The following was published for our subscribers September 30, 2010.
This week continues to bring more excesses and it seems appropriate to publish another brief memo - let's call it a "Quick Pivot".
As in the first half of 2008 there has been an eruption of speculations. Then the ChartWorks was invaluable at identifying the blow-offs, as they occurred in wheat and rice with the ultimate ones in crude oil at 147.9 and copper at 4.08.
Of course all of this was against the massive bear raid on the US dollar. Needless to say, but the "raid" was conducted from the ivory towers of academe, the office towers of Wall Street, the ethereal heights of central banking as well as taxi-drivers throughout the world.
In 2008 specific and timely charts were labeled "Puffed Wheat" and "Fried Rice". The ChartWorks on crude at the end of that fateful June was too serious to include a whimsical title.
This year's titles included "Parched Wheat" and in looking at some specifics over the past few days "Popped Corn" and "Ginned Cotton" seem to be developing.
The latter chart follows and similar action is showing for corn.
Last week's ChartWorks noted that silver was registering a daily Upside Exhaustion whereby the price could top within a week.
All of the above is associated with the declining dollar, and we think that soaring speculations permit dollar depreciation. Conventional wisdom insists that dollar depreciation forces prices up.
Evidence for our view includes the early phase of the post-1929 contraction when the Fed met the problem with liberal discounting and lowering rates to almost zero. More recently, the Fed and Treasury were blatantly expansive during the peak and collapse of the Tech Bubble in 2000. Needless to say, but both agencies have been belligerently stimulative throughout the 2007 Bubble and during the consequent initial contraction.
Within the major play there have been urgent reasons to buy commodities at speculative highs. The leverage in all the games is immense and this phase of serial speculations is burning out leaving, as in 2008, the inevitable unwinding of compelling "stories". The other side of which will be another go at "covering" dollar shorts.
At hot times it is helpful to look at the silver/gold ratio. On a strong move for gold and silver this ratio can get up to two important levels on the RSI.
If it gets to around 75 to 78 moderate corrections for the sector follow. Silver usually corrects more than gold and recent examples occurred in the first part of 2009. The last "killer" high was the 88 level set in March 2008. The one before that was set at 90 in April 2006.
So far the high RSI has been Wednesday's 77.42. There has been the possibility of the play going "hyper" to an RSI close to 90. Showing either moderation or prejudice we are comfortable with the 78 level on the RSI and the prospect of a moderate correction. Various participants in the "Serial Speculations" are getting overdone. Wheat has set a blow-off. Others such silver and cotton are setting Upside Exhaustions effectively now.
Monday's ChartWorks -- "Currency Review" -- updated the foreign exchange markets.
We are watching the Ted-Spread, which seems to be working on a "bottom", which when accomplished would set the trend to widening.
This morning's trade initiated some interesting reversals. First noticed it in Silver Wheaton (SLW), which opened strong and quickly weakened. This was more exaggerated in Silver Standard (SSRI). This was soon followed by the same for the silver/gold ratio as it set a new high for the move accompanied by an RSI of 79.5.
Today's "All-One-Market-Reversal" (AOMR) includes stocks, bonds, commodities, currencies, silver and gold, as well as the silver/gold ratio.
These seem violent enough to suggest the "Sunshine" of September is concluding with the month end. In this regard the last few days of September are usually strong and often crude can be strong into late September, which can boost the stock market.
An intermediate decline in all of the hot items seems to have started.
Investors can lighten up and traders can play the short side.
"Portfolio manager and author John Stephenson is making a big bet on commodities, with more than 50% of his personal portfolio devoted to commodities or to stocks of commodity producers."
"He thinks that investors should have 15% to 20% of their total portfolio exposed to commodities, placing him in the same camp as fellow authors Jim Rogers and Don Coxe. All believe the commodities bull market may only be halfway through its 18-year cycle.
--Financial Post, September 30, 2010.
Link to Friday, October 1 'Bob and Phil Show' on Howestreet.com:
The rotation of various commodities into speculative excess continues. Cotton is the latest; following closely on the heels of Wheat. Cotton generated daily Exhaustion Alerts September 17th to 22nd. Prices have now gone on to produce a divergent high. If prices stay above 100 through Friday's close then a weekly Exhaustion Alert will be in place. Support would be anticipated at the 50-week average in the low 80's.
Previous daily signals