Tuesday Outlook: Commodities, Global Markets

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This was a well anticipated rally today given how quickly oversold we had become. Now, earnings will have to come through. If bulls can spin crummy earnings as “better than expected”, the previous rally can resume. But, there’s something troubling about all this and I haven’t been able to put my finger on it other than the obvious. We continue to experience light volume rallies followed by heavy volume selling. This tells me this is just a game of the pros picking each other’s pockets. It’s a dangerous situation for innocent investors to wade into.

I’m sure everyone out there has moved at one time or another. We’ve been living out of suitcases for the past five months. Three months in a temporary rental in Baltimore and then two months of the same in New Hampshire was getting pretty tiresome. This weekend we moved into the house we purchased. It’s an exhausting process as you know. Every bone in this old body aches and that’s just carrying my toothbrush. Wednesday the movers come and hopefully by week’s end we’ll find ourselves finally settled. I’ll post on Tuesday but then not Wednesday.

In the meantime, I got a kick out of this Dave Barry quote today: “See, when the government spends money, it creates jobs; whereas when the money is left in the hands of the taxpayers, God only knows what happens to it. Baking pies probably—anything to avoid creating jobs.”

Earnings watch is coming and let’s see what happens. You can always follow us on twitter if I’m diligent.

Disclaimer: Among other issues the ETF Digest maintains positions in: VTI, XLF, IEF, TLT, DBC, UDN, GLD, EFA, EEM and EWC.

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

[Dr. O:]

>>Oct. 6 (Bloomberg) -- Stocks rose around the world and commodities rallied as Australia unexpectedly increased interest rates, the first Group of 20 nation to do so since the recession began, amid evidence the recovery is gathering momentum.<<

As the US Dollar slides commodities rise (GLD, SLV, USO, JJC), stocks rise (EWZ, SPY, EWG, EEM, etc.), and of course foreign currencies rise (FXA, FXE, etc.). The question is one of beta.

The best beta for your declining buck has been stocks, or select commodities like sugar, oil, silver, etc., and in last place except the Aussie Dollar is currency. Oddly enough, the lowest beta play is the declining dollar itself.

It's a strange financial world. It doesn't help that there have been reports that oil producing nations are "secretly colluding" to denominate oil in something other than the US Dollar. Apparently, that will decrease the demand/value of the USD further.

Which leads to my "aha!" moment. Inflation won't be caused by a surplus of cash chasing a limited supply of goods (although we see this already in commodities, stocks, and bonds). Inflation will be caused by the rise in prices for imports and commodities due to the decline in the US Dollar.

The combination of a weak economy, high unemployment, and rising inflation could revive the so-called "misery index" of the 70's: the sum of unemployment plus inflation.

Oct 06 07:05 AM

[unfaire:]

I have been wondering how the computers or Hal 9000 whoever they are are programmed to make money on the way down. It looks like they behave crumsily in a down market than up market. We have heard so much about how to forerun a buy oder but haven't heard much about forerunning a sell order.

Oct 06 07:52 AM

[robert.b.fe...:]

Thank you David great job as usual and congrats on the house hope you enjoy your new digs. So now we are talking about a non stimulus stimulus while the Aussies are beginning to unwind their stimulus which actually was a stimulus. Am I getting this straight? Seems more like the twilight zone than the trading zone. When will we quit playing word games and actually get down to business?

Oct 06 09:39 AM

[David Fry:]

Financial gamesmanship. Is this a new word game description?

Oct 06 10:03 AM

[SageNot:]

Yes David, congrats to you & your lovely wife on your new home, pls. give her my best for her successful fight against the Big "C!"

Bless you both.

Oct 06 10:55 AM

[gmc_wants f...:]

horse manure...oversold??? how can you even say we are oversold?? even on a short term level?? overbought and oversold conditions don't apply anymore than buying and selling on full moons...on a 6 month scale we are extremely overbought...classic case of trying to answer a rhetorical question..there is no answer..it just is

Oct 06 11:10 AM

[AndrewBaker:]

Everything is correlated because everything is being bought in preference to negligible interest earned on cash, and nothing to do with any recovery.

I've got my positions, long and short, which I'll run until they hit a stop-loss or take profit, but I'm reluctant to commit any more cash, except maybe to buy more gold. As I posted some days ago, even the good stocks will fall in price when the real reversal comes, which has to be sooner rather than later. Or, if not, then there will be a 1987-type drop further down the line.

Oct 06 11:35 AM

[Karl Liesman:]

It really depends on what you are looking at. Indicators are going both ways, oversold shortterm, overbought medium term, hence the two day bounce. Earnings season will be interesting though.


On Oct 06 11:10 AM gmc_wants free money!! wrote:

> horse manure...oversold??? how can you even say we are oversold??
> even on a short term level?? overbought and oversold conditions don't
> apply anymore than buying and selling on full moons...on a 6 month
> scale we are extremely overbought...classic case of trying to answer
> a rhetorical question..there is no answer..it just is

Oct 06 12:25 PM

[Mad Hedge F...:]

fty Of course you knew it was going to happen like this. After churning around just below the old high, and sucking in as many profit takers and short sellers as possible, gold blasted through to a new high for the year of $1,038. Never mind that the triggering event is complete balderdash, a story in Britain’s Independent newspaper asserting that the Middle East is holding secret global talks to price crude in the yellow metal or other currencies (click here for story at www.independent.co.uk/... ). It didn’t hurt that Australia cut its interest rates by 0.25%, the first G-20 country to do so. There probably isn’t enough gold in the world to finance more than a few weeks of global oil production. Total gold holdings would only fill two Olympic sized swimming pools. But never let the truth get in the way of a good trade. The confirming moves couldn’t be more ubiquitous, with the Canadian, New Zealand, and Australian dollars all up big, commodities strong, and silver also going ballistic. Regular readers will all recognize these as old friends of mine, core longs that I have been strongly recommending since the beginning of the year. I have been trying to get investors into gold since it was at $800. If you aren’t in gold by now, I can only tear my own clothes and flagellate myself for my abject failure to convince you of gold’s merits. US government debt is exploding, and with foreigners holding a large part of our paper, the only way to get out of this mess is to devalue the dollar. It’s like Obama invited China’s president Hu Jintao to dinner at an expensive Upper East Side restaurant, and was suddenly called away by a crisis, leaving him with a big fat bill. Next stop $1,200, then $1,500, then the old inflation adjusted high of $2,400. If you want me to help you get set up to trade futures in any of this stuff, please email me at madhedgefundtrader@yah... If you want to know where to buy physical gold and silver in size with the tightest spreads over spot, check with the experts at www.millenniummetals.net

Oct 06 02:10 PM

[Dr. O:]

I've been waiting for gold to "break out" for 2 years. Is it a false break out? Time will tell. I have to been involved though. Long GLD, GLD calls, SLV, and SLV calls. Didn't do poorly the past few days in SSO and QLD either. I'm not "bullish" but you have to respect a trend. I'm aware the market has been showing some distribution lately, but we bounced right off the 50 DMA.

Oct 06 04:30 PM

[gmc_wants f...:]

really?? oh i had no idea..of course everything is relative...but my point is that these indicators are not a reliable source to make stock decisions on..my point is hind sight is 20/20..any one can be a monday morning qb...if the snp dropped 20 points then you'd see articles saying "profit taking" or correction or over bought... as human beings we yearn to explain events.....but the market is not like that..it just is...


On Oct 06 12:25 PM Karl Liesman wrote:

>
> It really depends on what you are looking at. Indicators are going
> both ways, oversold shortterm, overbought medium term, hence the
> two day bounce. Earnings season will be interesting though.

Oct 06 05:04 PM

[absolute re...:]

I am relatively new to the Seeking Alpha site. I am following David Frye, great stuff, Ron Rowland, Phillip Davis, John Peterson and David Brown (really good information weekly). There is so much here that I was just wondering if David or any members had advise for someone like me on who else to follow.

Thanks in advance.

Oct 07 10:34 AM