Click chart to enlargeThe 200dma is still holding the Dow back. Same is true for the S&P. We're only concerned with getting good prices on the Ag names right now, and it looks like we may be setting up for a good entry point soon. DBA's chart is ominous. It's a descending triangle. If DBA breaks support at around 35.5 and heads for its 200dma at 33.5, we could get a capitulative day for the Ag names which would provide great buying opportunities for those willing to hold for 6 months.
Steel (MTL and SID), are also on our "commodity capitulation" wishlist, but they don't seem to want to correct. We're willing to pay up a little for MTL and POT because they give up ground reluctantly, suggesting that they'll be making new highs later in the year next time sector rotation favors them. Others like MOS and CF are already trading at the 1/4 marks of their channels, so they'll likely reach the bottom with even a small correction. It's just a matter of time. We're willing to jump in with both feet when the Ag sector corrects, despite where the broader market is. It is possible for a sector to "bottom out" long before the broader market hits bottom. We use trend channels because they let you get in and out of stocks without being influenced by what the broader market is doing. It is completely possible for the Ag names to hit bottom over the next few days and never see those lows again, even if the Dow drops 1,000 points over the next few months.
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Wholesale inflation data wasn't that bad, but folks know the reason. The data has seasonal adjustments in it to level the data out over the year. DOW futures were down 67 points this morning before the data. As I type this, DOW futures are down 97 points, so the street knows the broader picture, because they all filled their car up on the way to work this morning. I sold my last DDM on Monday and bought SDS. Last week I had sold my QLD, SSO and MOO. So I'm safe for at least one day.
Link to this morning's inflation data
Snot, ag futures are up this morning, so DBA may have an up day. Doesn't DBA have some good support from the last three months at $36.00. Also, DBA does its own thing since it is based on futures and it sometimes run the opposite direction of the DOW or ag equities. Second question, if someone (like me) invests in ag primarily through MOO, how does MOO operate in its channel compared to some of the individual holdings like DE, MOS and POT, and where would you advise me to jump back into MOO (still love that ETF's name)?
Snot, how are you preparing for the cause and effect trade around Oil's skyrocketing price?
I do think that Oil will be the cause of the next dramatic move south such that financials were the cause in March.
How are you preparing and what do you have on your watch list besides the commodities in preperation for the next move south?
Do you even think that Oil will cause such a move?
As for MOO, it's roughly at the center of its channel. Ag is a multi-year growth story, so no qualms about buying it here. It's our guess that if one were to just buy MOO and hold it for a couple of years, they would outperform most funds. The chart should reflect the balance of what its components are doing. MOS, CF and DE are in the lower half of their channels, but POT and AGU are in the upper halves of theirs. It makes sense, then, that MOO is at the centerline. We're only 50% invested because we think the market is overbought. If we get one or two big commodity selloff days, we're going to do a lot more buying regardless of what the Dow does. Sectors don't have to trade in tandem with the market except for on those huge down days where everything gets hammered. Other than that, a sector will be weak or strong relative to where it's recently been (overbought or oversold) more than it is affected by the daily action in the indexes.
Oil prices are going to definitely be a major strain on the economy. Far more so than people currently think. They are likely to be the reason for the next major selloff.
The reason we think oil prices are going to have such a significant effect on the numbers across the board is because nothing is spared. Higher oil prices impact every corner of the economy.
American Airlines saved $40,000 one year by eliminating one olive from the salad served in First Class. It just goes to show you that when you tweak the numbers by fractions of a penny, the impact is great. Now imagine tweaking the costs of doing business for every business in the world by a significant amount... simultaneously! The effects are unimaginable, and that's why it's understandable that they are not fully factored in. We don't know which path the market will take to get there, but we would not be at all suprised if the Dow is at exactly 13,000 one year from today if oil prices remain high. They will be that much of a strain on corporate profits. You will hear so much about the cause and effect of high oil prices over the next few earnings seasons that you're going to get sick of it. It will spread like a virus into every niche of the economy, many times more infectious than subprime.
Well how come you are never in oil?
Snot how come you never ever trade oil based on all your posts here so far.
Hi Snot, what do you think about or have any studies yet on uranium metal stocks?
Whats your take?
The dow has lost 500 points in 48 hours. S&P 500 rejected at 1435. Isnt this a sign that its time to buy FXP?
Snotwheel,
what do you think about LDK now? After last earning report it was beaten for couple days, but now it shows strength despite overall market downturn. Do you thing this run has some legs to go or it's just pump-adn-dump hype based on pure speculations and recent good reports from its peers?
Andrey
We only now can say that the cost of oil is going to keep corporate profits flat for the next year. We didn't predict oil to $130+. We didn't think it would get there, at least not as quickly as it has. People are treating it as a minor nuisance. We think they're in for a shock at just how devistating $130 oil will be on the U.S. economy. Americans have not budgeted properly for heating their houses this winter. Our prediction: the cost of firewood doubles. Want a business? Buy some firewood now and sell it this winter. You'll make out like a bandit.
Thats it !!! I'm cutting firewood ...
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