Friday, March 21, 2008

Back to the Future in Commodities?

Wow - what a crappy week in the commodity markets. The biggest one-week drop in commodities in the last 50 years took place this week - and it wasn't even a full trading week!

I hope everyone is still relatively intact. I am taking some hits myself, but still standing and fortunately still profitable on the year. Thankfully my stops took me out of most markets earlier in the downturn, though, like a drug addict of sorts, I've tried sneaking back in early and have gotten burned accordingly. Stops are something I recently introduced to my strategy - I used to be more of a "buy and hold" guy. I'm really grateful for that, as using my previous strategy, I would have been completely wiped out during this downturn.

Rather than describing the selloff myself, I'll defer to Agora's Dan Denning, who summarized better than I could have in a Rude Awakening article entitled Cold Commodities.

Just for kicks, let's take a look at some of these prices - it almost feels like Back to the Future:

(Please scroll down - not for dramatic effect, but because I couldn't figure out my HTML :))

Commodity Price
Coffee 130.90
Sugar 11.89
Cocoa 2299
Cotton 71.02
OJ 113.05
Corn 507
Soybeans 1207

Two words come to mind - holy crap! These prices - especially the softs - are flat out cheap!

When sugar was cranking up a few months ago, no way did I think we'd ever see it below 12 cents again. And if you were just kicking yourself earlier this year that you had "missed" the big bull run - well you're in luck, opportunity is knocking once again.

I think the question for us now is not if we buy, but when do we buy. I don't have a crystal ball, but pull up one of these charts and take a look - it's not pretty over the past three weeks. I would love to see this selloff continue, proceeded by a nice long bottom, and a slow but steady rise back up. Of course, markets rarely cooperate with what we want :)

Just remember that billions of dollars have been lost trying to catch the exact bottom or exact top. I would be surprised if these prices are not significantly higher in the next 2-5 years (due to fundamental supply/demand issues that I outlined here).

We've got a lot of upside to catch here - so let's dust ourselves off, be grateful for what we have left in our portfolios, and grab the horns for this bull's next leg up.


spreadtrader said...

Good to hear

Softs all resting on previous breakout levels - coton/coffee - totally agree with your hoped for scenario - but likely will do a triangle patern of sorts before moving higher

Buy now and it could be months before we get upside traction - or buy and hold out?

Ken said...


You have any positions still on?

Thanks Ken

Watching Yen

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