Thursday Outlook: Commodities, Global Markets

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Now from the “if it ain’t broke, don’t fix it” category come forth the idiots from the CFTC. Today these clowns issued a press release as noted here that the agency was going to withdraw its position limit exemption for ETFs such as DBC, DBA and theoretically DBB. What does this mean? Does it mean innocent investors in these products are going to be screwed because some bureaucrat wants to reinstall a rule rendered ineffective or perhaps even horning in on the action enjoyed by high cost commodity pools and big time players like Goldman Sachs (GS)? Yes it does. Get some scalps of powerless small investors so the big players can continue to play their market manipulative games?

This is a travesty for investors wishing to add unleveraged exposure to uncorrelated asset classes. What’s the rationale? Why now?






















































I wasn’t going to write today but two things happened.

First, I was convinced the market would decline today and inexplicably, it didn’t. I had written subscribers my sense of that but wasn’t going to change any of our positions and didn’t. So staying systematic usually, but not always, trumps emotions and instincts.

Secondly, I’m infuriated by the actions of the CFTC regarding their abrupt and ill-considered treatment of commodity related ETFs like DBC, DBA and the outright intimidation of UNG. Having these issues available to add to conventional portfolios has been a great development for ordinary investors. But, for any investor, reliability and confidence that these securities would continue to do their job on a long term basis is an investment right. For the CFTC to rescind exemption letters that investors relied upon is shocking and without merit. Totally avoided in their consideration is the huge swap derivative market used every day by large firms like Goldman Sachs. They have a seat at the table and small investors don’t. This is both dumb and unfair.

Tomorrow we’ll have more serious news regarding the economy featuring LEI, The Philly Fed and Jobless Claims. Let’s see how they spin it.

Disclaimer: Among other issues the ETF Digest maintains positions in: SPY, MDY, IWM, QQQQ, SMH, XLB, XLY, XLI, XLF, RKH, IYR, XHB, UDN, GLD, DBC, USL, DBB, XME, MOO, EFA, EEM, EWJ, EWY, EWA, EWC, EWZ, RSX, IFN, and FXI.

The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.

Comments

[SeeTheLight:]

Hi Dave,

Yesterday I asked you a question if you are aware of any short ETFs that do not have the decay that results of tracking daily performance. I am getting pretty bearish on the market and I am looking at what I can purchase to profit from a long drawn out down trend. My first consideration was SH (1x inverse S&P 500), but of course you can quickly see by looking at a 1 year comparison chart that even though the S&P 500 is down about 10% YoY, SH is down 20% YoY. Its worse with the leveraged instruments.

I am considering buying UUP (Bullish US Dollar ETF) since I expect the dollar to rally if the bear returns. But I was wondering if there was anything else you would recommend as an investment for a long slow down trend (similar to a 1930 - 1932 scenario).

I will caveat my above statements that I do not necessarily believe that these things will come to pass, but I see bad portents and I want to be able to position myself appropriately in my accounts when the time comes. Until then I am slowly cashing in my longs as the rally continues, which I feel is prudent from a risk reward standpoint.

Good Luck all

Aug 20 05:03 AM

[Dave Wrixon:]

Well somebody is making it up as they go along and manipulating markets accordingly!

Aug 20 05:58 AM

[Dr. O:]

Dave your predicament as a money manager explains in part the failure of markets to sell off. The markets have been moving higher, are in positive territory for the year, and how do you explain "missing this" to your investors. So the dips are bought as managers left behind average in. The market is well bid.

Trends are powerful things, and it takes a catalyst to change the trend. Much has been written about how bad the economy is, the toxic matter still in the banking system, our exploding national debt, etc. But that's public knowledge and already factored into the stock market.

Is it rational? No. Obviously not. For years BAC is 50 and a year later its 6. For years AIG was a giant, then its bankrupt. X went from 180 to 20. Markets aren't rational much. It's greed and fear.

Right now, we're low on the fear factor. And as we've seen the past two decades, markets can go up for years with minimal downward movement until they collapse.

It's a tough game for a rational person. The conventional wisdom is that the markets are poised for a serious tumble, the economy is still on life support, etc. And much of that is true.

Probably best just to stick with the charts and follow the trends. Be systematic.

Aug 20 07:12 AM

[enigmaman:]

Since this rally seems to be all about the dollar reflation trade, company fundamentals are useless, main stream pundit explanations and predictions useless, wall street market makers appear to in cahoots ( Ill scratch yours if you scratch mine) with the Fed working their magic, where would one go to learn about how to play this game, learn something about the dollar, commodity, treasury auctions, which main charts to watch etc

Aug 20 08:07 AM

[fjd10595:]

Is this what you meant to say:
"The bottom line—“ours is not to reason why, ours is but to do and die.”

Or this:
—“ours is not to reason why, ours is but to do and BUY.”
Frank

Aug 20 08:24 AM

[aqua:]

monster buy program hit when rumors of "2nd stimulus bill in congress" swirled - nothing to do w/ energy, tho cnbc may have attibuted it to somesuch nonsense.

option expiry drives things a bit too, when it's this quiet & low-volume.

Aug 20 09:00 AM

[robert.b.fe...:]

Buy to hold investors are bottom fishing and hunkring down. Traders are buying dips and selling spikes. Options traders are, well options traders. Commodities traders are just plain confused as the rules are fluid at this juncture. Rational market? Not a chance.

Aug 20 09:03 AM

[AuGod!:]

This may be the harbinger of policies which are more comprehensively bad.

Aug 20 09:35 AM

[MichaelAK:]

My general question as a investor in the DBA, DBC, DBB due these revert to a closed end fund which seems to be happening to UNG. Very confussed on the impact of the position limits and agree with David Fry that the CFTC and SEC should be more worred about GS and the boys OTC derivative trading then these ETF's. Getting to the point only thing to do is keep cash, gold, silver bullion and keep a small speculative portfolio to follow the boys game.

Aug 20 10:19 AM

[David Fry:]

Pulling the rug out from under unsuspecting investors certainly shouldn't be the job of the CFTC. These issues are low hanging fruit for the new administration nannies.

Aug 20 10:36 AM

[thechaser:]

how about this am David?

talk about spin.

let the futures lie relatively untouched following asian bounce, but spike a few key commodity equities and some key financials;

set cruise control, dial in a Thursday close at 1003, setup the options Friday small drop, no spike close for Friday, then hello again come Monday off to the nines again in S&P land we go

unreal, but it's what it is

you pondered on yesterday, well I didn't have a house inspection and you should have seen 11:47, I mean, talk about programmed,

i spent an hour or so picking apart the oil report and concluded that the 65% of the inventory drop was not the result of increased demand but decreased import supply, whether its held offshore onboard or farmed and the remaining portion of the drop was seasonal production curtailment

did you hear any "experts" get trotted onto the stage to discuss the details of why such a sharp change from expected "consensus"?

and then this am, the gas report shows the majority of that 1.65% increase in eastern supplies, but any comment from the stage show on this and ties to Conf board and Philly Fed estimates?

i tell you, the size of the magnet under this roulette wheel staggers the imagination

Aug 20 11:04 AM

[AndrewBaker:]

I hung in as long as my nerve allowed and finally sold my FAS, SSO - and my XLF for good measure - today. I do not understand how we've bounced back up like we have, but it's enabled me to get out nicely; making up for some bad leveraged short plays gone wrong earlier this year. I was tempted to stay put with a limit order but shattered nerves and common sense ganged up on me to force me out. If I've left anything, you're welcome to it!

The trend today, up to just a short while ago, said run it, but I need to relax sometime after work, and today I will.

Aug 20 01:22 PM

[Abe Mishima:]

UNG hit an intraday 52-week low for the second time this year. It looks like a 3rd 52-week low will be made in the next week, and if a 4th one is made, then this ETF is history. In spite of this, the volume is there and traders are still buying. Don Dion is signaling DUMP, DUMP, DUMP, as though Mr. Smarty Pants is doing us a favor. I won't be dumb enough to go out on a limb and predict how this is going to resolve itself. A NAV that is 10-12% below share price is not going to curry favor, but what's the big deal? At the gambling table, you pay a premium to play the game. UNG's long term fate could be as follows. CFTC tells all commodity etf's to limit the number of contracts they can hold. The LP redeems some shares at NAV and the longs take a short term hit. UNG rewrites its charter to trade in short and long term ng positions. That one move could remove the overhead and volatility of month-to-month rollovers. Bingo, that's the reason to stay in the fund. Wishful thinking? Yes. But most investing is based on a certain degree of faith.

Aug 20 01:46 PM

[Hmm?!:]

Since the government is not making any real moves to make the economy more efficient................ you count devaluing the dollar.............it may be awhile.

Aug 20 02:40 PM

[SeekingTruth:]

Same old story. When Da Boyz determine that retail market is Bearish enough ,they do the opposite, sometimes accompanied by a big short squeeze preferably, but sometimes without.
Then when its run up to rediculously overbought levels fundamentally and technically , they set things up for the correction they know has to happen -- always has and always will happen, for certain and guaranteed.
Actually it's easier to exploit than a rally, safer too.
Those big computers and all that data and personnel online with the hair triggers, both
manual and automated , DOES make a BIG difference , and they are determined to milk it to the extreme , and why not?.
The difference between them and us is that they have the massive money power and all the connections to move the markets when they can time it right, which is almost all the time, and which is more than enough to pocket most of the money.
They really don't need any more help with the rules, they do well enough already, but then with them, enough is never enough.
And no, the rule changes don't surprise me any, it's all part of a rigged game.

Aug 21 10:13 PM