By Scott Rubin
One of the drawbacks of the fast trading, short-term mentality that is pervasive on Wall Street today is that it is very easy to lose sight of big picture trends that in hindsight will look rather obvious.
Nowhere is this more apparent than in the commodities market, where, despite a beautiful and long-term trend, we are constantly bombarded with worries about a "bubble" in gold and silver, or Chinese rate hikes, or a strengthening U.S. dollar.
If you listen to the day-to-day market prognostications and hypothesizing about this market or that market, you risk getting thrown off the long-term trend. Here is a fact - for the most part, we are all guessing. No one knows what is going to happen tomorrow, much less years from now.
The future prices of assets are uncertain. What is not uncertain, however, are past prices and trend. If we look at historical market behavior we realize that these trends occur frequently and can last for a very long time. Therefore, why complicate matters any more than than necessary?
Investors should focus on price action, trade in the direction of the trend, and exit positions only when the long-term trend has been broken. If we follow these general rules, it means that we are able to capture all of the major price moves in markets and remove much of the day-to-day emotional volatility from our decision making.
Investors and traders who follow this line of thinking are likely aware of the potential super-trend in commodity prices that is underway right now and may last for years to come. Below I have summarized the year-to-date as well as three-month performance of some popular commodity ETFs as well as Freeport-McMoran (FCX), which is a good way to play copper prices. If you believe in trend following, it is obvious which side of these markets you should be on.
United States Oil Fund ETF (USO) -4.05% YTD, +12.88% last 3 months
SPDR Gold Trust ETF (GLD) +26% YTD, +10.71% last 3 months
iShares Silver Trust ETF (SLV) +68.75% YTD, +44.76% last 3 months
Freeport-McMoran (FCX) +33.95% YTD, +39.75% last 3 months
PowerShares DB Agriculture Fund (DBA) +12.71% YTD, +12.45% last 3 months
Disclosure: No position.