Editor's Note: This edition of "360 Degrees" examines the selloff in commodities Thursday (for the basics of the story, click here). The following is a sample of the expert commentary and dialog on the subject on
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Shed No Tears Over Commodities Comedown, by Jim Cramer
We were looking for a collapse in commodities to show that the
doesn't have to hammer us. We just got a big collapse in both copper and gold. Those are most welcome.
Gold spiked to the point where the jewelers have been balking. That's a big part of the real demand, not the speculative demand and the ETF demand. Copper's collapse is a sign that some copper could be coming onto the market -- remember, unlike for oil, there
a lot of copper, it's just harder to get it -- and that some companies have found ways to get around using copper. Again, the speculators are being crushed. Zinc's the same, too.
We can't get mad at something we wish for. This commodity cooling is a godsend and will send money back to the secular growers whose earnings don't need economic growth.
Health care is doing better, tech should do better. Those could be the focus for now because the commodities are crashing.
Commodity Charts Counter Inflation Talk, by Helene Meisler
Sometimes we get so caught up in the day-to-day or moment-to-moment fluctuations of the market that we forget to step back and look at the bigger picture.
This occurred to me as I jotted down the close for the
on Wednesday night.
The close was 1270, and it had that
feeling. So, I went back and saw that we closed at 1270 on May 17, which is a very interesting date because the market actually topped out on May 10.
That means for the past two weeks we have milled around, yet everyone would have you believe the market has been in free fall the entire month of May.
However, May 17 is an even more interesting date from a psychological perspective: That was the date we got the CPI report that sent everyone into the inflation camp. All of a sudden we were on inflation watch, anywhere and everywhere.
Anecdotally, I can tell you that two weeks ago I paid about $2.95 for a gallon of gas, and this past weekend, I filled up for $2.46 a gallon.
So clearly gas prices, at least since that CPI report, have been trending downward in some parts of the country.
But on a more factual basis, I would like to show you the chart of the CRB futures index.
To my eyes, that is a potential head-and-shoulders top. And I would note that the head -- the top -- came right around the day we were getting that inflation report (the CPI).
Should this chart break that neckline, it measures to the 340-45 area. Yet is there anyone out there (with the exception of Doug Kass on
) who notes that many commodities peaked right around the time of that report?
Instead, recommendations to buy these stocks litter Wall Street.
Now take a look at the chart of silver. What a fuss everyone made over the ETF and how all that buying was going to push the price of silver sky-high. Seems to me all the buying was done before, not after, the fact. This too is a sort of head-and-shoulders top. Breaking the neckline would not be as meaningful as breaking that uptrend line I've drawn in, but clearly a break here would put silver's long-term uptrend in jeopardy.
Platinum doesn't have the same head-and-shoulders pattern, but it does look like a parabolic move that has seen its best times.
I know everyone's interest really lies in gold, so let's take a look at that chart. Gold actually doesn't look that bad in here. Of course, from a sentiment standpoint, I don't believe there is anyone now who is not looking for $1,000 an ounce, but that, too, is anecdotal.
Often the commodities move in 50% retracement patterns.
So, if we're looking for support, take the move in gold from $540 to $720 and we get $180. If we divide $180 by two we get $90, and $90 from $720 gives us $630. The uptrend line I've drawn in comes in between $620 and $630, so it makes sense that gold should find some support down at the $630 level on this current trip lower.
However, it will be the rally from that level that we need to watch. Should gold fail on that rally (see the chart of sugar below for what a failing rally looks like), we will have to begin to worry about gold.
Away from the metals, I see that all that talk about ethanol has died down somewhat -- but one of the best-performing commodities last year was sugar, which the Brazilians convert to ethanol. We all know the story. (We should, we've heard it a zillion times.) Yet take a look at the chart of sugar this year. Sure looks to me like sugar is headed back to $14 after having peaked in January/February.
Crude oil is more like gold, in that it hasn't done anything wrong yet. I keep wondering if that is because these two commodities are now being traded by equity folks and not just traditional commodity traders. But be that as it may, oil is caught in a triangle pattern at present and we can't pick on it just yet except in the short-term. I am not yet convinced the oil chart will be heading back up anytime soon. First it will have to prove it can hold.
In sum, it appears to me that the fear of inflation should have been back in February and March when the CRB was bottoming, not in May when the CRB was peaking. Clearly the
should have been worried well before May 10.
All this inflation talk has also taken its toll on consumer confidence, as well as traditional stock market sentiment readings. The American Association of Individual Investors published their weekly survey this morning showing the highest percentage of bearish investors (50%) since a few weeks before the lows in the spring of 2005. There were only 28% bears when that CRB chart was launching upwards.
Financial markets anticipate; humans react. The CRB peaked just as investors were reacting to the inflation readings. And now folks appear to be turning bearish, after the equity markets have taken a fall.
Commodities: Correction vs. Market Top? by Guy Lerner
With gold and oil still in bullish uptrends and the dollar in a bearish downtrend, I would find it hard to believe that this is a market top for commodities.
From a technical perspective, this has the appearance of a correction within a bull market. I tend to look at longer-term charts (i.e., weekly and monthly), and I see little technical damage for the commodities that I follow.
My Two Cents on Commodities, by Robert Marcin
I agree with Cramer, the commodity decline is a good thing. I have maintained for some time now that commodity prices were sending false signals due to increasing speculation. After the break, the Fed becomes concerned?
Wouldn't it be ironic if their excessive rate hikes gave us a sloppy economy just as the commodity bubble was bursting?
I recently read that Alan Greenspan continues to forecast a flattening housing market, but no rout. As good a reason as any to bet on a housing-market plunge, I think.
Copper: Take It to The Limit, One More Time, by Howard Simons
A few thoughts on copper after the dust had cleared. First, it is critical to remember New York is not the central market for copper -- London is, followed by Shanghai. Whatever happens in New York is a tail on the dog. If I had a sarcastic bone in my body, I might suggest New York copper is there so the children have something to trade.
So, why do they have a limit at all when the cash market does not? This is a vestige of the bad old days in the futures markets when a largely retail clientele was duking it out with floor traders. The limits were there not to protect the retail traders, but rather the floor.
But limit moves scare the newbies and, I take it, various hyperventilators on TV. You could always get "out" on a limit day, either by trading a spread against an unlimited month or by trading an option-based synthetic future. Either alternative provided the floor with a little pocket change at your expense.
The politics of financial markets also dictate limits; the exchanges never want to get blamed for causing volatility. Think back to the 1987 crash, the 1989 mini-crash, etc. That's how we got the silly circuit breakers; initially, these were set at 50 points on the
Dow Jones Industrials
, at which point "sidecar restrictions" went into effect. They stopped that after most restrictions came on up days.
It was not until the debacle of Oct. 27, 1997, when the market was shut in the last hour that they expanded the stock limits.
The CME had various opening-range limits on both its stock index and its currency futures, as if the opening of currency futures in Chicago had any significance to a 24-6 market.
Limits create artificial targets for those inclined to run stops. They create -- not suppress -- volatility. And they fail to transfer positions from weak hands to strong ones. There are too many tourists in the metals markets right now.
As the soon to be 64 Paul McCartney might have penned in a younger day, "Bang, bang, Maxwell's copper hammer came down upon their heads."
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made.
Guy Lerner is an anesthesiologist and freelance writer who trades for his own account.
Robert Marcin is the founder of Defiance Asset Management, a private investment management firm.
Helene Meisler writes a daily technical analysis column. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill.
Howard L. Simons is president of Simons Research, a strategist for Bianco Research, a trading consultant and the author of
The Dynamic Option Selection System