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.

2 comments:

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...

Brett

You have any positions still on?

Thanks Ken

Watching Yen

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