to the highs in 2008 was the move folks, and if you get in now you are participating in a test of market elasticity that I believe will not exceed the previous highs. Now that being said one could argue some markets have exceeded those highs already – markets like cotton and sugar. Many of those markets did not participate in the bull run that ended in 2008 and therefore are not in the same scenario as markets like oil, corn and soybeans. This is long term consolidation at its most extreme – offering huge moves within a consolidation phase that tightens from a major previous high. This is an opportunity to be contrarian and get short commodities – perhaps for many months – and capture the potential for unexpected downside volatility. Energies Crude oil has shown a willingness to congest near the highs, which is well below many analysts’ $100 price target. I do not believe $100 ever gets hit making the current level a great shorting opportunity. Play with bear put spreads over a 2-3 month time frame. Heating oil is also set for a reversal, therefore playing a short heat to long rbob spread is recommended. Natural gas remains a long term buy, playing a potential spike in this market that should cause a volatility pop for long term call options. Financials Stocks remain in bull mode, but not for long. In fact, as I write this I can feel the turn of the S&P500, maybe as early as today. This turn is upon us, likely having already set the top or very close to it. The reason behind this top is simple – overbought market conditions. When the S&P500 was at 700 valuations were stronger than the price would suggest, but as this rapid ascent to near 1300 has occurred, it has brought with it a lack of fundamental strength. Eventually the market needs to even out, allowing real numbers to catch up to price moves based on expectations. Typically this occurs immediately following an exhaustive rally, like the one that has been going on for about four months. Over the past two years there have been four identifiable rally periods, the current one being a strong vertical incline over an extended period. Past performance is not indicative of future results. **Chart courtesy of Gecko Software's TracknTrade Bonds have been choppy and does offer some potential for premium collection, although this is preferred on the put side as the market has room to rally on a stock market decline. The dollar did get bearish on a technical level last week, a last ditch effort to shakeout weak bulls in my opinion. If the dollar breaks 8679 then the momentum has clearly shifted, but until then it is a buy on this dip. The euro and pound offer short opportunities. The Canadian dollar has been a premium collectors dream as of late, offering nearly no direction and only minor technical breakouts. The short is there, along with the Aussie dollar. The yen remains the lone foreign currency to buy on dips and I continue to stand by my forecast that: The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Review…foreb-( Grains I continue to look for a strong technical turn in grains to signal a clear top – a turn that should occur this week! Get ahead of this decline with straight put plays in corn, wheat, rice and beans. Meats Live cattle continues to show signs of topping and is a long term put play on declining feed inputs and waning demand at these extreme price levels. Hogs remain in a congestion phase. Metals Gold and silver began to turn last week, a leading indicator of a near term slide in inflation strengthened commodities. These precious metals led the charge higher and will lead the collapse as well. Put positions in gold and silver are recommended. Copper is a strong short on an expectation for declines in China demand. Softs Coffee is testing the highs here, but upside should be limited and the downside severe when it turns. Cocoa is benefitting from a real threat of long term export problems and political mayhem in the Ivory Coast. The shocker from this weekend is a ban out of the Ivory Coast on cocoa and coffee exports, a sudden and immediate ban that could rattle the markets. This is typically when one would enter this market short, but best to wait this week for fundamental developments that may isolate this market from the commodity-wide selloff I am anticipating. Cotton is scorching higher on a short squeeze that could have legs. On a bubble this big it is nearly impossible to see when the turn will occur, but rather best to accumulate long term puts for the seemingly inevitable fall from glory. OJ is a strong short, having failed to rally amid a commodity-wide price surge. Lumber remains a cycle buy to 250. Sugar is a short with straight long term deep out of the money puts. *Disclaimer: There is risk of loss in all commodities trading. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. Past Performance is not indicative of future results. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Options do not necessarily move in lock step with the underlying futures movement. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC. Link to comment Share on other sites More sharing options...
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