If you had followed the news in the past few days you would have noticed the obsession with equating a normal drop in Commodities with a crash or a major market top. Here is just a sample of what I’m talking about.
On top is the Continuous Commodity Index, which as we have argued, is a far better representation of the commodities complex than the CRB, which is extremely overweighted in the energy commodities. Does that look like a crash? Does that appear to be a major market top? Tanking? It is likely a correction or an interim top.
Meanwhile, the greenback had one up day and its suddenly “killing” Commodities. This is extremely short-sighted analysis as the US Dollar has yet to even test its 2008 low while Commodities already surpassed their 2008 high. The greenback does have an impact but since early 2010, Commodities have been less affected by a strong or stable US Dollar. When the greenback fell from 83 to 81, the CCI surged from about 485 to 630. Since that time, the greenback fell from 81 to now 74. The CCI is up only 1% in that time frame. Commodities have been leading the greenback. Their failure to make a new high was a hint that trouble was coming.
We’ve actually been cautious for weeks. We warned about excess bearishness in the greenback and the negative divergence with Treasuries which made a higher low. We’ve been cautious on Commodities and bullish on Bonds. We try to look beyond the day by day action and false headlines.
The problem with today’s financial media is that they focus only on the short-term. By short-term, I’m referring to not even weeks but days. Online print, newspapers, online shows and television take things day by day. One day Silver (NYSE:SLV) is ripping and the greenback is falling. The next day Silver’s (NYSE:SLV) bubble is popping and so is the anti-dollar trade. Watch the shows and you’ll hear phrases like “make money now,” “crowded trade,” “bubble,” “crash.” Rarely if ever do you hear “bull market.”
Trading commentary is entertaining but it does not amount to much if you want to make big money. The big money is made by finding trends early and riding them for years. Fortunately the bull market in Commodities has at least five more years to go. Soon we will see an accelerating trend and some type of bubble. That is still years away and that is why you should turn your focus to this correction and identify low risk entry points. Consider trying our service (free for 14 days) and getting the help of a professional.
Jordan Roy-Byrne, CMT
Another great read: What Bubble? Commodities Have More Upside in 2011>>