Commodities on the Decline

A belated and abbreviated post today, as Macro Man's been busy dealing with both market and non-market issues. Keeping to the former, he's feeling a bit like Double-Down Trent from Swingers today, high-fiving Sue: "it's on, baby...it is so on....."

Risk assets of every description (other than Chinese equities, natch) are dumping this morning, for reasons that aren't immediately obvious. Perhaps it's the Indian budget (who said 6% plus budget deficits were just for Anglo-Saxon economies?) or perhaps it's just technical selling.

But it looks like commodities are breaking down (Dec 2009 crude looks awful)....

.....and equities are washing with Head and Shoulders this morning.

Macro Man has expanded his balance sheet, so to speak, this morning, by layering additional "risk-off" trades while increasing the delta of one of his "risk-on" hedges.

888, give or take, looms large on the SPX, as it's both the head and shoulders neckline and the 200 day moving average. A break (and futures are currently discounting a gap open just below the level) could bring some of Macro Man's fellow bears back to the party.

If so, Macro Man might have to consider doing more than just repeating Double-Down Trent's line.....

Comments

[Larry House:]

Investors are once again considering fundamentals, and they continue to be poor for commodities and for stocks in general. This is a time for caution and patience.

Jul 06 10:39 AM

[cameroni:]

You seem to be right Macro Man. It is not often you such a divergence between the daily changes of US markets and the TSX. But today the commodity heavy TSX was weighed down heavily by oil, gold and miners. Oil in particular led the way taking the index down over 3% at one point in the early afternoon while the Dow made a very small positive gain.

Could this all be related to news out of China that they will back off on stockpiling commodities or is it based on traders renewed belief that this recession will in fact turn into a full blown depression disrupting all the worlds economies.

Commodities are a great way to store and protect wealth if we actually were to go inflationary but that is clearly not yet occurring. At least not yet. I am guessing liquidity will start to be released into the US economy in a significant way once the decline in real estate values has stabilized and risk tolerances to lending have changed for the better. That still suggests inflation as a major future risk despite signposts pointing the other way.

In the meantime, a general commodity decline may present good buying opportunities if you do believe in an inflationary future. I would wait and watch for a while yet.

Jul 06 08:05 PM

[Fighting Yoda:]

Commodities and financials took the market up in this rally - they will bring it down - both sectors have started coming down - so some (lot) ways to go still. Yes China has stocked up as much as it could - you run out of space for bulky stuff like oil and iron ore etc (in addition to storage and transportation costs).

Jul 06 08:13 PM