How Have Commodities Compared in 2008?

Jul 14, 2008: 2:12 PM CST

We have all heard the headline reports about energy prices skyrocketing in 2008, but what have the other commodities been doing in terms of percentage returns?  Let’s take a quick look at Agriculture, Metals, Energy, Livestock, and the CRB Index for their standing now that half of the year has passed.

Commodity Percentage returns so far in 2008:

Line Graph showing monthly progression for 2008:

It’s no surprise that energy prices are up over 50% for the year, and that broader commodities are up as well.

If these trends should continue (and that is a big “if”), we could see energy prices up by 100% per year and the other major commodities up around 30% for the year.  I suspect the Federal Reserve will attempt to step in through raising interest rates, as many have speculated, before this scenario becomes a reality.

Nevertheless, commodities experienced a decent surge (some over 30%) in the first three months of 2008 before falling as the Stock Market ‘bottomed’ in March.  Money flowed back into stocks until late May, while the price of energy (mostly driven by crude oil) climbed almost non-stop for the year so far.

Continue to keep your eye on these broader based commodities, and the division between them for clues on what may be happening beneath the surface (yes, there are many other commodities other than crude oil).


Freddie & Fannie: Double Trouble

Jul 14, 2008: 11:48 AM CST

Adam Hewison of Market Club recently released a brief educational video that details the fall in these stocks and what it might mean for the larger picture in his video released today entitled, “Freddie Mac and Fannie Mae:  Twin Disasters.”

Hewison states in a post accompanying the video:

“Even after Treasury Secretary Henry Paulson made a statement ensuring that Fannie Mae and Freddie Mac would remain as presently constituted to carry out their mission it was not enough to satisfy most investors.

Both Fannie Mae and Freddie Mac hold about $5 trillion worth of mortgage guarantees in this country, roughly about half of the $9.5 trillion mortgage debt. Their survival is paramount.

The trouble with these two companies is the latest depressing factor in the current credit and confidence crisis that the United States is going through at the present time. This type of negative information is depressing for stocks and weighs on the minds of investors. This type of mindset is similar to the
early seventies when we witnessed the last prolonged bear market.

There are no quick fixes to our current set of problems, only trading opportunities.

We live in a capitalist society and these are the cycles that we go through every 30 to 40 years. This is the price we pay for living in a free society.

My new eight minute video shows in detail how easy it is to avoid disaster stocks like Freddie and Fannie. I also show you in very clear terms how to fortress your portfolio to withstand any type of financial tornado that blows through the world economy.”

Freddie Mac and Fannie Mae:  Twin Disasters

Enjoy the video,
Adam Hewison

Hewison reminds us that it’s our job to understand what’s happening and attempt to profit from it in a risk-controlled environment.  Recall that stocks fall (sometimes plunge) faster than they rise, meaning those who employ short-selling or put buying strategies can profit relatively quickly from early identification of stock or company break-downs.

Such strategies themselves are not without risk, as news of salvation or other reports could trigger an instant wave of ’short-covering,’ leaving such positions vulnerable.  Be safe on both sides of the market and adhere to your risk-control parameters.


Gold Breaks Out – Target $1000

Jul 13, 2008: 12:05 PM CST

As mentioned previously, Gold prices broke out of a triangle consolidation pattern and now appear headed to their price projection target of $1,000 per ounce.  Let’s see how this is possible.

First, gold prices have clearly entered a consolidation pattern, no matter how you draw the trendlines.  Price swings are overlapping and truncating at closer prices as the swings narrow. The moving averages became flat and have now turned back to the upside in the ‘most bullish orientation’ possible.

Gold broke above the upper trendline around $900 per ounce, and then confirmed the break with a ‘throwback’ retracement that tested and held the rising 20 period moving average as well as the break-out zone.

The price projection estimate comes from the height of the triangle (roughly $100 per ounce – from $850 to $950) which is then added to the break-out point just above $900 per ounce which gives a price projection target – if the triangle is valid – to just shy of $1,000 per ounce, which would take price back to its all-time closing high, less than $40 away.

Whether or not we meet our target, gold prices appear to be rather bullish in this environment of economic uncertainty, so be sure to keep a watch on this precious metal, which is also known as a safety place for investment in inflation and uncertain times.


Deteriorating Breadth – Warning Sign?

Jul 12, 2008: 11:22 AM CST

Friday’s action was important, in that breadth declined to new lows for the year, which certainly isn’t good news for the bullish camp.  Let’s look at a few charts and different perspectives on what this might mean.

First, the weekly chart of the NYSE New Highs minus New Lows overlaid against the backdrop of the Dow Jones Industrial Average:

The dark black line (scaled on the left axis) represents the NYSE New Highs – New Lows as programmed in  The reading slipped below -700 which represented a key low in the indicator as the Dow made yet another new closing low for 2008.

The downtrend in the NYSE High – Low breadth indicator is clear, and will be so until we can form a higher low.

The Monthly chart (same overlay) looks even more ominous (going back to 2000):

I wonder if somehow this chart is in error, or I have done the overlay wrong.  I’m afraid – if this is correct – then the chart speaks for itself.

I wanted to share a few other perspectives on the breadth from other bloggers:

Dr. Steenbarger does an excellent job of analyzing 2008 new highs and lows in the Wilshire 5000 Index in his post “Adapting to Shifts in Market Regimes“.  Steenbarger writes:

What that tells us is that, as prices move lower, longer time-frame participants are not finding value. What makes for a market bottom is the perception by these participants that the selling has been overdone; that bargains are to be had. When markets move lower and cannot attract buyer interest, they can only do one thing: probe yet lower value regions until equilibrium is attained. That’s exactly what we’ve been seeing over the last month.

Despite the name of the post, Dr. Duru also does very detailed analysis of the breadth measure of stocks being above their 40 day moving average in his post “Does the VIX Need to Spike at A Climactic Low?

Dr. Duru writes:

“Over the past 22 years, we have only had 50 trading days with lower T2108 (stocks trading below their 40 day moving average readings) than the current reading of 9.26%. 32 of those days (64%) came in the aftermath of the October, 1987 crash. The rest of these days cover major climactic moments from the past 20 years”

“We have now spent 7 trading days below 20% on T2108. 20% is considered oversold territory and the point at which new shorts typically represent poor risk/reward.”

“The oversold conditions we have today are sitting at historic proportions!”

Barry Ritholtz at “The Big Picture” shows a chart in his post “S&P 500 vs. AAII Bullish Index” (a sentiment indicator).

Things are different in the markets than we might expect or have become conditioned to accept.  Do be careful.

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Intraday Action – Surge and Plunge

Jul 11, 2008: 8:36 PM CST

Friday’s intraday action in the major US Indexes was nothing shy of stellar, given all the potential economic turbulence that set-up during the day.

Let’s look at the DIA – Dow Jones ETF 5-minute chart:

The day opened with news that Freddie Mac (FRE) may be in severe trouble, and then rumors of a financial collapse occurred, and the index lunged around almost helplessly.

However, there was structure that played out in the index – at least for the first half of the day.

The day’s action opened with an overnight gap that rallied back to resistance via the falling 20 period EMA, which set up the day’s first short (provided you missed the sudden gap-fill trade).

Price formed a doji and then orderly rolled over to hit new lows on the day, before experiencing coiling action about the 20 period EMA (which also set up some ’scalp’ trades).

A multi-swing positive momentum divergence formed all day, which sprung (like a coiled spring) into the afternoon session, slamming the short-sellers and invigorating the once helpless bulls – only to slam the bulls as well.  Trading the afternoon session was extremely difficult – it very much resembled a Fed-Day pattern.

Stocks closed lower on the day, but the losses were not as bad as they could have been, and actually the day went positive at one point.  Today’s action will be classified as a ‘gap-fade’ intraday as such.

Volatility has returned, and it is difficult to trade the market long and short, so do monitor your stops and trade smaller positions if you feel you need to.  Try not to get caught up in the ‘heat’ or emotions of the day.

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